Stratigic Management of Red Bull GmbH - Essay Example

?Introduction During the contemporary period, it can be d that organisations operate in an environment that is characterised by external factors over which the company in some cases has very little control and when investigating these wider factors it is referred to as marketing audit or environmental scanning (Lancaster & Reynolds 1999). On the other hand, the internal environment has a bearing on the way an organisation operates as well. Against this background, this essay seeks to critically evaluate the strategic development of Red Bull GmbH’s product and marketing strategy paying particular attention to external factors that might affect the product. The following analytical tools namely: SWOT analysis, PESTEL analysis as well as Porter’s Five Forces model analysis will be used in this case. The essay starts by outlining a brief historical background of the organisation in question for the sake of easier understanding then followed by an analysis of the above mentioned tools for scanning the environment in which the organisation operates. Environmental scanning plays a pivotal role in helping the marketing managers of an organisation to be in a better position to know the situation taking place on the ground for them to be able to gain a competitive advantage especially in view of the competition that may exist. Background Red Bull GmbH is widely acknowledged as the creator of the 'energy drink' category and has managed to maintain a close association with sports from the time it was launched in 1987. It is known for its sponsorship especially of extreme, alternative sports like white water kayaking, hand gliding, wind surfing and snowboarding. Through the use of unconventional marketing strategies, Red Bull GmbH has come to be a force to reckon with in the energy drink market. SWOT analysis “A SWOT analysis is a useful instrument for helping managers to identify internal strengths and weaknesses of a business and external opportunities and threats facing it,” (Strydom J. p 31). Basically, SWOT stands for strengths (S), weaknesses (W) while on the other hand the external environmental factors are regarded as either opportunities (O) or threats (T). This analysis is very important to the managers as it allows them to focus on key strategic issues based on the notion that an effective strategy fully utilises the strengths and opportunities of a business and strives to minimise the weaknesses and threats. Potential internal strengths The major potential strengths for Red Bull include branding strategy. Red Bull was positioned as an energy drink that 'invigorated mind and body' and 'improved endurance levels' of the individual. The company’s slogan 'Red Bull gives you wiiings' also played a great role in reinforcing the positioning of the brand. This strategy played a very big strategic role in product development as well as strategic marketing. The branding strategy gave the company a major strength in that the product is completely different from the other energy drinks available in the market. This differentiation strategy has played a significant role in product development as well as marketing strategy as a result of the uniqueness of the product. The other major strength of the company in its product development and marketing strategy is that it uses unconventional marketing strategies. It targets the students and these are used to market the product. This is a major strength is the way the brand is positioned to the people whereby the aim is to attract consumers and appeal to their interests through its visibility. The packaging strategy has greatly enhanced the development of the product which is unique. Potential internal weaknesses The major notable potential weakness is that Red Bull did not rate very high with consumers on the taste dimension. It has been reported that the drink had a medicinal flavour though it smelt sweet. The taste was bitter and few people actually liked the taste of Red Bull. The company however did not focus on the aspect of taste in its promotions of the brand. This is a weakness considering that the consumers have different tastes when it comes to consumption of different beverages such as energy drinks which are believed to have different properties. Potential external opportunities The potential opportunity for Red Bull GmbH is that it is specifically positioned in the market as an energy drink. It is different from the other beverages available in the market and is associated with people who are athletic and energetic in different activities. The other opportunity is that its marketing strategy played a critical role in targeting the young people in the market. Penetrating the market has been greatly enhanced by innovation which is a great opportunity for the company operating in a competitive market. Potential external threats The major threats that affected the company’s endeavour in its product development and marketing strategy include some of the following factors. The ingredients used in the production of the brand were questioned in many instances whereby it was alleged that the drink was unsuitable for consumption by young people. A good example can be drawn from the case in of a school in California which banned Red Bull from its campus after two students became seriously ill after drinking Red Bull just before football practice. The market for energy drinks has also been infiltrated by copycats who were bent on cashing on the sales after realising the success of Red Bull. Some of the new actors imitated the name of Red Bull such as Red Tiger and American Bull being notable examples. It was estimated that by 2005, there were about 125 actors in the energy drinks market. Big companies like Coca cola and Pepsi also ventured into the energy drinks market and this posed a major threat to the viability of the brand. Growing competition from big companies affected Red Bull, as these companies had great potential of spending power in investing in this growing lucrative market. Another major threat is that these emerging competitors introduced energy drinks in multiple flavours like cranberry, orange, lime and cola, among others. They also considered a variety of tastes which threatened the viability of Red Bull which was not particularly concerned with taste. The company had only one major brand and target market of young people in colleges which made it challenging to penetrate other new markets. PESTEL Analysis Kotler (1999) posits to the effect that PESTEL analysis is a powerful tool in determining as well as understanding the market forces that affect the growth of business. In other words, it determines the direction for operations in any given business. This analysis is going to be used to illustrate the different factors that have affected the product development and marketing strategy for Red Bull. PESTEL stands for factors which may affect the operations of business such as political, economic, social, technological, environmental as well as legal factors (Lancaster & Reynolds 1999). This is a very useful tool in analysing the environment in which an organisation operates. In most cases, it can be seen that various external factors affect the operations of any given organisation and they must be taken into consideration so as to achieve competitive advantage by the organisation. In different countries where the organisation operates, there are policies that govern the operations of all companies. These policies are meant to protect the interests of the consumers. For instance, when Red Bull wanted to launch the beverage in Europe, they had to wait for three years to get approval in Austria, the home country of the owner of the company. It also took five years for the beverage to be sold internationally, and Hungary became Red Bull's first foreign market in 1992. In France and Denmark, the beverage was banned. Economically, the organisation is guided in its operations by the economic regulations imposed by different governments in which the organisation operates. It is the duty of the government to ensure that no one organisation uses exploitative means in doing business. There are various social factors that affected the product development of Red Bull as well as its marketing strategy. Factors such as age played a pivotal role in product development where it can be noted that the major target market is comprised of the youths who are in colleges. The brand is also associated with activities such as sport which require energy. On the other hand, it can be noted that technological factors have also contributed to the development of the brand. The company uses the internet to highlight different sporting events it sponsors. It also uses the internet to communicate with the customers from different places across the globe. Environmental factors also play a considerable role in the operations of Red Bull. The material used in the manufacture of packaging is user friendly and it does not cause serious harm to the environment since it can be recycled. Legally, there are different factors that guide the operations of the organisation. The company adheres to the legal framework of different countries and does not engage in unethical business practices such as child labour. Labour laws have a bearing on the performance of the company in many ways. Porter’s five forces model Another effective analytical tool that can be used to evaluate the organisation’s product development as well as marketing strategy is Porter’s five forces model. The five forces model suggests that there are mainly five competitive forces that characterise the market in many cases and this model is perhaps one of the mostly used strategies in business (Lancaster and Reynolds 1999). There is always need to gather information if the new entrants can be a threat as well as the existing competitors. Threats of other substitutes such as new brands mainly depend on quality. It can be noted that this model is a very effective tool for competitive analysis with reference to the performance of the other organisations in the market. As far as the entry of competitors is concerned, it can be seen that in many geographical locations where the company operates, competition is actually promoted. There is no organisation that can enjoy the monopoly of dominating the market especially in the energy drink market. A close analysis of the case study of Red Bull shows that there are many entrants penetrating the market. Among them, smaller brands like Monster, Rockstar and Roaring Lion have also posed serious competition to Red Bull. Whilst there are established players like Coca Cola and Pepsi in the market, this does not limit the opportunity for the other actors to enter into the market as noted above. In as far as Porter’s five forces model is concerned, there is always the danger of substitutes overtaking the other products in the energy drink market given that there are many actors offering a variety of products. In this case, different actors have introduced energy drinks with different varieties. The Roaring Lion for instance is in direct competition with Red Bull and its brands are posing a serious threat to Red Bull’s brand. The brands offered by these new entrants can substitute Red Bull’s brand which is a challenge that has affected the marketing strategy of Red Bull. Red Bull uses the strategy of charging premium prices for its products. This has not greatly affected the buying behaviour of the consumers. The bargaining powers of buyers are mainly influenced by the fact that this drink is associated with prestige and the targeted consumers are proud of buying the product. On the other hand, the bargaining powers of the suppliers suggest that there are large as well as small suppliers especially in the beverage industry. The suppliers often charge the prices that are commensurate with the demand of different ingredients that are used in the production of energy drinks. Lastly, it can be noted that there is stiff competition among the players in the energy drink market. According to the case study of Red Bull, it can be noted that there is rivalry among the players in this particular field. It has been noted that by 2005, there were about 125 players in the energy drink market all competing for the same customers. Roaring Bull for instance is directly competing against Red Bull given that it has adopted the strategy used by Red Bull. Other established organisations such as Coca cola as well as Pepsi have also ventured into the energy drink market which has further compounded the stiffness of the rivalry in competition in the market. Elements of the marketing mix The elements of the marketing mix have also contributed to the marketing strategy adopted by Red Bull. Marketing mix is a set of tools that work together to affect the market place (Strydom 2004). Businesses currently face increasing competition and those businesses that determine customer requirements and deliver the most value to their customers will be successful in the same way Red Bull GmbH has managed to establish itself as a force to reckon with in the market. Basically, the marketing mix is primarily concerned with the four Ps namely price, product, promotion and place which involves the distribution channels. Premium prices are charged for the Red Bull brand and this has a strong bearing on the performance of the product on the market. This energy drink is regarded as trendy and fashionable hence the high price is mainly meant to depict the real value of the brand. The pricing strategy is also related to the uniqueness of the product. In this case, the value of the product is associated with the high price which is a marketing strategy that has attracted a lot of customers. Something that is unique is often associated with high prices. On the other hand, the product itself plays a major role in the marketing strategy that is used by the company. The product is portrayed in a unique way and it is an energy drink that is unique from the other beverages. The packaging of the product is unique from the other beverages and this greatly contributes towards attracting the customers to buy the product. The positioning of the product also has a bearing on the marketing strategy used. The product is visible and is always available in the targeted market. The strategy used by Red Bull is to target especially the young people mostly in colleges and the drink is always readily available at these places. The product is also positioned near gyms as a way of fulfilling the assertion that Red Bull is an energy drink that invigorates and gives energy to those who consume it. Promotion on the other hand is a strategic tool that is used by this company to market its product. Red Bull GmbH is also known for its sponsorship of extreme alternative sports like white water kayaking, hand gliding, wind surfing and snowboarding. These are sports that often involve risk as well as adventure. Red Bull's association with Fl Racing, one of the world's most glamorous and expensive sports has played a pivotal role in portraying the product as a trendy drink which is strategic in the organisation’s marketing initiatives. Conclusion Over and above, it can be noted that during the contemporary period, organisations operate in an environment that is characterised by external factors over which the company in some cases has very little control. The case of Red Bull GmbH shows that analytical tools such as SWOT analysis, PESTEL analysis as well as Porter’s five forces model have a strong bearing on the operations of the organisation as well as the marketing strategy that is implemented. Bibliography Cant M.C. (2000), Marketing Management, 4th Edition Juta and Co Ltd, SA. Kotler P. (1999), Kotler on Marketing: How to create, win and dominate Markets, Free Press, London. Lancaster G. & Reynolds P. (1999), Introduction to Marketing: A step by step Guide to all the tools of Marketing, Kogan Page Kotler, P. (1998). Marketing Management: Analysis, Planning, Implementation and control. Prentice Hall, New Jersey. Strydom J. (2004), Marketing, 3rd Edition, Juta & Co Ltd, SA McCarthy J.E & Perreault W. D. (1996), Basic Marketing: A Global Managerial Approach, 12th Edition, Irwin McGraw-Hill, USA. Porter’s five forces model (ND). Retrieved on 15 January 2011 from: http://www.12manage.com/methods_porter_five_forces.html Red Bull (N.D) Official website. Available at: www.redbull.com [Accessed on 06 February 2011] "Red Bull snaps up Jaguar Fl team," (November 15,2004). http:www.bbc.co.uk [Accessed on 06 February 2011] Read More