Executive Summary
· The Problem
Red Bull Company depends on a single Flagship product to generate revenues and increase profitability. Even in the United States, the firm is struggling due to rumors and smaller market cells as compared to other competitors. Now, in the current US energy drink market, sales and market share have declined due to increasing substitutes or alternative for customers. The firm does not contain a line extension to serve a different customer segment. Challenges and threats in the competitive market are in the limelight, and desperately, the management of the company has to come up with an appropriate solution.
· The Answer
Red Bull must have to extend the product line to eliminate rumors, get rid of ingredient limitations, increase sales and market share, and gain a competitive advantage on competitors in the competitive landscape.
· Rationale
The rationale behind this solution is the possibility of long-term business advantages in terms of sales, sustainability, and profitability. Customers in the market have some expectations from the company and being a responsible company, it has to meet the needs or demands accordingly. Line extension is a key initiative, which is to be taken to regain the growth and success in the United States beverage market.
Situation Analysis
Case Facts
Red Bull is in the limelight in different global markets. In Austria and the United Kingdom, the firm has gained success due to remarkable customer response. However, market entry in the United States was a big challenge for the company due to fierce competition. Competitors like Pepsi, Coca-Cola, Rock Star, Monarch, Hansen Natural, and many others were proliferating. The US market entry seemed moderate. Red Bull’s market share was just 0.3%. In the United States, the target customers of the company are students, drivers, clubbers, businesspeople and sports people. In 2004, the US energy drinks market was estimated between $1.6 and $2.0 billion. Sales can be evaluated by company management by estimating cans per person. In 2001, 0.4 cans per person were estimated. However, in 2005, it was estimated 2.5 cans per person. Thus, sales have increased. However, still, the firm is triggered by many threats or challenges, and some key insights can be derived through a strategic analysis tool.
Strengths
Red Bull has successfully sustained the brand image in the United States due to different characteristics. For Instance, the company has created a perception that the product stimulates body and mind. It seems an energy drink for professionals or young people, which can be taken to be active. High quality and differentiated ingredients helped to streamline the benefits of this product, and accordingly, a positive perception has been created. The advertisement process seems unique. The firm does not contain a traditional marketing campaign. It is the biggest strength because it has helped to save the cost of the company. For Instance, sponsorship of Motorsport events and positioning in small cells in cities is the right approach to get an adequate customer response. One of the prominent strengths of the company is the availability of an immense range of customers in forms of students, drivers, clubbers, businesspeople and sports people in the United States. These are several customer segments which are to be served to increase revenue streams and increase financial capacity.
Weaknesses
Red Bull Mystique is quite visible, and it has become a significant weakness. For Instance, the negative perception has been streamlined in the market regarding Red Bull. Many people think that Red Bull is made from bull testicles. Also, there is a perception that the drink is an aphrodisiac. Thus, rumors about the product in the United States and other markets can restrain customers from consumption. One of the main ingredients of the product is Taurine. However, in many regions, including the United States, it is not included in safe food ingredient lists. Thus, it may lead to limited operations. Red Bull’s growth in the United States seems steady due to smaller market cells, and therefore, it is comparatively, behind Coca-Cola and Pepsi.
Favorable Conditions
The location strategy of Red Bull in the United States can help to make the difference. It is an excellent opportunity to hit trendy on-premises locations to streamline the attention and visibility. Dealing with individual accounts instead of different retail chains is the right approach to get things done in favor of the company. Due to market entry capability, financial condition and sustained brand image, the company can enter the functional drink market, which can be further segmented into sports drinks, energy drinks, and elixirs.
Threats
The energy drinks market ($2.0 billion in 2004) portrayed some spikes. Due to new entrants, product development, and intense competition the market share of Red Bull has decreased, and it seems a considerable threat. Apart from it, the canned coffee category in soft, energy or a functional drink market is rising, and it looks a substantial risk to the Red Bull company. The firm is highly dependent on a single product, and therefore, sales and revenues could tumble in the future.
Overall SWOT Analysis
One of the most prominent strengths of the company is its brand image. The firm must have to keep the perception that the drink stimulates body and mind. Thus, a comprehensive content strategy can be shaped to create awareness and keep customers engaged in the US market. Rumors regarding the company can be eliminated by using several counter strategies. When hitting small market cells, live experiences can be recorded to make the difference. Entering the functional drink market can be done by creating several product segments. Of course, different customer segments may emerge or occurred, and accordingly, separated drinks must be streamlined. The threat can be eliminated through managing the differentiation in product development, marketing, and distribution. Increasing competition and canned coffee can create an impact on sales and market share. Thus, making it different from competitors may lead to less customer conversion.
The product has been developed to enhance physical fitness. The firm has identified different health issues, which are associated with athletes and other seems. The identification of these health issues is a significant strength, as it helps to develop a related product in the market. It is a real energy booster, which has got an excellent reputation in the competitive market. A good product reputation and extraordinary benefits have increased sales and revenue streams. Red Bull has become a financial driver for the company, and this strength is to be sustained. One of the prominent threats for the company is the trend of environmental sustainability. In the market, companies are looking to contain the sustainable business process to contribute to favorable environmental conditions. Thus, conservative water consumption is to be adopted, which can ultimately create an impact on the business model and cost. Apart from ecological trends, people in society have become health conscious. Obesity is the most significant area of concern in the United States and other potential markets, and they firm any face some limitations. In the strategic planning process, these threats are to be considered to make better decisions.
It has been revealed that Red Bull contained 65% of the $275 million new energy-drink markets. It seemed the most significant achievement of the company. Now, in the contemporary era, especially in intense competition, Red Bull has to increase this share. It is the best time to combine resources and capabilities to enhance the ability to expand and explore new markets. In the United States and many other markets, the management of the company must have to find partners with good resources and capabilities. For Instance, if a company acquires other firms, it can use the distribution, sales and marketing channels. Thus, a merger or acquisition is a great opportunity, as it can decrease the business cost. Business or product expansion is the most significant opportunity in the market. It depends on the company how it analyzes the market and moves forward. For example, Rock Star, a prominent firm based in Los Vegas, has launched its new product to target teenagers. The condition is favorable for the company because it has several target customer options. If Rock Star Company hits teenage males, then Red Bull can target teenage girls. Thus, success in the market depends on improvisation.
Apart from some rumors in the market regarding the product, there is confusion about whether Red Bull is a sports drink or stimulation drink. Despite containing sales and revenue growth in the United Kingdom and United States markets, still, many customers are to be targeted. Due to this confusion, customers cannot make a positive buying decision. Of course, they do not want to take the risk due to different health concerns. The budget for advertising seems limited. For Instance, the firm spent $ 600 million on advertising and promotions in various global markets, including the United States. It is 30% of sales. However, increasing the marketing budget and reducing the sales margin are not permanent solutions. Still, the firm has to find a direction which can lead to a sustainable brand image in the market. If the company sustains this budget with zero impact on sales, revenues and profitability cannot be increased. Top companies such as Coca-Cola and Pepsi have successfully maintained the balance between sales and marketing process. Red Bull has not found a permanent direction of the marketing process to predict the business outputs.
Favorable conditions and threats such as target customer segments and environmental concerns can also become drivers in strategic planning. Of course, these factors must be considered to survive in the market.
Alternatives
1. Do Nothing
Emerging in a narrow market, building relations with sports companies and using celebrities as brand ambassadors are different strategies, which can be sustained. If the firm keeps doing these things in the competitive US market, it may not have to do something or make any changes.
Pluses:
- Red Bull seems happy or satisfied with their current market share in the United States. Remaining unchanged will help to prevent any capital investment.
- It is easy to execute because the company has to sustain its current business process
Minuses
- Red Bull Company can be far behind its rivals if it does not make any changes to increase market share and become a market leader.
- Threats will remain the same, and any business uncertainty may occur. In short, the firm seems vulnerable in the current condition or circumstance.
Analysis
In the competitive energy drink market, it seems essential for the company to examine its current position. Still, an immense range of customers despite intense competition in the market is loyal. Thus, it seems better to not take any risk, which can make the company vulnerable. However, in the competitive landscape, the difference should be made to gain a competitive advantage over the other rivals. Thus, if the company does not take action, it cannot win the market in the long run (Peter & Donnelly, 2010).
2. Execute a Line Extension
Red Bull can continue further product development due to increasing customer segments and the demands of customers in the energy drink market. Substitutes or new products from competitors may put a dent on sales and customer base. Also, the canned coffee drink is an example of a new trend, and it can be tackled through further Red Bull product expectations.
Pluses
- Introducing different types of Red Bull may help to facilitate different kinds of customers. Fulfilling the need for several customer segments such as students, professionals, athletes, and celebrities is the right idea to create a new hype in the market.
- Small market cells in the United States can provide support to expend Red Bull line, as seeding and word of mouth can be sustained as key drivers.
Minuses
- It cannot be a potential alternative if competitors are developing substitutes frequently. Different competitors such as Coca-Cola, Pepsi, Rock Star, and many others seem sharp in the new product development, and of course, it can create the impact on the pace of growth and distribution of Red Bull extension
Analysis
Depending on a single product in the market seems risky in the competitive market in this modern business era. In the United States, beverage giants are looking to expand the business through the appropriate product development process. Due to the sound financial condition and innovative production and marketing culture, the firm can depict some further Red Bull segments to make the difference (Penaloza, Toulouse, & Visconti, 2013).
Recommendation
Being a strategic consultant of the company, I would like to suggest line extension as a critical strategy to sustain the business in the competitive market. Interestingly, product extension can help to eliminate different weaknesses, mentioned in the situational analysis. For Instance, if the company develops new red bull flavors along with various features for different customers, it may defend itself regarding different rumors in the market. Of course, not every Red Bull is triggered by the testicles of the bull or aphrodisiac. Different customers will be sharing their views about different Red Bull products, and the positive perception will be generally accepted in the market. Thus, the most significant advantage of the extended product line in the US market is to emerge as a strong competitor, increase customer range, reduce dependability, and sustain the brand image (Peter & Donnelly, 2010).
Taurine, which has become a controversial ingredient in many markets, is a significant weakness. However, when developing further segments of products, the firm may change the ingredient. Without compromising on quality and differentiation, the change in ingredients may help to get rid of issues faced by the company in the US market. Furthermore, it is an excellent opportunity for the company to streamline the line segment and find new market cells to target new customers. The firm has generalized the target market in the United States. Now is the best time to make it organized. The best thing that the company can do regarding this issue or weakness is to support the lobbying process. The health department also has some concerns over the use of this ingredient. Red Bull has to claim that it is a healthy ingredient, which can create a positive impact on health. The most important thing is to exhibit the difference between positive and negative effects of Taurine.
Being a strategic consultant, I have to come up with an appropriate plan for the company to enhance the line extension. First, the company must conduct a comprehensive analysis, including customers and competitors, to derive several insights and make appropriate strategies. For example, when making several product segments, the company must streamline what the driver needs to be active. On the other hand, the firm must know the needs of students, including behavior, attitudes, and intentions (Reic, 2016). Along with ingredients and taste, even name, design and packaging will also be changed to integrate with behaviors of this segment. Several possible product segments for the company are below
- Physical Endurance (For Athletes)
- Improved Reaction Speed and Concentration (Drivers)
- Mental Alertness (Students, Professionals)
- Improved metabolism and increased stamina (Youth, Millennial)
Thus, the line extension is to be driven by different customer segments. So far, the company has served the customer with a single product. Now, like competitors, customer divisions may help to become a market leader (Peter & Donnelly, 2010).
Apart from recommending this effective strategy, the firm must have some contingency plans. For Instance, a line extension may put the traditional red Bull at risk. The firm must determine the future of the current Red Bull. No Doubt, new drinks will be sold to different customers, but the company cannot afford to stop distributing the flagship product. Contingency planning can be conducted regarding critical threats. Environmental sustainability or environmental trends and health concerns in society may hit business hard. In the future, a successful contingency plan must include a favorable CSR strategy. Based on financial capability, the firm may shape the CSR strategy to be relevant and sustainable. Red Bull seems safe, but the future of the company must be secured. Therefore, multiple product segments can make this product less vulnerable in the market.
The execution plan is also associated with the marketing process. Apart from the line extension in the competitive market, the firm will have to work on an alternative campaign. Seeding and word of mouth are better marketing tools, but a well-directed media campaign is an entirely different way to make the difference. Drinks for businesspeople will be streamlined or positioned in a separate campaign. Sports and entertainment will be tackled differently as well (Iacobucci, 2016). Finally, to evaluate the success of each Red Bull product, the firm will examine the revenues of each segment separately. If the firm finds that a particular product is struggling to create hype in the market, it can be abandoned by the company. However, pertinent clarifications must be given to all key stakeholders, including customers.
The role of the leadership team in implementing these strategies is quite visible. The firm may adopt and implement a strategy to sustain the business. Captivatingly, due to possible changes or spikes in the market, these strategies can be changed or altered. Internally, Red Bull has to maintain its flexible structure and culture to embrace any required change.
Reference
Iacobucci, D. (2016). Marketing Management (5 ed.). Cengage Learning.
Penaloza, L., Toulouse, N., & Visconti, L. M. (2013). Marketing Management: A Cultural Perspective (2 ed.). Routledge.
Peter, J. P., & Donnelly, J. H. (2010). Marketing Management (1 ed.). Tata McGraw-Hill Education.
Reic, I. (2016). Events Marketing Management: A consumer perspective (2 ed.). New York: Taylor & Francis.
