Question

Please read the case provided below and answer the following question:

Red Bull- Waking a New Market

Little did Austrian business man Dietrich Mateschitz suspect when he visited Bangkok, Thailand in the early 1980’s his trip would launch not only a new product but also a new product category. Mateschitz international marketing director for Blendax a German tooth paste producer encountered Krating Daeng, “tonic syrup” that Red Bull Beverage Company had been marketing in Thailand for years. Mateschitz discovered that one glass of the product eliminated his Jet lag.

Returning to Austria, Mateschitz began a three year product development process that included developing the drinks image, packaging, and marketing strategy. In 1987 he obtained the marketing rights for Red Bull (the translated Thai name) from the Thai company and launched his marketing strategy.

Although marketers credit Red Bull with creating the “energy drink” category, the pursuit of drinks to enhance performance and well being is not new. Back in 1886 some folks in Atlanta introduced a product they called “Cocoa- Cola” that had extracts from cola nuts and coca leaves and advertised it as an “esteemed brain tonic and intellectual beverage”.

Red Bull is slightly carbonated drink that comes in a slender aluminum can that holds 8.3 ounces. The label indicates that it has 110 calories, 0 grams of fat, 200 milligrams of sodium, 28 grams of carbohydrates, 27 grams of sugar, and less than one gram of protein. Ingredients include sucrose, glucose, sodium citrate, taurine, glucurono-lactone, caffeine inositol, niacinamide, calcium –pantotheate, pyridoxine HCL, Vitamin B12, and artificial flavors and colors, all mixed in carbonated water.

Sounds delicious, don’t you think? Well that is part of the problem. Each of energy drinks ingredients has a specific purpose- but each has its own taste, and in some cases an after taste. It’s no easy matter to blend the ingredients to get not only the correct benefits for the consumer but also something the consumer will drink voluntarily.

Energy drinks have a number of different types of ingredients. The body takes carbohydrates and metabolizes them into glucose (sugar). Simple sugars produce a rapid rise in blood sugar, while complex carbohydrates produce a slower rise. By combining different types of sugars, a drink can produce glycemic response at different times.

Energy drinks sometimes include amino acids that are protein building blocks. Taurine for example is an important aid in the release of insulin and can prevent abnormal blood clotting. Because researchers have cited a deficiency of vitamins and minerals as associated with a lack of energy, beverage makers often include them in energy drinks. Niacin (Vitamin B 3) works with other vitamins to metabolize carbohydrates. Riboflavin (vitamin B 12) helps combats anemia and fatigue by helping to manufacture red blood cells.

Some drinks include botanicals such as gingko biloba, guarana and ginseng. Ginkgo biloba is purported to provide mental energy and sharpness by stimulating blood flow to the brain. Finally, most energy drink contains caffeine an alkaloid stimulant that body absorbs and circulates to all body tissues. Caffeine affects the central nervous system, the digestive tract, and the body’s metabolism boosting adrenaline levels to increase blood pressure and heart rate. Typically energy drink like Red Bull, contain the same amount of caffeine as a cup of coffee.

Packaging is also important. Some fruity beverages come in glass bottles, but many energy drinks that contain light sensitive vitamins, like B 12 , come in slender metal cans to prevent the vitamins from breaking down.

The Marketing Strategy

Mateschitz designed an unusual marketing strategy. “We don’t bring the product to the people” he argues, “We bring people to the product”. Initially when Red Bull entered U.S. market in Santa Monica California, it used traditional beverage distributors. But as the product gained popularity, the company began to pursue a more focused distribution strategy. Red Bull sales representatives now approach a beverage distributor and insist that he or she sell only Red Bull and no other energy drink. If the distributors will not agree, Red Bull hires young people to load the product in the vans and distribute it themselves.

The Company divided the United States into eight territories, with sales team in each area responsible for developing distribution and targeted marketing plans. The local team seeks to determine where people aged between 16 and 29 are hanging out and what they find interesting. First, the sales teams calls on trendy clubs and bars that offer drinks on premise. As incentives the team offers Red Bull coolers and other promotional items. Red Bull works with individual accounts rather than large chain because it has found that process goes much faster due to lack of bureaucracy. It has also found out that young people in local hot spots are open to trying new things and help generate a “buzz” about Red bull.

Second, the sales team also opens off premise accounts such as gyms, health food-stores, and convenience stores near colleges. The product sells for about $2 in convenience stores. In addition, “consumer educators” roam local streets and hand out free samples. The company has encouraged students to drive around with big Red Bull cans strapped to the top of their cars and to throw Red Bull parties focused on weird themes.

Contrary to the traditional promotional practice, Red Bull starts traditional advertising only after it believes a local market is maturing. The company’s philosophy is that media can only reinforce not introduce a brand. Thus, it builds demand even before it introduces the product at retail. Only about 19 percent of the $ 100 million the brand spent on promotion in 2000 was for measured media. Red Bull spends around 35 percent of sales on promotion. The company has also begun sponsoring extreme sporting events and athletes.

Does all this grass roots marketing work? Well, in 2001, Red Bull sold 1.6 billion cans in 62 countries, up 80 percent over 2000. In the United states , Red Bull entered the list of top 10 carbonated beverage distributors with a mere 0.1 market share but its case volume grew 118 percent over 200 to 10.5 million cases. Red Bull is the number one product in store 24 and had similar results at 7 eleven. It captures 70 to 90 percent share of the energy drink market.

With results like that, it did not take competitors to jump in. Pepsi bought South Beach Beverage Company (makers of So Be brand) and developed an energy drink it calls “Adrenaline Rush”. Coca-Cola jumped in with KMX. Even Anheuser – Busch, of Budweiser fame, joined with a product it calls “180” degrees. In early 2002, another Thai company Otsotspa entered the fray with its own energy drink called “Shark”.

Mateschitz does not seem concerned about competition. He knows Red Bull has a tremendous head start and strong local marketing teams. He already has plans to enter into Brazil and South Africa.

However, Mateschitz does have one concern. “It makes no sense to build a company on one product” he argues. So far he has put the Red Bull brand on only one other product. Luna Aqua is a still water that company claims it bottles only 13 times per year, during full moon when the moon reaches its full energy level. There is also variety of Luna Aqua that contains caffeine. But Mateschitz knows that it will take more than moon power to stay ahead of the competition in the energy drink market. You can bet he will be up all night, sipping Red Bull and developing new product ideas.

Now, assume that you have been appointed by RED BULL as marketing director; then answer the following questions:

Required Question

Question 01:Apply the theory of product Augmentation to Red bull , by explaining the different layers. Suggest improvements in the augmented layers that would give an edge for the company over it’s competitors?

Answer 1

Product benefit/ Core product - Anti fatigue tonic/syrup

Actual product - Packaged, Image & Energetic brand name ‘Red bull’; slightly carbonated with nice sleek metal packaging.

Augmented product - Introduced as energy drink, performance enhancer, fatigue killer which gives you wings or makes you fly. Relates to young people & BUZZ which make it popular & exclusive.

Marketing strategy- Pull strategy, focused distribution, territorial targeting of young people aged between 16-29. With help of youngsters & students created word of mouth & Buzz; Sponsors extreme events & sports. Marketing mix of Red Bull: Product & it’s taste is distinctive with functional effect. Easily available in retail outlets and food and drink establishments; premium pricing strategy.

Competition- Pepsi’ s “Adrenaline Rush”, Coca-Cola’s KMX. Anheuser – Busch’s “180” degrees & Thai company Otsotspa’s “Shark”. Also, Pepsi & coke in beverage segment generally are the competitor too.

Challenges ahead- Broadening the age groups to target & increasing market share.

Introducing more varieties & placements towards different population too. Improving product placement to achieve market share.

Solutions:

Focusing on healthy variants/ focus on new product development is important. Premium pricing is to be continued. Product should be placed with health benefit feature of Red Bull original drink. Performance enhancement, metal alertness & energy has been focused more, now wellbeing needs to be stressed.

People are very much weight conscious & aware of healthy ingredients; so, focus on natural ingredient & their marketing. Vitamin B3, B12, gingko biloba, guarana and ginseng, taurine & their benefits need to be highlighted with energy message & It is important to communicate that message is, ‘Energy which is used by body’.

Caffeine is an alkaloid stimulant, helpful in weight management & it should be communicated as this drink is better than coffee, same amount of caffeine with added benefits.

Inclusive amino acids that are protein building blocks can be related to workout efficiency drink.

Broadening age groups is important, its young category which is ageing now should be retained with positive, pro-health marketing. Sometimes, ‘wings to fly’ message also symbolically conveys drug like, childish or irresponsible energy too. Message of constructive energy, energy of wellbeing is important to convey rather than directionless hyperactive energy. With these strategies, Red bull can win over the competetion.