Red Bull

How a company gave wings to the energy drink market


Red Bull: How a company gave wings to the energy drink market
Red Bull
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I. Red Bull: The brand that created the energy drink market

Dietrich Mateschitz was inspired to start Red Bull in the 1980s on a trip to Thailand, where he tried a functional beverage (a health or energy drink) for the first time. He began selling Red Bull in 1987.

  • Mateschitz, who often traveled for work, learned about a functional beverage that could relieve the fatigue of long flights and jet lag, and he was surprised at its effectiveness. Later, on a trip to Thailand, he met Chaleo Yoodvidhya, who was developing and selling a drink called Krating Daeng. It was a kind of restorative drink made with sugar, caffeine, and taurine, and caffeine. It had appeared on the market in the 1970s and was very popular for its effective fatigue relief.
  • In 1984 Mateschitz acquired the rights to sell Krating Daeng outside of Asia. He translated its name into English as ‘Red Bull.’ He then created Red Bull’s symbolic silver and blue can design and a simple logo of two bulls charging at each other.
  • Mateschitz spent a year and a half reviewing dozens of ideas and suggestions for his company slogan and finally decided on ‘Red Bull Gives You Wings.’ He also adjusted the flavor of the drink to suit western tastes. However, market research showed that, excluding a very small number of customers, the majority of people reacted negatively to the brand name, logo, and flavor.
  • Despite these poor results, Mateschitz and Yoodvidhya founded Red Bull Trading GmbH (GmbH is a designation for private companies in German). Red Bull received approval from the Austrian business authorities and launched its product in 1987, but its sales were so low that it could not cover even its marketing costs. Reasons for such low sales included its high price and low brand recognition, [1] polarizing flavor, and a lack of awareness of energy drinks among customers.
  • However, the brand reached a turning point when it became known as a good mixer in clubs and bars, where it was mixed with various alcoholic drinks. Because customers felt that drinks mixed with red bull created a pleasant feeling of drunkenness, bartenders had to use it. Selling Red Bull as a mixer solved its price and flavor problems and created its premium image as a ‘trendy drink sold at the hottest bars and clubs.’ Three years after its product launch, Red Bull finally [2] broke even, and the brand prepared to continue its development by reinvesting its surplus earnings.
  • After expanding into other European countries, Red Bull entered the German market in 1994, and the brand was so successful there that production could not keep up with sales. Red Bull then created a brand image that distinguished it from competitors by reinvesting its surplus earnings in branding and marketing.

Red Bull pioneered and dominated the energy drink market with its unique branding and marketing strategy.

  • In 1997 Red Bull, which was growing fast enough to enter a new market every month, finally entered the United States market. Red Bull gained widespread popularity by holding ‘guerilla events.’ In these events Red Bull sent cars filled with free samples to gyms, beaches, and schools where target customers gathered. Using this strategy, Red Bull created a new category of ‘fatigue-relieving energy drinks,’ which was an unfamiliar concept at the time. Red Bull was able to distinguish itself from existing carbonated beverages through its high price, unique branding, and unusual distribution strategy.
  • Mateschitz, who remembered the positive effect that distribution in bars and clubs had on sales and brand image, created Red Bull’s premium image as ‘a cool, elite beverage’ by sponsoring various events and providing bars and clubs with free mini-fridges exclusively for Red Bull.
  • Each time Mateschitz entered a new market, he first established a distribution network of only a few elite clubs and bars, giving red bull an image of a ‘rare and valuable drink’ because it was famous but only available in a few places. His strategy was to expand this distribution network only when demand sufficiently surpassed supply.
  • Red Bull maintains a distribution method of beverage production at in-house factories in Austria and Switzerland followed by international shipping. When Red Bull entered the US market it founded Red Bull Distribution Company, but instead of monopolizing the supply of products, it constructed cooperative relations with regional distribution and logistics businesses. Using this strategy, Red Bull was able to reduce the cost of investment in logistics and utilize the specialized knowledge of regional logistics businesses. This helped Red Bull to enter the market effectively.
  • In 2003 Red Bull controlled two thirds of the energy drink market, selling over 500 million cans. In 2016 it sold over 6 billion cans for sales of around $8 7 billion. It achieved more than double the sales of its competitor, Monster Energy, to maintain its unrivaled [3]top spot in the energy drink market.

II. Red Bull’s unique marketing strategy

Red Bull’s marketing actively utilized bold and daring events, which were consistent with its brand image, and constructed a premium image through high prices and differentiation strategies.

  • Red Bull focused on conveying the simple marketing message ‘Red Bull gives you wings’ to its customers. The company hosted an event called ‘Red Bull Fly Day,’ in which participants rode flying machines they had created themselves into the ocean. It also hosted a paper plane contest called ‘Red Bull Paper Wings,’ which developed into a worldwide event of around 40,000 participants. It continues to support daring and adventurous events that help its brand image, such as ‘Red Bull Air Race’ and ‘Red Bull Can You Make It.’
  • In 2012 Red Bull launched the Red Bull Stratos project. In this project, Austrian sky diver Felix Baumgartner completed a four minute and nineteen second free fall to earth from a point in the stratosphere 39 kilometers above New Mexico. He was the first person to reach a speed of Mach 1.25 without engine power, and he holds the world record for ‘highest point reached in a balloon by a person’ and for ‘highest place jumped from by a person.’ The jump was broadcast live on Youtube, and 8 million people around the world watched it at the same time. Customers naturally encountered the Red Bull brand and its values through the logos visible in the video, for example on Baumgartner’s helmet and clothes. Red Bull invested $65 million over five years in the project and achieved an advertising impact of $40 billion. After the broadcast, sales increased 16% compared to the previous year.
  • Red Bull created a unique and unrivalled brand image which other companies could not imitate. They did this through limited selection of distributors, flexible supply adjustment, bizarre events, daring marketing expenditures, and high prices that were double the prices of their competitors.

Red Bull’s founder Dietrich Mateschitz focused on content that would excite his core customers.

  • Rather than promoting the product or the founder of Red Bull, Mateschitz focused on increasing brand loyalty through events and contents that appealed to young people, who are the company’s target customers. Mateschitz was confident that hosting attractive events to excite youthful fans and increasing brand recognition and likability by making Red Bull products and logos visible at these events would naturally increase product sales.
  • In 2007 Red Bull founded Red Bull Media House and began to produce all Red Bull content in-house. Even though Red Bull is not a media company, it invested more than two thirds of its marketing expenses in content production and management, which helped to construct and strengthen its brand image. Red Bull’s Youtube channel has more than 7 million followers and has 20 videos with more than 10 million views. Its most popular video has 86 million views. This is by far the most popular of any company marketing video in the world.
  • Red Bull directly manages many F1, hockey, and soccer teams, publishes a magazine and creates TV programming related to extreme sports, and sponsors NASCAR races. These diverse activities actively strengthen Red Bull’s brand image. In particular, Red Bull decided that F1 races, in which drivers compete at incredible speeds, are a good match with their brand image, and now the company invests more than $50 million every year in operating its F1 team. Red Bull also makes sponsorship contracts with extreme sports athletes, such as snowboarders and motocross riders. In this way, the company utilizes diverse marketing channels that correspond to its brand image.
  • Red Bull actively utilizes word-of-mouth advertising among customers to promote its brand. At the time of Red Bull’s initial release, there was a false rumor that the ingredient taurine was made from a Bull’s testicles or sperm, and that it was good for sexual stamina. However, Red Bull did not confirm or deny this rumor. Instead, it used this provocative word-of-mouth advertising to increase brand recognition.

III. The intensifying competition

Beginning with Coca Cola and Pepsi, the largest producers of sports drinks in the world, many companies entered the energy drink market, but Red Bull overwhelmingly maintained the top spot in the market.

  • When Red Bull entered the United States market in 1997, Coca Cola was the largest producer of sportsoft drinks, controlling 45% of the market and operating with a marketing budget of around $1.8 billion. Moreover, Coca Cola uses a Direct Store Delivery distribution method based on its network of manufacturing and bottling companies. Because of this, the company can directly control the setup of store shelves to match its marketing strategy. On the other hand, Pepsi was growing very quickly at the time because of Mountain Dew’s sensational popularity. It controlled around 30% of the market, following closely behind Coca Cola.
  • After Red Bull’s success in establishing ‘energy drinks’ as a new category, Pepsi entered the market in 2000. Pepsi took over the company SoBe, which had been selling tea, fruit drinks, and functional beverages. Pepsi then launched SoBe Adrenaline Rush, and the following year it launched AMP Energy, both in the energy drink market. Pepsi emphasized its products’ sweet and refreshing tropical flavors, which were different from the bubble gum/caffeine flavor of typical energy drinks. At the initial release of these products, Pepsi controlled more than 20% of the energy drink market. However, within a few years Pepsi’s market share had decreased to 10%, and the company was soon pushed out by the competition.
  • Coca Cola entered the energy drink market in 2001 with the launch of the energy drink KMX. However, the company had little interest in the energy drink market. It launched KMX with little marketing support, and didn’t even actively advertise KMX as a part of the Coca Cola brand. KMX attained a market share of 7% at its initial release, but it suffered from poor sales and was discontinued in 2006. Coca Cola released other energy drinks with a taste similar to Red Bull, such as Burn, but did not attain a meaningful market share.
  • During the mid-2000s, when Red Bull was experiencing explosive growth in the United States market, Coca Cola controlled 43% of the soft-drink market, selling 4.2 billion beverage cases. Considering Red Bull’s sales at that time (60 million cases, 0.6% market share), the energy drink market was only a small sub-market to Coca Cola. Moreover, considering that energy drinks can replace soft drinks, there was no reason for Coca Cola to develop an energy drink, since an energy drink might only lead to a decrease in sales for its soft drinks. Lastly, Coca Cola already had perfect control over its bottling and distribution, and the energy drink market might have just been a trend that would soon pass. Therefore, it was more effective for Coca Cola to wait for the energy drink market to mature, and enter the market later through a merger with a smaller brand.
  • Anheuser-Busch, the producer of Budweiser and the United States’ top beer company, released alcoholic beverages with caffeine and guarana to compete with Red Bull in the club/bar market. After this, many products were released in order to contain Red Bull in the club/bar market. These products included mixes of beer and energy drinks or fruit and energy drinks.

After securing a place in the energy drink market using similar strategies to Red Bull, Monster Energy is currently following closely behind Red Bull.

  • Hansen Natural Corporation, which produces Corona, released Monster Energy in 2002, after Red Bull successfully sold more than 300 million cans. Monster Energy sold cans twice as large as Red Bull at the same price, and launched products of various sizes.
  • Because Monster got a [4] late start in the energy drink market, the company could follow Red Bull’s method for success. Like Red Bull, Monster actively utilized sports sponsorships, and sent out ‘Monster Girls’ (models hired by Monster Energy) to give free drink samples to students. At first Monster focused on sponsoring individual athletes that matched well with their brand image, unlike Red Bull, which focused on traditional advertising and extreme sports teams and events. But later Monster sponsored numerous sports events, such as mixed martial arts competitions, like Bellator and UFC, and extreme sports competitions, like skateboarding, snowboarding, and motocross. They also promoted musical artists like Iggy Azalea and 21 Savage.
  • Unlike Red Bull, which constructed a cool, elite image for its product, Monster constructed a blue collar image. They also created a diverse product line including carbonated energy drinks and carbonated energy juices. Later, the company created coffee and tea brands, and the three-ounce Monster Hitman Energy Shooter. At present, the Monster brand contains 34 products.
  • In 2014 Monster prepared for its next step by signing a contract with Coca Cola. Under this contract, Coca Cola bought a 16.7% stake in Monster for $2.15 billion, and both companies adjusted their product portfolios. Coca Cola gave its energy drink products to Monster, and Monster gave its non-energy drink products to Coca Cola. In addition, Monster can now sell energy drinks using Coca Cola’s global distribution network. Lastly, soft drink consumption is decreasing worldwide, so Coca Cola wanted to adjust its product portfolio to increase market share of the growing energy drink market.
  • Monster Energy’s brand recognition increased quickly thanks to its sponsorship of NASCAR races and the explosive growth of the UFC. As Monster began to use Coca Cola’s retail network, the company’s retail sales surpassed Red Bull. Red Bull had maintained the top spot in the energy drink market because of overwhelming sales in its club/bar distribution network, which Monster could not approach. However, in 2018 Monster surpassed Red Bull by a small margin to take the top spot in the United States market.
  • In the global market, Red Bull is still ahead of Monster by more than twofold, but Monster is predicted to gradually close this gap, thanks to support from Coca Cola’s brand power and distribution network, which are the strongest in the world.

IV. Implications

There are two lessons that can be learned from Red Bull.

Lesson #1: For success, it is important to dominate the market early in a way that competitors cannot follow.

  • Most aspects of Red Bull’s strategy, for example its design, logo, pricing, production, and logistics methods, were easy for competitors to follow. Even Red Bull’s recipe is available on the internet. However, even big companies like Coca-Cola and Pepsi could not copy the unique brand image that Red Bull constructed.
  • Ever since he founded Red Bull, Mateschitz has focused his abilities on branding because he knows that it is the most powerful weapon in growing the company, and that it is the only ‘competitive edge’ that competitors cannot easily copy. Red Bull's strategy was to construct a unique and unrivalled brand image that other companies could not imitate, and this strategy served as a compass to guide the decision making of the company and its employees. Most of Red Bull’s decisions—including pricing, color, design, distribution channels, and marketing methods—were made under this strategic direction. This helped to create Red Bull's distinctive brand image.
  • Red Bull rapidly entered various national markets and dominated them early by utilizing strong brand power and unique events to create the perception amongst customers that ‘energy drink = Red Bull.’ In addition, new distribution channels like clubs and bars, which were not accessible to existing distributors, were a big help to the company’s brand image and sales.

Lesson #2: Appropriate product branding and positioning can create a completely new category of products.

  • Red Bull has been sold in Thailand under a different name since the 1970s. Factory workers and long-distance truck drivers used it to fight fatigue, similar to the Korean drink Bacchus. The person who recognized this product’s commercial value and changed its image from a kind of restorative drink to Red Bull’s current image was Red Bull company founder Dietrich Mateschitz. Mateschitz placed this product in a completely new category, ‘energy drinks,’ which distinguished it from regular beverages and positioned it as a unique and mysterious drink that could relieve fatigue.
  • In addition to the product’s effects, Red Bull utilized rumors about its ingredients, a brand image created through various events and sponsorships, and comparatively expensive pricing in order to pioneer and control the energy drink category.

Talk to your Ringle tutor about Red Bull and the energy drink market and receive feedback on your English usage.

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