The Warwick MBA

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Submitted by: Syndicate Group 3: 0660002 0660005 0660027 0660028 0660045 0660089 0660109 5 December 2006 Market Analysis

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Fulltime term-based

5-day Module Evening Distance Learning

Autumn term 2006 8 December 2006 13 Write a report on a Marketing Success Story of a company/product/service

Date/Year of Module: Submission Deadline: Number of Pages: Question:

All the work contained within is our own unaided effort and conforms with the University's guidelines on plagiarism.

Red Bull A Marketing Success Story

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Table of Contents
1. OVERVIEW3 2. INDUSTRY POSITIONING..4 3. MARKET STRATEGY .6 3.1 BRAND POSITIONING 8 3.2 SALES STRATEGY...9 4. CUSTOMER FOCUS.9 5. KEY RELATIONSHIPS10 6. THE CHALLENGES 12 7. CONCLUSION12

Figures
Figure 1. Red Bulls Evolution of Turnover 1996 to 2005 .5 Figure 2. Examples of competitor products. 6 Figure 3. Red Bulls Strategy Pathway (Adapted from Nigel F Piercy, Warwick Business School). 7 Figure 4. One product, one brand provides focused marketing 8 Figure 5. Red Bull builds deep and personal relationships 11

Red Bull A Marketing Success Story

1. Overview Red Bull leads the pack

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Red Bull is undoubtedly one of the marketing success stories of the last decade. Today, Red Bull is the number one energy drink brand, number two in the functional drinks ranking and in the top twenty of the soft drink industry ranking.1 The company has achieved this by creating a new market space for the energy drink, breaking all the traditional rules of marketing and creating new rules to retain its leadership position in the energy drink market. Red Bull has challenged the status quo and embraced what Nigel F. Piercy (2002) refers to as a new marketing 2 approach in taking their product to market and delivering superior customer value. Non-conformist, revolutionary, multi-faceted and anti-brand are all the terms that have been used to describe Red Bulls marketing approach.3 Furthermore, Red Bull has strengthened its competitive advantage by building deep personal relationships with its customers, collaborators and co-workers. With a proliferation of new entrants and copycats, Red Bull has managed to hold its leading position by constantly reinventing itself and thinking out of the competitive box. The manner in which Red Bull was founded and marketed by Dietrich Mateschitz, the originator of the energy drink sector in the soft drink industry, can be labelled as entrepreneurial marketing according to Philip Kotlers definition
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According to Kotler,

entrepreneurial marketing is a company started by an individual(s) who visualise(s) an opportunity and knocks on every door to gain attention. To do this, taking into account that Red Bull had a limited budget for marketing, the company used guerrilla marketing5 to build the brand, which is an unconventional way of performing promotional activities on a very low budget. Such promotions are sometimes designed so that the target audience is left unaware they have been marketed to and may therefore be a form of undercover marketing. To ensure that word about Red Bull was spread to its initial target market, in the early days viral marketing/buzz marketing or what Red Bull refers to simply as grassroots marketing was used. Methods such as product sampling and the creation of brand ambassadors, targeting young and trendy night clubbers were used on a local level to support this innovative marketing approach. Red Bull also targeted mainstream sports professionals and extreme sports athletes, seizing the opportunity to establish itself as the energy drink for all sports personnel regardless of discipline.

1 Euromonitor 2005 Energy Drink Sector Report 2 The Marketing Review, 2002,2, 385-404 Market-Led Strategic Change, Nigel F. Piercy 3 Contagious Case Study Red Bull, April 2006 4 Phillip Kotler Marketing in the Twenty-First Century, Chapter 1 5 Guerrilla Marketing, Jay Conrad Levinson, 1982

Red Bull A Marketing Success Story

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On a business trip to Thailand, Mateschitz, an erstwhile toothpaste salesman, discovered that the Thai tuk-tuk (taxi) drivers drank a tonic to keep them energised and alert throughout the day. The drink he discovered was called Krating Daeng which means Red Gaur in Thai6. Having drank the tonic to get rid of his jetlag and experiencing its functional benefits first-hand, Mateschitz knew he had a winning formula. After some alterations to the recipe, and a flavour modification for the European market, he invented the Red Bull energy drink focusing on the derived benefits of increased performance, concentration and reaction speed,. Market research conducted at the time of the launch of the product, served only to show that people didnt believe the taste, logo or the brand name. Despite this disastrous result, Mateschitz was convinced that there was a market for this product. He understood that lifestyles had changed and that people were looking for an alternative to coffee to help keep them awake and alert. Young people were looking for something to help them to party longer and business personnel were looking for something to help them survive the long hours in the work environment. It was the functional benefits of the drink that spurred him on to pursue an alternative marketing strategy to deliver these benefits to this initial target market.

2. Industry Positioning Red Bull strengthen their market position

Red Bull has at least 70% market share in every national market in which it operates, i.e. over 100 countries world wide.7 As a market leader in the energy drink sector in the soft drink industry, Red Bull has a turnover of 1.67 billion in 2005 (see figure 1). This year, it continues to be one of the fastest growing competitive markets out of which the energy/functional drink sector is one of the fastest growing sectors. The sectors sales almost trebled in 1999 and it is expected to continue its growth by 30% in 2006.8 On April 2006, Red Bull further strengthened its market position by being the first energy drink to be crowned National Science Foundation (NSF)s Certified for Sport9. This certification means that Red Bull will bear the NSF Certified for Sport mark on the label to show athletes, coaches and consumers that this dietary supplement or sport nutrition product has met NSFs stringent criteria and removes the fear for the whole sports fraternity of Red Bull containing any banned substances, a major coup for any beverage. This further solidifies its leadership status in the energy drink sector.
6 http://en.wikipedia.org/wiki/Red_Bull (accessed 7 Nov 2006) 7 Euromonitor 2005 Energy Drink Sector Report

8 http://www.just-drinks.com/article.aspx?art=313&type=2, Euromonitor (accessed 7 Nov 2006) 9 http://www.beveragedaily.com/news/ng.asp?id=67095-red-bull-sports-supplements-energy-drinks (accessed 7 Nov 2006)

Red Bull A Marketing Success Story

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Figure 1 Red Bulls Evolution of Turnover, 1996 to 2005 The success of Red Bull and the rapid growth of the energy drinks sector led to an onslaught of new competitors. Their main competitors are Anheuser-Busch (180), CocaCola Co. (Burn and KMX), and Pepsi Cos Pepsi (Amp) (see Figure 2). These companies accounted for about 17% market share in Europe10 where Red Bull itself accounts for 80%. Outside these main competitors, Red Bull has also had to face some copycat manufacturers. For example, in 2002, a look-a-like Live Wire brand was founded and went out of business two months prior to the courts ruling. Similarly, Futuristic Brands, Ultra Premium Brands, and Villemart Holdings were hinged on trademark and trade press infringement, unfair competition and dilution in connection with the Mad Croc energy drink in 200411. Red Bull has maintained its competitive positioning differentiating itself from its competitors by building a powerful global brand with a very strong customer focus. The company supports a wide range of sponsorship properties which have been chosen on the basis of their reflection of Red Bulls brand beliefs of innovation, inspiration and individuality. These sponsorship properties range from extreme sports, fashion, stunt related film awards and break-dance competitions to music academy and arts exhibitions. Through these sponsorship properties, Red Bull is able to demonstrate the functional benefits of the drink, i.e. it stimulates body and mind. As a result of Red Bulls
10 Euromonitor 11 Euromonitor

Red Bull A Marketing Success Story

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success, the drink has been copied by more than 100 competitors, but companies such as Coca-Cola and Anheuser-Busch have been unable to take any significant market share away from Red Bull.12 Figure 2 Examples of competitor products

3. Market Strategy Red Bull is not just a drink, its a lifestyle

Since its inception, Red Bulls successful market strategy and process of going to market has revolved around the companys ability to think outside the competitive box by focusing on customers through innovative branding and sales and distribution strategy. Red Bull has consistently challenged the traditional way of going to market and created new ways; continuously evolving the brand positioning; as well as understanding and managing its key relationships, building a sustainable competitive advantage in the energy drink market (See Figure 3).

Create new ways of going to Think out of market the competitive box

Understand and manage key relationships Continuously evolve brand positioning Strategy Pathway

Build a sustainable competitive advantage!!!

12 Gerhard Gschwandtner, Ulrich Grill

Red Bull A Marketing Success Story

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Figure 3 - Red Bulls Strategy Pathway (Adapted from Nigel F Piercy, Warwick Business School) In its quest to provide superior customer value, Red Bull, initially built its brand through non-traditional advertising routes. At the time of launch, Red Bull did not use billboards, banner adverts, taxicab holograms, or blimps. Instead a buzz-marketing or viral marketing strategy was used, that steered consumers to exclusive and exciting events that got high media coverage.13 Mateschitz explained, We dont bring the product to the consumer, we bring consumers to the product.14 As the market matures and new players come to the fore, Red Bull has had to review its market strategy slightly and adopt some more traditional marketing tools. It has further established its brand positioning by expanding its sponsorship portfolioutilising brand and product advertising as well as celebrity endorsements at no fee. Whilst the former is true, sensing a new opportunity in the growth of the popularity of soccer in the U.S., Red Bull is planning to pay endorsements to world renowned football celebrities such as, David Beckham and Ronaldo to strengthen its association with fringe sports, further building the brand identity, with the hope of pulling sales through in this huge market. Continuing with its theme of active participation in sports, Red Bull has also bought the Metro Stars soccer team in New York, renaming it New York Red Bulls. Red Bulls brand advertising is consistent worldwide. Cartoon-like characters flapping their wings and the tagline Red Bull gives you wings have been used to reinforce the brand identity to customers. In addition, the brand image Red Bull is not only a drink, its a lifestyle has also created value to customers. In terms of attracting new customers and enhancing consumer loyalty, Red Bull has a more effective branding campaign than Coke or Pepsi. said Nancy F. Koehn, professor of business administration at Harvard Business School. By drinking Red Bull, customers are able to associate themselves with an inspirational lifestyle created by Red Bulls links with top world athletes and extreme sport professionals. Customers are also able to demonstrate their creativity through fashion, music, dance and art, thus Red Bull creates superior customer value through its marketing assets and brand.

3.1 Brand positioning Red Bull is hip and trendy to drink

From its inception, Red Bull set out to build youthful, hip and trendy energy drink brand by infiltrating those occasions, where its functional benefits would make a difference. This
13 Selling Power The Powerful Sales Strategy behind Red Bull, September 2004 14 Gerhard Gschwandtner, Ulrich Grill BOOK? WHERE? NAME?

Red Bull A Marketing Success Story

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could be a young, hip and happening college or rave party an extreme sports event or long distance truck driving and late night office working. Having one product as opposed to a portfolio of products; one brand as opposed to an umbrella brand the business model used by its competitors, - Red Bull differentiates its marketing concept by creating a competitive edge (see figure 4). In developing Red Bulls brand equity, the company leveraged those initiatives that enabled it to build Red Bulls brand belief of innovation, inspiration and individuality. Red Bulls cartoon characters in its commercials demonstrates the brands personality of unpredictability, cheekiness, uniqueness, non-conformist, intelligence and innovation. Figure 4 One product, one brand provides focused marketing

Product Benefits

Brand Benefits

ONE PRODUCT

Improves performance Increases concentration & reaction speed Improves vigilance Stimulates metabolism

Innovation

ONE BRAND

Inspiration Individuality Stimulates not just body but the mind

FOCUS!!!!!
3.2 Sales Strategy Red Bull builds a cult following
One of the key drivers for the markets passion for Red Bull has been the companys lack of aggressive in-your face push tactics, price-offs, and instant ubiquity, so often practiced in the beverage category. Red Bulls strongest asset is its pull sales strategy which hinges on a cult like following by its consumers, bar staff and other stakeholders. Letting the market participate in its marketing, referred to earlier on as grassroots marketing and sampling, viral or buzz marketing, may have evolved out of necessity in the beginning, but it has turned into its most powerful marketing tool.15 Red Bulls sales marketing strategy is designed for the subconsciousness of the customer. Its sales tactics seduce, making the consumer feel in charge. One major
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Speed-In-A-Can the Red Bull Story, Alex Wipperfrth, 2003

Red Bull A Marketing Success Story

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seduction tactic the company has used is exclusivity. When operating in a new market the company makes it initially hard for the market to experience Red Bull, using scarcity as a marketing strategy to fuel demand. When Red Bull comes to town, they initially select a handful of trendy, exclusive outlets to sell the brand which is a tactic counter to those typically applied in beverage industry where large competitors typically flood the market with their product, concentrating on high market penetration by being present in every neighbourhood shop or outlet. Through word of mouth and free sampling, Red Bull sets its grassroots ethic into motion with a simple, yet masterful marketing force: student brand managers or student aviators. In Europe, collegiate buzz junkies have been successfully addicting friends and classmates for years. Red Bull provides the student representatives with free cases of its energy drink and then encourages them to throw a party.

4. Customer Focus Red Bull treats its customers like partners

Achieving customer focus means finding out what value means to different customers; knowing more about the customers than the competition and exploiting that knowledge; as well as listening to and learning from the customers. Red Bull has been able to cash in on this knowledge by taking the customer seriously and has thus uncovered new valuecreating opportunities which have resulted in a cult-like following by customers providing Red Bull with competitive advantage. Red Bull understands that the energy drink means different things to different people, and caters for different occasions. But Red Bull even takes it a step further. Every stakeholder is treated like a consumer. When Red Bull initially launched in the U.S, they focused their pre-seeding efforts on New York City, where the brand was already hyped by the citys large European influence. The first thing it did was make the product available under the radar to bar staff of hip on-premise accounts, to let them experience the energy boost on the job, and basically treat them preferably to consumers before they purhased the product to sell on to the bars regular customers surely a first. The product was delivered by cabs initially (getting the support of taxi drivers along the way), and Red Bull became an instant hit with these tastemakers, and invaluable influencers of bar call choice. Making the customers feel comfortable has been of great importance to Red Bull in gaining customer approval. Red Bull ensures that consumers do not feel pressured into drinking Red Bull in a certain way. For example, during the sampling process, a full and

Red Bull A Marketing Success Story

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closed can is always provided, so that consumers can decide when and how much to try, a very refreshing hands-off approach, that ensures that lead consumer groups experience a closer connection to the brand and feel like a true partner to the company.

5. Key Relationships Red Bull builds deep personal relationships

Delivering superior customer service and unique value proposition effectively means building key relationships with customers, collaborators, co-workers and at times your competitors and contingents. (See figure 5 Red Bull builds deep personal relationships) In building relationships with its customers, Red Bull has adopted a participation marketing16 approach without using gimmicks and freebies. It is one of the very few brands that understands how much more valuable a deep personal experience and peer endorsement is than an advertising campaign, even though a truly orchestrated guerrilla campaign can be much more expensive than any broadcast media.17 Figure 5 Red Bull builds deep and personal relationships

Collaborating with distributors, pubs and bar tenders and treating them as their business partners, provided Red Bull with access to their market. The collaboration with bar tenders, in fact provided Red Bull with a basis for their competitive advantage within the energy drink sector. The bar tenders created new uses and rituals for Red Bull. The legendary cocktail, Stoli Bully, which comprises of Red Bull and Vodka, was introduced across Europe and today its rumoured power ecstasy is experienced all over the world. Alex Wipperfrth (2003) said: Red Bull s sales force could have never dictated a signature drink to bar tenders. But by targeting on-premise distribution at trendy night spots, they were able to facilitate the product usage evolution of its brand by its early market.

16 Speed-In-A-Can the Red Bull Story, Alex Wipperfrth, 2003 17

Speed-In-A-Can the Red Bull Story, Alex Wipperfrth, 2003

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Red Bull A Marketing Success Story

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For any companys business strategy to succeed, is dependent on its internal relationship, getting the buy-in from its co-workers to deliver on its plan. Red Bull ensures that every employee knows the companys mission which is carried through the organisational structure with a dedicated education and coaching approach. Red Bull staff are employed on the basis of personal passion, entrepreneurial spirit and nonconformism. This has been demonstrated by the founder, Mateschitz who only works three days a week in order to participate in extreme sports which his brand endorses. Furthermore the street brand managers and the sampling team have a habit of pitching up at youth parties in the early hours of the morning to offer the partygoers a much needed energy boost. Having competitors such as Pepsi and Coca Cola and keeping in mind the potential for new entrants to the energy drink market, Red Bull has come to realise that in order to retain their market leadership, there is a need for constant reinvention. Red Bull has done this by breaking all the rules and devising new rules thus making it hard for its competitors to gain market share. Furthermore the company has kept competitors in the dark in terms of its recipe by never entering industry awards such as the prestigious IPA Effectiveness Awards which require a thorough description of the ingredients and marketing effort.

6. The Challenges Red Bulls brand challenges

Red Bull is no longer in the introductory stage of its brand life cycle it is a mature brand. The companys biggest challenge now is to manage the brand over time as more and more players enter the energy drink market. Red Bull needs to build the strength of its brand and still ensure that it maintains customer and stakeholder value in its marketing efforts while further building the brand equity. Recently in the media, there have been health issues raised about the energy drink, to the extent where certain supermarket chains have withdrawn the product from their stores. The energy drink is set to cause electrolyte disturbances, nausea, vomiting and heart irregularities. After being linked to the deaths of three consumers, it has been linked to a number of other health concerns regarding glucuronolactone, a precursor of taurine. The sale of Red Bull as a normal soft drink is prohibited in Denmark, Norway, France and Uruguay. Even though the ingredients of the product are spelt out clearly in the companys website, Red Bull needs to manage this to ensure that it does not damage the brand image. Despite this, Red Bull is countering this negative press by becoming the only energy drink in Canada to be authorised for sale as a natural health product and

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Red Bull A Marketing Success Story

bears a natural health product number (NPN).18

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Continuing to retain existing customers and acquire new ones is another challenge facing Red Bull. Even though no other company has come up with a better product to date, customers will soon be spoilt for choice with Coca Colas latest energy drink launch, Sprite 3G which is said to have an appealing taste.19 It remains to be seen whether Red Bull will continue to grow its market, maintaining high market share whilst sustaining its leadership position in the energy drink market.

7. Conclusion - Key Learning Points

The Red Bull marketing success story has demonstrated the importance of understanding the market and providing consumers with a compelling value proposition. Despite a disastrous start, Dietrich Mateschitz explored the potential of promoting the functional benefits and in doing so discovered a market niche, under-girded by an understanding that the last thing his target market - partygoers, sport athletes etc- want is coffee to keep them alert and full of energy. Given that the company began by operating on a cash flow basis as opposed to debt, thus having limited marketing spend, Red Bull has used this to its advantage, adopting a clever and innovative marketing approach. It broke the traditional rules of going to market and developed an innovative marketing strategy to create product and brand awareness by targeting opinion formers and trendsetters in the youth market as well as individual extreme sport athletes. Red Bull has been able to form deep and personal relationships with consumers and co-workers alike. These relationships gave birth at an early stage to what can only be labeled as their brand evangelists and these brand evangelists have been spreading the gospel according to Red Bull ever since.

18 http://en.wikipedia.org/wiki/Red_Bull#Potential_health_risks
19 Contagious Case Study Red Bull, April 2006

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