Red Bull's Innovative Marketing: Transforming a Humdrum Product into a Happening Brand

Abstract:

The Red Bull energy drink was launched in Austria in 1987, by Dietrich Mateschitz. He claimed to have experienced the invigorating properties of a popular Thai energy drink, Krating Daeng, on a trip to Thailand.

Realizing that a similar product could have good potential in Western markets, Mateschitz obtained the license to manufacture a carbonated version of Krating Daeng from its Thai owners. Obtaining permission to sell Red Bull in Europe was not easy, as it contained several ingredients whose effects on the human body were untested.
However, permissions were eventually obtained, and Red Bull became exceptionally successful in all the markets in which it was launched.

It was generally acknowledged that Red Bull's success was the product of the company's innovative marketing efforts. This case study discusses the marketing strategy adopted by Red Bull GmbH, including the company's effective employment of buzz marketing in new markets, and its sponsorship of sporting activities, especially extreme alternative sports, to enhance its image.

The case also talks about Red Bull's target markets, and its pricing and differentiation strategies. It includes a section on the various controversies surrounding Red Bull, and the effects of these on its brand image. The competitive situation in the energy drinks market and Red Bull's position vis-à-vis competitors, is also discussed. The case concludes with a commentary on Red Bull's attempts at brand extension, and the company's future prospects in the light of its excessive dependence on a single product.

Issues:

» To understand how savvy marketing can transform an ordinary product into a powerful brand.

» To study the use of buzz marketing in establishing a product in new markets.

» To appreciate the importance of identifying suitable target markets, and designing marketing activities to reach them effectively.

» To examine the role of sports sponsorships in establishing brand image.

» To study the effect of controversies on brands and how, in certain circumstances, controversies can actually help in the growth of a brand.

» To analyze the potential effects of a large number of competitors on a powerful brand and the sources of differentiation in a crowded market.

» To understand the importance of brand extension and the pitfalls of being associated with a single product.

Red Bull Acquires Second F1 Team

In September 2005, Red Bull GmbH, the manufacturer of the Red Bull energy drink, acquired Minardi, an Italy-based Formula One (F1) team for an undisclosed amount.

Dietrich Mateschitz (Mateschitz), the founder and managing partner of the company said that the Minardi team would continue under the existing management till the end of 2005, after which it would be renamed for the 2006 racing season. Red Bull GmbH already owned another F1 team, Red Bull Racing, at the time it acquired Minardi.
Red Bull Racing had participated in F1 as Jaguar Racing, until Mateschitz bought it from its previous owner, the Ford Motor Company (Ford) in November 2004. After the acquisition of Minardi, Mateschitz announced that Red Bull Racing would be the company's main team, and the newly acquired Minardi (renamed Scuderia Toro Rosso (STR) for the 2006 racing season) would serve as the 'rookie team' in 2006. Red Bull GmbH intended to use the team to train young drivers sponsored by the company.
Red Bull, widely acknowledged as the creator of the 'energy drink' category, maintained a close association with sports from the time it was launched in 1987. Red Bull GmbH was known for its sponsorship of extreme, alternative sports like white water kayaking, hand gliding, wind surfing and snowboarding -sports that involved elements of adventure and risk. Red Bull's association with F1 Racing, one of the world's most glamorous and expensive sports, also helped enhance its image as a trendy drink. Analysts said that the company's sponsorship of extreme sports that required stamina and energy was also just right for the image of the beverage.
For a product that did not have any extraordinary qualities, and was made of ingredients whose effects had often been called into question, Red Bull had a huge market presence. The company was reported to hold almost 70 percent of the worldwide market for energy drinks in 2005. Analysts attributed the beverage's success to the unconventional marketing strategy adopted by the company to promote it in new markets.

Background

Dietrich Mateschitz was born in 1944 in Austria, to parents who were primary school teachers. After graduating with a marketing degree from the University of Commerce in Vienna, he took up marketing jobs at Unilever and Jacobs Coffee, before becoming the international director for marketing at Blendax, a German company that dealt in FMCG products like toothpaste, skin creams and shampoos, in 1979. Mateschitz's job involved a lot of travel around the world, and during one of his trips to Thailand, he discovered an 'energy drink' called Krating Daeng, which was very popular among blue collar workers in the country.
When he sampled it, Mateschitz reportedly discovered that the drink was good at combating jetlag. The idea for marketing an energy drink in Western markets came when he realized that energy drinks had a huge market in Asia and that there was no such product available in Europe.
These events were major attractions and were considered crucial for the business of fashion. Fashion weeks served as a platform for the entire fashion industry to display the upcoming seasons' collections to trade buyers (retailers, buying houses, wholesalers, etc.), the media, and individual customers. The central idea behind a fashion week was to showcase representative samples to the trade - quite unlike individual 'couture' fashion shows which tended to be more social/theatrical in nature. The 'all-business' nature of fashion weeks makes them popular among buyers who attend them to preview, plan, and order their lines for the next season.
Mateschitz approached Chaleo Yoovidhya (Yoovidhya), the owner of TC Pharmaceuticals, which made Krating Daeng, with a proposal to market the beverage in Europe. Yoovidhya agreed to give Mateschitz the foreign licensing rights to the drink in return for a partnership in the venture. In 1984, Mateschitz resigned from his job to pursue his new business.

Mateschitz and Yoovidhya each invested $500,000 to become equal partners, with a 49 percent stake each, in the new company. The remaining two percent was held in trust for Yoovidhya's son. The founders agreed that Mateschitz would run the company, while the Thais remained sleeping partners...

Elements of Red Bull's Marketing Strategy

Red Bull was generally acknowledged by marketing experts to be a good example of an ordinary product of uncertain worth that was transformed into a powerful brand through innovative marketing.

The emphasis Red Bull placed on marketing was evident from the fact that the company spent around 30 percent of its annual turnover on marketing - much higher than most other beverage manufacturers who spent approximately 10 percent. Red Bull was positioned as an energy drink that 'invigorated mind and body' and 'improved endurance levels'.
The company's slogan 'Red Bull gives you wiiings' reinforced this positioning. The beverage was targeted at people who sought increased endurance, speed, concentration and alertness (Refer Table I for the 'benefits' of Red Bull as claimed by the company)...

Controversies

Red Bull had been a controversial product right from the start.

When Mateschitz first planned to launch the beverage in Europe, he had to wait for three years to get approval in Austria, his home country.

After that, it took another five years before it could be sold internationally, and Hungary became Red Bull's first foreign market in 1992. Red Bull's launches in new markets were almost always preceded by controversy, usually centering on the nature of the ingredients in the drink.
While exotic ingredients were acceptable in many Asian markets where food regulations were not stringent, in Europe, the beverage faced difficulties in getting approval from the authorities. As of 2006, Red Bull was banned in France and Denmark. In Norway, it was classified as a medicine that could only be sold in pharmacies.

The most controversial ingredient in Red Bull was taurine. Taurine, an acidic chemical substance, was an untested food product in many western countries and was thought by some to be harmful. The controversies were further fuelled by rumors that taurine was actually derived from the bile of bulls...

Threats to Continued Success

Red Bull was a market leader in its category in the early 2000s, garnering strong sales in its various markets around the world. Nevertheless, analysts were skeptical about the company's continued survival and growth as there were several factors threatening the brand's long term prospects.

Red Bull's success had spawned a spate of imitators, all wanting to cash in on the booming energy drinks market. Some of the knock-offs even had names that evoked the Red Bull brand -Red Tiger and American Bull being notable examples.
The US itself saw the launch of brands like Red Devil, NRG, Eclipse, Blue Ox, Niagara, Dynamite, Red Rooster, Energy Rush, SoBe Adrenaline Rush, Mad Croc, Hansen's Functional, and Jones Whoop Azz, among others, in the energy drinks market during the early 2000s. Not to be left behind, certain American celebrities like rap stars Cornell Iral Hayes, Jr. (known as Nelly) and Jonathan Smith (known as Lil Jon) also came out with their own brands. Nelly launched an energy drink called Pimp Juice, while Lil Jon launched the Crunk brand.Overall, it was estimated that as of 2005, there were 125 players in the energy drinks market in the US.
Major beverage companies like Coke, Pepsi and beer major Anheuser-Busch had also come out with new energy drinks. Coke and Pepsi launched KMX and AMP respectively, while Anheuser-Busch launched 180, in the early 2000s. Analysts said that competition from big companies might affect Red Bull, as these companies, with their greater spending power, had the potential to give the brand a run for its money. "Strategically, Red Bull could be vulnerable to such giants as Coca-Cola and Pepsi, which can't sit back and simply do nothing," said John Hudson, coordinator of the graduate business school at the University of Palermo. "They could wind up competing in the same segment. It would be hard to fight that battle."