Research Analysis of Red Bull

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Analysis of Red Bull

Porter Five Force Analysis

            External analysis of an organization is considered to be a major step that allows it to analyze its performance and efficiency and helps in identifying its strengths and weaknesses. Based on that analysis, the organization can review its strategy and concentrate on accomplishing its goal and objectives (Aeby et.al, 2007, 35). External factors that can influence the company’s performance and profitability include social forces, economic forces, competitive forces and market trends.  Porter’s five forces concentrate on providing an external analysis of the firm, based on five forces: threat of entrants, substitute powers, bargaining power of suppliers, bargaining power of buyers and rivalry among competitors (Aeby et.al, 2007, 37). These are the five forces that can influence the energy drink industry.

Threat of New Entrants

Red Bull is considered to be the number one energy drink in the energy drink industry. New entrants in the industry may include soft drink companies that do not produce bubble drinks, supermarket energy drink brands and medium range drink companies (Aeby et.al, 2007, 38). The threat of new entrants depends on brand name and brand loyalty, cost of the product and health benefits. In terms of brand loyalty, Red Bull Energy Drink is a well-known product and had a strong brand name (Bloomberg, 2011). Through innovation, research and strong marketing strategy, Red Bull has been successful in winning the loyalties of consumers and therefore, new entrants may experience strict competition. If new entrants have to compete with Red Bull Energy Drink, they have to ensure that their product is equivalent to that of Red Bull (Beuker, 2010). Furthermore, they must adopt marketing strategy to promote their product in order to give strict competition. However, if Red Bull is banned from other countries as it is banned in Norway and Denmark, then it will lose its customers and therefore, consumers may opt for healthier options. In this case, new entrants may start to promote new healthy, energy drinks. Red Bull is an established name and because of its efficient and better production processes and experience allows it to maintain its quality (Ted, 2010, 1193,1200). However, it needs to ensure that the drinks it produces are healthy and are not detrimental for human health.  If it is banned in other countries, then it will lose its brand name and therefore, it will lose its consumers to other competitors. Therefore, it is essential that Red Bull concentrates on providing quality drinks and new healthy alternates to maintain its position in the market.

Rivalry among Competitors

            Rivalry among competitors in the energy new drink industry is medium. Red Bull concentrates on promoting its product through organizing events, sponsorship programs and producing high quality products.  As compared to its competitors, it has a strong brand name since it is one of pioneers of the energy drink.  Furthermore, its strong brand name, strong marketing strategy and brand image are the main factors that give competitive advantage to it over its competitors. Research suggests that 40 percent of the consumers would opt to go to another store to get Red Bull if their regular store did not have the product (Boostmyproduct.com, 2011).

            Despite having a strong position in the market, its competitors have more flavors as compared to Red Bull. One of the main competitors of Red Bull is Monster, which has more than 10 flavors in energy drink (Brooke, 2011, 78). Other competitors are using pricing strategies to gain competitive advantage. Full Throttle is one of the competitors, which offers energy drinks at a lower price as compared to Red Bull. In this regard, it is essential that Red Bull revises its strategies in order to maintain its position in the market.

Threat of Substitutes

            Substitute products in the market can give strict competition to Red Bull. This is because consumers may resort to healthier alternates because of recent research on the hazards of drinking energy drinks. In some cases, Red Bull has been banned in European countries such as France, Norway, Denmark, etc. From research it is evident that Red Bull energy drink had high amount of caffeine which increased the risk of cardiovascular diseases in young adults.  In other instances, several individuals have died because of drinking Red Bull (Red Bull, 2007, 43). If this continues, Red Bull’s brand image will be tarnished and eventually it will lose its customers as substitute products would offer healthier alternates.

Bargaining Power of Buyers

Bargaining power of buyers in the industry is relatively low as the industry is small and Red Bull is the dominant player in the market. According to Red Bull, “Red Bull Energy Drink has been developed for people who want to have a clear and focused mind, perform physically, are dynamic and performance-oriented whilst also balancing this with a fun and active lifestyle,”” (RedBull, 2013).  This has allowed Red Bull to grow in the market and enabled them to win the loyalties of their consumers as it is available at affordable price. According to the reports compiled by Hoover Company, in the year 2011, market share of Red Bull was found out to be 40 percent (Drawert, 2011). Purchasing of Red Bull is dependent on the time schedule of consumers. Research reveals that consumers of Red Bull normally purchase the product during morning, afternoon or late night (Michelle et.al, 2012, 175). Furthermore, bargaining power of the consumers or buyers is also dependent on their needs and societal pressures (Brooke, 2011,78)

Bargaining Power of Suppliers         

Bargaining power of suppliers is low as the process of producing the product is not complicated. This has allowed Red Bull to lower their input costs.

Analysis of Energy Drink Industry

            Based on the Porter’s Five Forces analysis, Red Bull is the leader of the energy drink industry and it has been successful in attaining its consumers and winning their brand loyalty by providing them high quality products and through innovative and robust marketing strategies. Furthermore, it is considered to be the pioneers of the energy drink industry and therefore, it has been successful in increasing its market share by 40 percent in the year 2011.  Red Bull is considered to be the dominant player in the energy drink industry (Burton, Chadwick & Gorse, 350).  Red Bull claims that its energy drink is a high quality drink that helps in increasing productivity and performance, enhances concentration, accelerates metabolism and helps in increasing energy levels (Cirillo, 2009 , 18). The company claims that the drink has several health benefits. In terms of health risks associated with the drink, the company has not provided sufficient information. Several studies have been conducted in the last five years, which prove that Red Bull consumption have several health hazards and side effects. From the research conducted by University of Wisconsin, it was found out that Red Bull does not enhance performance and concentration as claimed by the company (Evenets, 2011).  In another research, it was found out that consuming Red Bull increases the risks of cardiovascular diseases and blood pressure.

            Porter’s five forces analysis demonstrates that the most dominate force that may affect the business of Red Bull is the threat of substitute products. There is no doubt that Red Bull dominates the energy drink industry as they were the first organization to distribute such product. Furthermore, they are also considered to be the “trend setters” of the industry because of their immense popularity among consumers (Michelle et.al, 2012, 175).  However, with the recent research on the hazards and dangers of energy drinks and their risk of cardiovascular diseases along with their ban in certain European countries, substitute products are most likely to gain advantage over Red Bull as consumers would give preference to drinks that are healthy.  Substitute products are most likely to give strong competition to Red Bull and would concentrate on targeting the consumer segment. In this regard, Red Bull is most likely to lose its consumers to other substitute products. Furthermore, if it is banned in other countries, Red Bull will be out of the market completely and this would allow the substitute products to take full advantage of the situation (Red Bull Flugtag, 2008).

To avoid this, it is essential that Red Bull concentrates on commenting on the impact of its product and create awareness. To remain in the market and to ensure that they can maintain their position in the market, it is essential that Red Bull conduct their own studies regarding their product and make them available on their website. Furthermore, they must reduce the amount of caffeine in their product (Brad, 2012). They must also concentrate on designing a campaign that concentrate on promoting the benefits of the energy drink. To avoid bans in other countries, Red Bull must comply with government legislations and regulations regarding the energy drinks. In the near future, Red Bull must concentrate on changing the formula of their product to ensure that their drink is healthy and beneficial for consumers. Furthermore, they must offer variety in their products or revise their pricing strategy (Louvet, 2011).

Strategic Uncertainties regarding External Environment

Politics

Political factors are most likely to have an impact on Red Bull business because of the recent health concerns and the high risk of cardiovascular diseases associated with it. Based on that, the following scenarios are proposed:

  • Scenario 1: Moderate Restrictions
  • Scenario 2: Strict Restrictions
  • Scenario 3: Banned

Implications

Scenario 1: In the case of scenario 1, Red Bull Company has to follow the minimum requirements of health and safety restrictions regarding energy drink markets. This would not have a negative impact on the business and Red Bull may continue to expand its business and market share and ensuring that it remains in the market (Louvet, 2011). In the case of scenario 1, Red Bull’s business activity would not be affected in a negative manner.

Scenario 2: In the case of scenario 2, Red Bull company presence in the market would decline if the health and safety regulations regarding energy drink industry. This would have negative impact on the   business activity of Red Bull and therefore, it will lose its consumers to its competitors (Brasel & Gips, 2011, 57). Furthermore, if the competitors are producing healthy alternates and complying with the health and safety restrictions, Red Bull will have to introduce new products that would be healthy and safe for its consumers.

Scenario 3: In the case of scenario 3, if Red Bull is banned by the government in a particular country, it will experience a decline in its business and would lose its consumers to its competitors. Current studies have shown that Red Bull energy drink can cause high blood pressure and other cardiovascular diseases (Red Bull, 2007, 44).

Strategic Implications

            In all the cases, it is essential that Red Bull concentrates on providing healthy drinks and strive for product innovation. As compared to its competitors, Red Bull has only one flavor. Competitors such as Monster and Full Throttle have more than ten different flavors and are available at economical rate (Ted, 2010, 1199). This suggests that Red Bull must concentrate on product innovation and pricing strategy. Furthermore, Red Bull must comply with the governmental rules and regulations. To avoid this, it is essential that Red Bull concentrates on commenting on the impact of its product and create awareness. To remain in the market and to ensure that they can maintain their position in the market, it is essential that Red Bull conduct their own studies regarding their product and make them available on their website. Furthermore, they must reduce the amount of caffeine in their product (Brasel & Gips, 2011, 62). They must also concentrate on designing a campaign that concentrate on promoting the benefits of the energy drink. To avoid bans in other countries, Red Bull must comply with government legislations and regulations regarding the energy drinks. In the near future, Red Bull must concentrate on changing the formula of their product to ensure that their drink is healthy and beneficial for consumers. Furthermore, they must offer variety in their products or revise their pricing strategy.

Technology

Based on technology, the following scenarios are proposed for Red Bull

  • Scenario 1: Rapid Growth
  • Scenario 2: Slow Growth

Implications

Scenario 1: Technology can have a positive and negative impact on the company. In the case of Scenario 1, Red Bull can utilize Internet and social media marketing in order to promote its product. This would allow Red Bull to come in direct contact with its consumers. Furthermore, it will assist in reaching larger consumer segment. Furthermore, technology would also allow Red Bull to improve its operational processed and reducing the operational cost. This would assist Red Bull to remain in the market.

Scenario 2: In the case of scenario 2, technology would also be applied by competitors and therefore, energy drink industry would be fiercely competitive. If this is the case, then there is possibility that Red Bull may lose its consumer segment to its competitors and therefore, would experience a decline.

Strategic Implications

Scenario 1: Technology has a significant impact on the business activity and performance of Red Bull. In case of growth, it can have a positive and negative impact. In the case of scenario 1, Red Bull must utilize other forms of marketing in order to promote its product. Red Bull’s current marketing and campaign strategy is based on creativity, innovation and personal (Philip, 2007, 443). Its competitors are adopting the same marketing strategies in order to promote their products. Red Bull current marketing strategy is based on sponsoring sports events and television advertisements.  To differentiate itself from its competitors, it is essential that the company utilizes social media marketing and ensures that they can effectively reach their target market. In this way, this can be a new promotional strategy, which would allow the company to stand out from its competitors. It would also help in increasing its business performance and productivity.

Scenario 2: In the case of scenario 2, the same social media marketing could be applied by its competitors and therefore, the market growth for Red Bull can be slow. In this case, Red Bull must incorporate different marketing strategies such as sponsoring sports program, utilizing celebrity endorsement and social media networking to promote their product (Brasel & Gips, 2011, 64). Furthermore, they must concentrate on improving the quality of their product and ensure that they are available at affordable prices.

Proposed Strategy and Recommendations

            The following strategies are recommended based on the external factors that would make an impact on the business performance and activity of Red Bull:

  • Red Bull must comply with the rules and regulations of the country where it operates and for this purpose, it must conduct its own studies in order to verify the benefits and disadvantages of its products. This would allow Red Bull to remain in the market where it operates.
  • Red Bull must focus on introducing new flavors rather than just one as compared to its competitors. More flavors would attract more consumers.

To reach consumer segments, it is essential that Red Bull incorporates Social Media Marketing. This would allow it to reach a larger audience at an economical and accelerating rate.

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