Red Bull Company Marketing Strategy

Executive Summary This paper identifies Red Bull as a unique company that has demonstrated the ability to achieve success through innovative and unconventional ways. Its unique marketing strategy stands out as the hallmark of the company’s innovation. Through its market innovation, Red Bull has been able to maintain a dominant market position in the global energy drink market.Advertising We will write a custom essay sample on Red Bull Company Marketing Strategy specifically for you for only $16.05 $11/page Learn More Its expansion into Asia has however been incomplete because of the company’s minimal market presence in the region. This paper proposes a cautious market expansion into Japan through a joint venture with Oronamin-C. This plan (coupled with the company’s innovative market strategy) should provide an optimum market mix that sets Red Bull in a position to achieve significant success in Japan. Consequently, Red Bull should s ucceed in Japan. Introduction Red Bull has made a huge name in the world for its innovation. The product was initially an Asian product but an Austrian entrepreneur tailored it to suit the taste of the western market. Red bull’s development therefore emanated from a copyright transfer (from Thailand) that saw it transition into a carbonated drink with a strong western appeal. Many factors make Red Bull a popular energy drink; however, its market innovation sparks the interest of this paper. For example, Red Bull has shown strong market resilience in the wake of intense criticism (IBS Centre of Management Research 2). Indeed, Red bull has been able to transition from an unstable drink to a popular energy drink with global recognition. During the onset of the product launch (in Europe), there was a lot of opposition from health departments regarding the possible health effects of the drink. Consequently, the product received a poor reception in major European markets including France, Denmark, and Norway. In fact, in France, Red Bull (in its â€Å"natural† form) only gained acceptance in 2008 (IBS Centre of Management Research 2). Red Bull’s innovative attribute stems from its unconventional marketing strategy, which hinges on buzz marketing. At its launch, Red Bull had adopted conventional marketing strategies but its failure prompted a change of tact.The failure of the first marketing strategy dented the company’s financial well-being by $12 million (IBS Centre of Management Research 2).Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More However, with the refocus on its unique marketing strategy, Red Bull became the envy of many beverage companies. Red Bull’s reliance on an unconventional marketing strategy defines this study’s interest because its sports-centred market strategy is innovative. Interestingly, the established cost of this innovation is lower than the conventional marketing costs adopted by other beverage companies. The main operational challenges for Red Bull stem from the lack of a patent for the company’s product formula. Consequently, many companies have used Red Bull’s secret ingredients to make rival products. In addition, Red Bull has received negative press for the potential medical risks its product poses (these risks are however in contention). Red Bull’s innovative market strategy bases its principles on the sale of a â€Å"lifestyle,† which is hinged on brand awareness. The company’s market slogan is â€Å"Red Bull gives you wings to fly.† Red Bull’s target market is a vibrant youth between 18-35 years. Unlike other beverage companies that rely on traditional media to sell their products, Red Bull relies on sponsoring sporting events and providing free products to athletes (the company has underwritten several sports competitions and sponsored dozens more). Furthermore, the company has concentrated its â€Å"place strategy† to avail its products mainly in nightclubs and entertainment spots. Red Bull’s innovative marketing strategy has seen it rake more than $4.2 billion in annual sales (IBS Centre of Management Research 3). The future social and commercial impact of Red Bull’s innovative marketing strategy is therefore positive because this strategy creates brand loyalty and improves sales revenues. The three main reasons for the success of Red Bull’s market strategy is its representation of a subculture, concentration in a niche market (as opposed to a mass market) and the perceived social benefits of consuming the drink (support for sports) (IBS Centre of Management Research 2). This paper explores the international business opportunity for selling Red Bull to the Japanese market (using the company’s innovative marketing strategy). The paper centres on three analyses  œ an analysis of the international business opportunity, an analysis of the proposed business opportunity, and an analysis of the financial projections.Advertising We will write a custom essay sample on Red Bull Company Marketing Strategy specifically for you for only $16.05 $11/page Learn More Analysis of the International Business Opportunity Red Bull has received wide acclaim for its product launches (in some Asian markets like China and the Philippines) (IBS Centre of Management Research 1). However, there is still a lot of pessimism regarding the company’s success in Japan. Some observers fear that Japan has different market dynamics that may hinder the success of the product in this market (Euromonitor International 1). The truth in this fear is unconfirmed but the understanding of Japan’s unique market dynamics mirrors the economic, political, and legal environments that affect its market operations. Japan’s Economic, Politic al, and Legal Analysis Economic Japan’s economic environment is appropriate for the launch of Red Bull. Indeed, the country’s economic system bases its foundations around free-market principles that support international trade (Karan 353). Currently, Japan’s per capita income is $45,903 (above most of its Asian rivals and very close to America’s $48,442) (World Bank 2). This high per capita income means that Japanese consumers have the market power to buy premium products (in fact, the IBS Centre of Management Research (2) explains that Japan has a per capita consumption of 1.7 litres). However, Japan’s level of foreign investment falls below many industrialised nations. Compared to the US, UK, Germany, Australia and France; Japan has the lowest rate of foreign direct investments (Jetro 10). This low level of foreign investments has a mixed impact on the launch of Red Bull in the country because it signifies minimal competition (at least from forei gn competitors), but at the same time, it signifies a poor environment for foreign businesses to thrive). Political Japan enjoys political stability from its constitutional monarchy system. The political system is therefore undemocratic but it recognises the importance of embracing free-market leadership. This way, there is little political interference with the market operations. Though not ideal, Japan’s political environment poses minimal threat to Red Bull’s launch in the country. Indeed, there is an adequate political will to support the launch of new and foreign products in the Japanese market (Jain 5).Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Legal Japan’s legal environment has made its economy to be among the most liberalised, industrialised and efficient economies in the world. However, Meiners (370) warns entrepreneurs against starting small businesses in Japan because government policies do not favour such businesses. This situation is uniquely different from the US because small businesses in the US receive government support. Asia Law (2) reports that Japan’s tax regimes may be as high as 65%. Small businesses are therefore discouraged from venturing into this market. However, since Red Bull is a global enterprise, this legal challenge does not severely affect its operations (IBS Centre of Management Research 2). Finally, like Japan’s governance structure, its labour laws borrow from the European model. Asia Law (2) says that Japan’s labour laws are somewhat paternalistic. This situation gives employers less flexibility. However, the Japanese labour force bends to the intrigues of the gl obal labour force (for example, lifetime tenure is making way for new job flexibilities) (Asia Law 2). Broadly, these changes are good for foreign investors because they increase the opportunities to source competent employees. Trade Area and Cultural Analysis Geographically, Japan comprises of four islands. However, the country’s state-of-the-art infrastructure facilitates the transportation of goods from one part of the country to another. Apart from logistical challenges, Japan’s geography does not significantly affect Red Bull’s intended venture. Since Red Bull targets young people as its main demographic group, Japan offers a good market for the product because recent population estimates show that the largest population is aged 15-64 years (Karan 34). Moreover, in a country that has more than 120 million people, a youth budge of more than 60% provides a good market for any company that targets young people (Karan 34). A possible challenge created by Japanà ¢â‚¬â„¢s demography lies in language barrier. With a majority population speaking Japanese, it is difficult to market a product that originates from a non-Japanese background. Nonetheless, providing a tailor-made product to suit the typical Japanese consumer solves this problem. Apart from Japan’s sporting culture, no significant customs or traditions affect the sale of Red Bull. Martial art is the most common sport (the Japanese also practice other western sports such as baseball and football). Motor sport also has a significant following in Japan because there are many Motorsports events that have received corporate sponsorship within the country. Drifting is also another type of sport that has quickly gained prominence in the Asian country and it offers an opportunity for more corporate sponsorship (IBS Centre of Management Research 2). Considering Japan’s demography and social customs, the main strengths and weaknesses of launching Red Bull in this market is the pr esence of a sporting culture and the challenges posed by marketing the product in a predominantly Japanese-speaking country. The sporting culture provides good grounds for Red Bull to market itself as a corporate sponsor (because it has achieved good success with this strategy in other parts of the world). Therefore, complemented by its global dominance, Red Bull is set to have a competitive advantage over other rival products in the sporting industry. However, since Red Bull’s appeals to a western market, it may experience a market penetration challenge in the Japanese culture. This way, Red Bull’s competitive advantage may be lost to other â€Å"Asian-oriented† energy drinks such as Otsuka’s Oronamin-C brand (a common energy drink in Japan). Operation of the Proposed Business Organisation Type and Ownership Red Bull’s market entry strategies in major world markets are inconsistent. Unlike other international brands like Heineken, Red Bull adopts a multifaceted market entry strategy. Japan offers very competitive market dynamics, which may prove to be problematic for Red Bull. Indeed, many market observers have expressed their pessimism regarding Red Bull’s success in this market (Euromonitor International 1). The market domination of Oronamin-C brand and Coca Cola inform this pessimism. Both products control more than 70% of the market share (Euromonitor International 1). It is therefore difficult for Red Bull to challenge this market dominance because it lacks the same resources as its competitors (like Coca Cola). Based on these dynamics, it is crucial for Red Bull to adopt a non-aggressive approach and seek a joint venture with another local company (preferably, Oronamin-C) (Euromonitor International 1). Many advantages are associated with pursuing joint ventures. One advantage that Red Bull will enjoy is risk sharing and the availability of local market knowledge (Trost 18). Another advantage that may be realised when pursuing a joint venture strategy is the joint financial strength that the companies will enjoy. This advantage will boost the company’s resources to expand to all parts of the country. However, some of the main disadvantages associated with the joint venture strategy are the loss of management control, the possibility of failing to recover capital, slow decision-making, high chances of disagreement between partners, and the possibility of both partners having different views regarding their business (Trost 18). Based on these dynamics, Red Bull will only enjoy a 50% ownership of its market venture. Product Red Bull’s venture in Japan centres on selling Red Bull as an energy product. Compared to other energy products in the Japanese market, Red Bull’s perception as a sports drink is its unique feature throughout the world. The value created by the product will be a â€Å"lifestyle appeal† to all its consumers. The product’s price will largely be in tandem with international pricing (about $2). Potential Suppliers: Since this paper proposes a joint venture strategy for Red Bull, the potential suppliers for the product will be the existing supplier for the joint partner. Ideally, since the Oronamin-C brand already has a dominant market presence in Japan, Red Bull should use its supply channel to distribute its products throughout the country. Inventory Policy: The influence of the partnership also shows in the formulation of the company’s inventory policy. However, since there are many uncertainties regarding Red Bull’s success in the Japanese market, the demand flow policy should be the main inventory policy. This policy does not articulate a definite inventory control; instead, every order generates a subsequent supply of the same quantity ordered (therefore, the realisation of supply inefficiencies disappears) (Gilliam 51). Nonetheless, the establishment of a minimum inventory level is crucial to ensure t here are no significant inconsistencies in the demand or supply schedules. Manufacturing Plans: Red Bull’s manufacturing strategy centres on the construction of new plants. This strategy is costly but it depends on the success of the joint venture. Indeed, if there is excess capacity to produce the product from the joint venture partner, Red Bull should pursue this strategy and avoid the risks of injecting a huge capital for building another plant. Transportation Again, Red Bull’s transportation strategy centres on the success of the joint venture. There is therefore no need to set up a new transport system because the local partner will provide one. This way, the company will significantly reduce the costs of operations and benefit from accessing new markets (serviced by the existing transportation network). The risk associated with this transport strategy is the possibility of the partner treating Red Bull as a secondary product. However, if the transport network is expanding and enough equipment is available to service both companies, there are not going to be any problems. Since the importation of some product ingredients is necessary for Red Bull’s operations, the company will have to avail specific documents that are synonymous with international trade. One such document is the consular invoice, which determines the balance of payment between countries (Credit Management World 12). The document also establishes that the products imported to Japan meet the state’s import regulatory standards. An insurance policy certificate is also another important transport document needed for importation, but depending on the terms of trade between the company and Japan, the stipulations in this document varies. Finally, relevant certificates need to be availed for transportation. These certificates include the certificate of inspection, certificate of origin, and weight list certificate (Credit Management World 12). Market Strategy Pricing Policy The premium-pricing model outlines Red Bull’s best chance of effectively gaining a positive perception among Japanese consumers (Berends 44). This strategy has succeeded in other parts of the world (like Apple’s dominance of the US market). Therefore, compared to the competition, Red Bull’s price will be slightly more expensive. This pricing model exploits the consumers’ perception that expensive products are of higher quality, safer and more desirable. This premium-pricing model is also in tandem with Red Bull’s aim of selling a â€Å"lifestyle† that most young people would admire. The currency used in the pricing model will be the Japanese Yen because this currency is Japan’s national currency. Different cost measures add to Red Bull’s pricing model, including the transport costs, tax, tariffs, and the overall cost of producing the product. The minimisation of transport costs occurs through the joint transport agreemen t discussed earlier in this paper. However, the overall cost of producing the product relies on the tax and tariffs imposed on the product. The imposition of a profit margin of 25% will also occur. Promotional Program The Red Bull promotional program will remain true to its international model of sponsoring sports events. Sponsoring Japanese athletes will also form a critical part of the company’s promotional plan. This way, the product will maintain its advantage over other energy drinks in the country. Therefore, advertisements through conventional media – like television, newspapers, or radio will be minimal. This promotional plan not only outlines the company’s first year marketing strategy but the company’s long-term promotional strategy too. Finances Red Bull’s first few years of operation will be costly. In addition to the initial capital, additional investments and incremental capital will boost Red Bull’s penetration in the market. Most of these capital investments will improve the company’s production and distribution facilities. Growth expectations show that the company will break-even in five years. The income statement below describes the projected finances for the first three years of operation. Pro forma Income Statement for First Three Years Operation 2013 2014 2015 Sales $26,729,620 $29,239,060 $32,124,920 Cost of Goods Sold $16,357,250 $17,310,840 $18,407,470 Operating income $10,372,370 $11,928,220 $13,717,450 Expenses Administrative $3,345,920 $3,847,810 $4,424,960 Marketing $4,182,400 $4,809,760 $5,531,230 Total Expenses $7,528,330 $8,857,580 $9,956,210 Earnings before interest and taxes $2,844,030 $3,270,640 $3,761,230 Taxes $1,023,850 $1,177,430 $1,354,040 Net Income $1,820,180 $2,093,210 $2,407,190 The pro forma statement below outlines the projected cash flow Pro forma Cash flow Statement 2013 2014 2015 Opening Balance $15,000,000 $18,000,000 $22,000,0 00 Cash received Cash Sales $24,729,620 $28,239,060 $31,124,920 Credit Sales $2,000,000 $1,000,000 $1,000,000 Interest $750,000 $350,000 $350,000 Sundries $100,000 $100,000 $100,000 Total Cash received $27,579,620 $29,689,060 $32,574,920 Cash purchases Stock Purchases $6,357,250 $7,310,840 $8,407,470 Trade Creditors $500,000 $800,000 $900,000 Other Creditors $400,000 $450,000 $475,000 Operating Costs $7,528,330 $8,857,580 $9,956,210 Capital $2,000,000 $3,000,000 $5,000,000 Other 0 0 0 Total Cash payments $16,785,580 $20,418,420 $24,738,680 Cash Increase/Decrease $10,794,040 $9,270,640 $7,836,240 Closing balance $25,794,040 $27,270,640 $29,836,240 Pro forma Balance Sheet 2013 2014 2015 Asset Cash $9,040,367 $13,680,908 $32,699,802 Total Short-term Asset $9,040,367 $13,680,908 $32,699,802 Long-term Assets Capital Assets $1,200,000 $3,200,000 $4,200,000 Accumulated Depreciation $800,000 $1,440,000 $2,280,000 Total long-te rm Assets Total Assets $10,440,367 $15,440,908 $34,619,802 Liabilities and Capital – – – Short-term Notes – – – Long-term liabilities – – – Total Liabilities – – – Earnings $4,559,633 $440,908 $19,619,802 Shareholder’s Equity $10,000,000 $10,000,000 $10,000,000 Total Equity $5,440,367 $10,440,908 $29,619,802 Total liabilities and Equity $5,440,367 $10,440,908 $29,619,802 Sources and Uses of Funds Statement The sources of funds for the international venture will come from the company – Red Bull. However, since a joint venture strategy is in the offing, funds pooling will occur. The availability of a larger capital pool is therefore possible for both companies. These funds will expand the production capacity and the existing transportation network for both companies. Other auxiliary activities that complement the company’s fund use include marketing and admi nistrative activities. Country Statistic Based on the volume of international trade that Japan enjoys, international business complements 3% of the country’s gross domestic product (Jetro 10). The joint venture between Red Bull and Oronamin-C adds to this international trade balance. Partner Information There is minimal information regarding Oronamin-C’s financial information. However, in the April-June quarter of 2011, the company reported net sales of $3,682,320. Its operating income for the same quarter was $591,982 (Jetro 10). These figures show that the company is making a lot of profit from its Japanese venture. Red Bull hopes to merge its financial resources to join this positive financial outlook. Relevant Laws Over the past years, Japan’s laws have tried to reduce legal obstacles to international trade. However, the country’s state laws still govern sensitive businesses. For example, Red Bull’s venture into Japan will be subject to anti-mo nopoly and competition laws. These laws will govern Red Bull’s intended joint venture with Oronamin-C. In addition, since Red Bull is an energy drink, the launch of the product in Japan will also be subject to health laws. These laws ensure that the drink complies with Japan’s health safety standards. Comprehensively, Red Bull’s venture into Japan is mainly subject competition and health laws. Conclusion Red Bull has managed to remain relevant through the international market because of its robust marketing strategy. Its expansion into Asia has been largely successful because of its successes in China and the Philippines. This paper’s proposal for the company to venture in Japan is largely cautious because Japan’s energy drink market is highly concentrated. However, since this paper proposes a joint venture plan, most of the risks associated with operating in a concentrated market diminish. Consequently, Red Bull will achieve significant success in this market. Works Cited Asia Law 2005, Doing Business in Japan. Web. Berends, William. Price and Profit: The Essential Guide to Product and Service  Pricing and Profit Forecasting, New York: William R. Berends, 2004. Print. Credit Management World 2012, Export Documents. Web. Euromonitor International 2011, Red Bull plans Asian expansion. Web. Gilliam, Dean. Quantum Leap: The Next Generation, New York: Ross Publishing, 2005. Print. IBS Centre of Management Research 2012, Red Bull’s Innovative Marketing:  Transforming a Humdrum Product into a Happening Brand. Web. Jain, Purnendra. Japan’s Subnational Governments in International Affairs, London: Routledge, 2005. Print. Jetro 2012, Promoting foreign direct investment (FDI) into Japan. Web. Karan, Pradyumna. Japan in the 21st Century: Environment, Economy, and Society, Kenturcky: University Press of Kentucky, 2010. Print. Meiners, Roger. The Legal Environment of Business, London: Cengage Learning, 2011. Print. Trost , Thilo. Joint Ventures: The benefits and perils – why some are successful and  others fail, New York: GRIN Verlag, 2011. Print. World Bank 2012, GDP per capita (current US$). Web. This essay on Red Bull Company Marketing Strategy was written and submitted by user J0nah to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.