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ICMR Case Collection ICFAI Center for Management Research

This case was written by Shirisha Regani, under the direction of S.S.George, ICFAI Center for Management Research (ICMR). It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

Red Bull’s Innovative Marketing: Transforming a Humdrum Product into a Happening Brand MKTG141

� 2006, The ICFAI Center for Management Research. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means- - electronic or mechanical, without permission. To order copies, call +91-40-2343-0462/63 or write to ICFAI Center for Management Research, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or email icmr@icfai.org. Website: www.icmrindia.org

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MKTG/141

Red Bull’s Innovative Marketing: Transforming a Humdrum Product into a Happening Brand

“In terms of attracting new customers and enhancing consumer loyalty, Red Bull has a more effective branding campaign than Coke or Pepsi. Red Bull is building a beverage brand without relying on the essential equipment of a mass-marketing campaign. Perhaps the indispensable tools of marketing aren't so indispensable after all.”

– Nancy Koehn, Professor of Business Administration at Harvard Business School, in 2001.1

“When we first started, we said there is no existing market for Red Bull. But Red Bull will create it. And this is what finally became true.”

– Dietrich Mateschitz, Founder and Managing Partner of Red Bull GmbH, in 2005.2

RED BULL ACQUIRES SECOND F1 TEAM

In September 2005, Red Bull GmbH, the manufacturer of the Red Bull energy drink, acquired Minardi, an Italy-based Formula One (F1)3 team for an undisclosed amount. Dietrich Mateschitz (Mateschitz), the founder and managing partner of the company said that the Minardi team would continue under the existing management4 till the end of 2005, after which it would be renamed for the 2006 racing season.

Red Bull GmbH already owned another F1 team, Red Bull Racing, at the time it acquired Minardi. Red Bull Racing had participated in F1 as Jaguar Racing, until Mateschitz bought it from its previous owner, the Ford Motor Company (Ford) in November 2004. After the acquisition of Minardi, Mateschitz announced that Red Bull Racing would be the company’s main team, and the newly acquired Minardi (renamed Scuderia Toro Rosso (STR)5 for the 2006 racing season) would serve as the ‘rookie team’ in 2006. Red Bull GmbH intended to use the team to train young drivers sponsored by the company.

Red Bull, widely acknowledged as the creator of the ‘energy drink’6 category, maintained a close association with sports from the time it was launched in 1987. Red Bull GmbH was known for its sponsorship of extreme, alternative sports like white water kayaking, hand gliding, wind surfing and snowboarding – sports that involved elements of adventure and risk. Red Bull’s association

1 Anni Layne Rodgers, “ It’s a (Red) Bull Market After All,” Fast Company, October 2001. 2 Kerry A. Dolan, “The Soda with the Buzz,” Forbes, March 28, 2005. 3 Formula One, abbreviated to F1, and also known as Grand Prix racing, is the highest class of single-seat open-

wheel formula auto racing in the world. The ‘formula’ in the name is a set of rules which all participants and cars must meet. http://en.wikipedia.org

4 Minardi was then owned by Australian millionaire Paul Stoddart. 5 Scuderia Toro Rosso means ‘Red Bull Stable’ in Italian. 6 Energy drinks are beverages that generally contain legal stimulants, vitamins, and minerals. Most of them contain

taurine and glucuronolactone, and a high content of caffeine and sugar or glucose. Many energy drinks are flavored and/or colored to resemble soft drinks.

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with F1 Racing, one of the world’s most glamorous and expensive sports, also helped enhance its image as a trendy drink. Analysts said that the company’s sponsorship of extreme sports that required stamina and energy was also just right for the image of the beverage.

For a product that did not have any extraordinary qualities, and was made of ingredients whose effects had often been called into question7, Red Bull had a huge market presence. The company was reported to hold almost 70 percent of the worldwide market for energy drinks in 2005. Analysts attributed the beverage’s success to the unconventional marketing strategy adopted by the company to promote it in new markets.

BACKGROUND

Dietrich Mateschitz was born in 1944 in Austria, to parents who were primary school teachers. After graduating with a marketing degree from the University of Commerce in Vienna, he took up marketing jobs at Unilever and Jacobs Coffee, before becoming the international director for marketing at Blendax, a German company that dealt in FMCG products like toothpaste, skin creams and shampoos, in 1979.

Mateschitz’s job involved a lot of travel around the world, and during one of his trips to Thailand, he discovered an ‘energy drink’ called Krating Daeng, which was very popular among blue collar workers in the country. When he sampled it, Mateschitz reportedly discovered that the drink was good at combating jetlag. The idea for marketing an energy drink in Western markets came when he realized that energy drinks had a huge market in Asia and that there was no such product available in Europe.

Mateschitz approached Chaleo Yoovidhya (Yoovidhya), the owner of TC Pharmaceuticals, which made Krating Daeng, with a proposal to market the beverage in Europe. Yoovidhya agreed to give Mateschitz the foreign licensing rights to the drink in return for a partnership in the venture. In 1984, Mateschitz resigned from his job to pursue his new business. Mateschitz and Yoovidhya each invested $500,000 to become equal partners, with a 49 percent stake each, in the new company. The remaining two percent was held in trust for Yoovidhya’s son. The founders agreed that Mateschitz would run the company, while the Thais remained sleeping partners.

The Thai name Krating Daeng roughly translated into ‘red water buffalo’ in English. After the new venture was formed with Yoovidhya, Mateschitz changed the beverage’s name to ‘Red Bull’ to make it more suitable for western markets. He then named the company after its only product.

Mateschitz also modified the beverage to make it more acceptable to western consumers. The main changes he made were to carbonate the drink and to package it in a slim blue and silver can. In Thailand, the drink was sold in glass bottles (Refer Exhibit I for a picture of Krating Daeng). However he left the main ingredients – caffeine, glucuronolactone and taurine in place.8

Before launching Red Bull in Europe, Mateschitz hired a marketing research firm to test the market for energy drinks in the region, and to gauge the potential of Red Bull. The research results showed that Red Bull was not likely to find favor in the market, as consumers sampled liked neither the taste of the beverage, nor the name Red Bull. The test consumers found the taste ‘too acidic’ and ‘strange on the palate’.

However, Mateschitz chose to disregard these findings and launch the product. He set up an office near Salzburg in Austria to act as the company’s base. In the meantime, one of his friends coined the slogan ‘Red Bull gives you wiiings’, which became the theme of the company’s promotion campaign. 7 Red Bull’s main ingredients taurine and glucuronolactone are extremely controversial. 8 Glucuronolactone is a carbohydrate, and taurine is an acidic chemical substance found in the tissues of many

animals

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A major obstacle in the launch of Red Bull was regulatory approval. Red Bull contained several ingredients that had not been used in European markets before. Therefore Red Bull had to get approvals from the regulatory agencies in various countries before it could be launched.

Austria was the first to grant approval, and Red Bull was launched in the country in 1987. This was followed by its launch in Hungary, the United Kingdom (UK), Slovenia, Germany9 and Switzerland, in the early 1990s.

Supported by the company’s unconventional marketing activities, Red Bull became an instant success in Europe. The beverage’s target market was young urban professionals who often put in long hours at work, and weekend revelers who wished to party all night. By 1990, almost four million cans of Red Bull were sold in Austria.

Red Bull was launched in the United States (US) in 1997 and found success there as well. Over the late 1990s, the company expanded rapidly across Europe, South America, Australia and Asia. By the early 2000s, Red Bull was ranked among the top ten carbonated beverages in the world. In 2003, Mateschitz was on the Forbes’ 10 billionaires list.

Red Bull GmbH was a private company, and hence was not required to publish its financial information. But it was estimated that the beverage’s global sales exceeded $2 billion in 2004. As of 2006, Red Bull was sold in more than 100 countries across the world, and the company employed around 1850 people, of who 200 worked at the headquarters near Salzburg.

ELEMENTS OF RED BULL’S MARKETING STRATEGY

Red Bull was generally acknowledged by marketing experts to be a good example of an ordinary product of uncertain worth that was transformed into a powerful brand through innovative marketing. The emphasis Red Bull placed on marketing was evident from the fact that the company spent around 30 percent of its annual turnover on marketing - much higher than most other beverage manufacturers who spent approximately 10 percent.

Red Bull was positioned as an energy drink that ‘invigorated mind and body’ and ‘improved endurance levels’. The company’s slogan ‘Red Bull gives you wiiings’ reinforced this positioning. The beverage was targeted at people who sought increased endurance, speed, concentration and alertness (Refer Table I for the ‘benefits’ of Red Bull as claimed by the company). However, despite the company’s claims, nutritional experts declared that the product had no ingredients that could confer actual benefits, other than providing an instant ‘kick’ after consumption.

Table I: Red Bull Energy Drink

x Increases performance x Increases concentration and reaction

speed x Improves vigilance x Improves the emotional status x Stimulates metabolism

Source: www.redbull.com

Red Bull’s main ingredients were caffeine, sugar, some vitamins and chemical substances like taurine and glucuronolactone. (Refer Exhibit II for the ingredients of Red Bull). These were more or less the same ingredients found in other soft drinks like Coca Cola (Coke) and Pepsi. However, the quantities of caffeine and sugar in Red Bull were almost double those found in large servings 9 Germany had at first banned Red Bull claiming it was an anesthetic. But reportedly, a large number of cans were

smuggled across the Austria-Germany border to be consumed at weekend parties. 10 A prominent business magazine.

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of cola soft drinks. The additional caffeine and sugar were thought to be responsible for the ‘lift’ consumers experienced soon after drinking it. According to scientists, sugar and caffeine are absorbed by the human body immediately, and this is what gives a sudden surge of energy. A similar effect could be obtained by drinking extra-strong sweetened coffee. According to the American Dietetic Association (ADA), there was no evidence that Red Bull or any other energy drink could have a restorative effect on a tired mind and body. “They (energy drinks) are usually very high in simple sugars and contain at least some caffeine. Those are two things that your body will use right away. So these drinks do provide quick energy. Unfortunately caffeine and sugar are used up by the body very quickly as well, so the lift doesn’t last very long. You could probably accomplish the same thing with a glass of juice and a cup of coffee,” said Eddie Hogan, a spokesman for the ADA.11 Apart from this, Red Bull did not rate very high with consumers on the taste dimension. Reportedly, the drink had a slightly medicinal flavor with a lemony base. It smelled sweet, but the taste was a mix of sweet and bitter tinges. In fact, few people actually liked the taste of Red Bull, and the company did not focus on taste in its promotions. However, analysts thought that the ‘energy boosting’ properties of Red Bull and the benefits it promised prevailed over the taste aspect in consumers’ minds. Red Bull’s brand image was that of a stimulant or party drink. The values associated with the brand - irreverence and individualism - appealed to the young urban consumers it targeted. “The beauty of Red Bull is that it’s the anti-brand brand. Red Bull doesn’t have any of the commercial trappings of a traditional, off-the-shelf product. It’s underground, even when it’s above ground, and that appeals to the young people who drink it,” said Marc Gobe (Gobe), the author of Emotional Branding: The New Paradigm for Connecting Brands to People.12 From the start, Red Bull’s marketing strategy was unconventional. When the drink was first launched in Austria, Mateschitz understood that its target market in Europe would have to be different from its blue collar market in Asia. In Europe, coffee was the preferred ‘pick-me-up’ used by all classes of people. However, Mateschitz was confident that he would be able to create a market around hip, young urban professionals and students who would be open to a new ‘cool’ alternative to coffee. Red Bull dispensed with traditional modes of advertising to make effective use of buzz marketing in promoting the beverage to the target market. “We were always looking for a more creative, different point of view,” said Mateschitz.13 When Red Bull first entered a new market, the company’s sales people provided free cases of the drink to influential, trend-setting college students, and encouraged them to throw a party for their classmates and friends. The idea was that once the product was tried out by the target group, it would be easier to establish the market. This strategy allowed Red Bull to gain immediate acceptance among the college-going crowd as a cool and happening beverage. It also built its reputation as a party drink for people who needed the energy to party all night. Analysts said that Red Bull’s buzz marketing played a critical role in helping it gain a foothold in new markets. According to marketing experts, ‘Generation Y’ (people born after 1981) was generally skeptical of traditional marketing, and consequently, traditional modes of advertising have little impact on them. Besides, during the 1990s and early 2000s, companies had been deluging customers with promotional material, and people had learned to block out most of these messages. In this context, what was needed was an innovative method to cut through the clutter and make an impact on the target market.

11 Jeff Edwards, “Liquid Cocaine,” http://archive.salon.com, February 2, 2001. 12 Anni Layne Rodgers, “ It's a (Red) Bull Market After All,” Fast Company, October 2001. 13 Kerry A. Dolan, “The Soda with the Buzz,” Forbes, March 28, 2005.

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Red Bull’s grassroots marketing helped it cut through the clutter effectively. The company was able to get its message across to the target market without being too ‘obvious’ about it. Using students to market the product to other young people gave it instant credibility in that consumer age group. “Cool college students have become Red Bull’s best ambassadors because they carry the most credibility with cynical consumers. It’s almost as if brands have to be elected to be part of the culture now,” said Gobe.14 The company also ensured that it chose people who were young, athletic and stylish to be its brand ambassadors, to enhance its image in the market.

In addition to sponsoring student parties, Red Bull employed ‘consumer educators’ to get its message across to the general public. Consumer educators were the company’s sales representatives who frequented public places like beaches, exhibitions and meetings where young people congregated, and gave away free samples of the beverage. Additionally, they distributed promotional material about the product, and answered any questions people might have about Red Bull. Reportedly, consumer educators often left empty cans on tables in clubs and bars, subtly making the product one that people saw around and got familiar with.

Red Bull also developed the Mobile Energy Team (MET) program, where students drove around in cars and pick-up trucks, and distributed free cans of the beverage ‘where energy was needed’. These vehicles were painted blue and silver – the colors of Red Bull, and had an oversize Red Bull can strapped on the back or top. These Racers, as they were called, created tremendous visibility for the company, and helped underscore Red Bull’s image as a youthful and hip brand.

An important reason for Red Bull’s success was that the company chose its target market well and reached it effectively. Visibility and availability were the central themes in all of Red Bull’s promotions. For instance, Red Bull gave away free samples at organizations and places where people worked long hours, in stressful conditions. The availability of the drink encouraged people to try it when they felt enervated, and many of them soon got hooked on Red Bull.

Red Bull was also widely available near gyms and colleges, and was aggressively marketed to bartenders and bar owners. If it was not possible to retail through convenience stores in the selected region, the sales reps opened kiosks to sell the drink. The company also advertised in ‘Wipeout 2’, a game on the Sony PlayStation, by putting the name of the drink on virtual billboards that flashed by as a player drove around on the virtual racetracks in the game15. “We don’t bring the product to the people. We bring people to the product. We make it available and those who love our style come to us,” said Mateschitz about Red Bull’s promotions.16

When Red Bull first entered a market, the company’s sales reps tied up with distributors in key locations (near colleges, gyms, etc.). Initially, the company paid for the distributors’ promotional and advertising costs and also bore the cost of the samples distributed, for a period of around three months. Once Red Bull established its presence in the region, the company gradually phased out this support.

Red Bull usually attempted to establish an ‘exclusive’ network of distributors in each of its markets. After it gained a foothold in a new market, the company generally insisted that the distributors carry only Red Bull and no other beverage, even if the other beverages were not direct competitors. If this was not possible, the company set up a warehouse in the region, and hired students and other young people to act as distributors. The main task of these budding distributors was to see that the beverage was supplied to the stores in the region and that it was given prominent shelf space.

14 Anni Layne Rodgers, “ It’s a (Red) Bull Market After All,” Fast Company, October 2001. 15 Diesel jeans were advertised the same way in this game. 16 “Selling Energy,” The Economist, March 9, 2002.

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Very soon after entering a new market, Red Bull’s sales reps contacted bars and trendy nightspots to promote Red Bull to the bartenders and owners. After a bar had placed an order for a certain number of cases, the company would give it Red Bull branded coolers and other promotion material. “We go to on-premise accounts first, because the product gets a lot of visibility and attention. It goes faster to deal with individual accounts, not big chains and their authorization process,” said Markus Pichler (Pichler), the executive vice president for strategic planning at Red Bull North America.17

Once Red Bull gained a foothold in the market and the distribution network was established, the company embarked on the promotional activities that were to supplement the grassroots marketing efforts. Sports sponsorships formed the core of Red Bull’s marketing strategy. The company primarily associated itself with extreme alternative sports, although it was also involved with some popular ones like football. The idea behind this was to reinforce Red Bull’s image as a beverage for adventure-seekers and risk-takers.

Red Bull sponsored and organized sporting activities like kayaking, hand-gliding, rough-terrain biking, cliff diving and skateboarding. Some of the sporting events it sponsored at various locations were the Red Bull Huckfest, a ski and snowboard freestyle competition held in January, and the annual Flugtag (German for ‘flying day’), where participants built their own flying machines and leapt off from a height into a body of water. Red Bull was also a sponsor for the Cyberathlete Professional League for professional computer game players. In addition to conducting alternative sporting events, Red Bull also sponsored several athletes involved in these sports around the world.

Red Bull also sponsored mainstream sports, and owned several sporting teams. In April 2005, it bought the Austrian football team SV Austria Salzburg and renamed it Red Bull Salzburg. The company also purchased the New Jersey based MetroStars Major League Soccer team from its former owner Anschutz Entertainment Group and renamed it Red Bull New York. The New York Times reported that Red Bull had paid ‘in excess of $100 million’ for the MetroStars, which included complete ownership of the team, naming rights of their new stadium and 50 percent stake in the new stadium (the rest of the stake was to be held by Anschutz Entertainment Group, which would also be responsible for the operations of the stadium). As of early 2006, the company was in the process of building the Red Bull Park stadium in New Jersey to act as the base for the team. The soccer-specific stadium was likely to be ready by 2008.

One of the sports with which Red Bull was closely associated was motor racing. The company sponsored several racing events as well as teams around the world. Some of the motoring events sponsored by Red Bull were the Deutsche Tourenwagen Masters (DTM), KTM Factory Motocross Team, Champ Car World Series, and World Rally Championship. In addition to this, Red Bull had announced that it would sponsor two Toyota teams in NASCAR’s18 2007 Nextel Cup in the US. The company also sponsored the NASCAR driver Robby Gordon.

Red Bull was also closely associated with F1 racing. The company entered the F1 arena through its sponsorship of the Sauber team in 1995, when it bought a 64 percent stake in the holding company that owned the team. However, in 2002, Mateschitz had differences with the team management over the hiring of driver Kimi Raikkonen, and Red Bull sold its stake in the holding company to Credit Suisse.

17 Kenneth Hein, “A Bull’s market – The marketing of Red Bull energy drink,” Brandweek, May 28, 2001. 18 The National Association for Stock Car Auto Racing (NASCAR) is the largest sanctioning body of motorsports in

the United States. The three largest racing series sanctioned by NASCAR are the NEXTEL Cup, the Busch Series and the Craftsman Truck Series. It also oversees seven regional series and one local grassroots series.

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Even after the fallout with Sauber, Red Bull remained interested in F1. Consequently, in November 2004, when Ford announced its decision to exit F1 after a major restructuring program, Red Bull bought the company’s Jaguar Racing F1 team for an undisclosed amount. Soon after the purchase, Jaguar was renamed Red Bull Racing.

Red Bull Racing debuted in the 2005 Australian Grand Prix with a new chassis painted with the Red Bull logo (Refer Exhibit III for a picture of Red Bull Racing’s 2005 car). Red Bull Racing finished in the seventh position in the 2005 Constructors’ Championship.

In late 2005, Red Bull acquired Minardi and renamed it Scuderia Toro Rosso. STR made its debut in the Bahrain Grand Prix in 2006. The team was to be Red Bull’s ‘B’ team or ‘rookie’ team in the 2006 racing season.

Mateschitz said that the main motive behind the company’s acquisition of Minardi was to give its young drivers a chance to gain F1 experience. Red Bull conducted Red Bull Junior Team (Europe) and Red Bull Driver Search (US) programs to identify and promote driving talent among youngsters. The selected drivers signed a contract with the company, which then sponsored them through funding and other support. Through the programs, which were launched in 2001 and 2002 respectively, Red Bull selected several young drivers from around the world, some of whom also raced in F1.

Over the years the company found itself in a position where it had more drivers than it could bring into F1. “We have more drivers than cockpits and we had only two possibilities. First we try to find cockpits for our talents in other teams or second we try to increase the number of our own cockpits. We decided to do the second, simply because we can control it. We have all the responsibility, safety, spirit in the team, performance of the car – which we cannot guarantee and control when we put our drivers in other teams,” said Mateschitz.19

By acquiring another team, Red Bull was able to give many of its young drivers an opportunity to participate in F1. Scott Speed (Speed), Vitantonio Liuzzi (Liuzzi), and Christian Klien (Klien) were among of the drivers selected through the programs, who raced in the 2006 season (Speed and Liuzzi raced for STR, and Klien was one of the drivers for Red Bull Racing).

Considering that F1 was among the most expensive sports in the world, analysts were surprised at Red Bull’s decision to own and operate two F1 teams simultaneously. Considering that Mateschitz had always been a close follower of F1 and had been a personal sponsor to Austrian driver Gerhard Berger in the late 1980s, some analysts wondered whether Mateschitz had bought two F1 teams to indulge a personal hobby.

However, Mateschitz denied any such motives. “As the CEO of Red Bull, I am responsible as a CEO. So I cannot spend any marketing money, any budget, any sponsoring for Red Bull on behalf of my personal passions or likes or dislikes. F1 is good for the brand and good as a marketing instrument. It is a marketing tool,” he said.20 Besides, it could not be denied that association with a high profile sport like F1 gave Red Bull great mileage around the world.

In early 2006, Red Bull announced that it would not conduct the Driver Talent Search program that year, but would continue to support the existing young drivers. It also said that although STR was to operate as a rookie team in 2006, it would graduate to being a full fledged team over the next few years. Red Bull had been investing heavily on both its teams’ infrastructure, and had hired some of the best engineering talent in F1, including Adrian Newey, who had helped create championship winning cars for F1 teams Williams and McLaren.

19 “Minardi bought by Red Bull,” http://tvnz.co.nz, September 11, 2005. 20 Dan Knutson, “Mateschitz Ensures Red Bull Means Business In Formula One,”

http://indianapolismotorspeedway.com, June 16, 2006

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Red Bull and Mateschitz had already begun making an impact at F1 in the 2006 season. Mateschitz believed that F1 was losing much of its following in the early 2000s as it had had become too straight-laced and serious. Consequently, youngsters were no longer interested in watching it. Mateschitz claimed that he was trying to bring the fun back to F1. Red Bull parties were reportedly the most exciting parties on the F1 circuit. The company also published a humorous newsletter for people in the F1 paddock during the race weekends and was generally making its presence felt in F1, even if it did not win any races. By early 2006, Red Bull was estimated to have captured a market share of roughly 70 percent in the global energy drinks market (in some countries it was as high as 80 percent). It also commanded a 47 percent market share in the US, one of its major markets, in early 2006, and sales had been growing at a rate of 40 percent every year from the time it was launched in the country in 1997. Analysts said that given the price and other attributes of Red Bull, it was surprising that the beverage had managed to capture and hold such a major part of the global energy drinks market. In the US, an 8.3 ounce21 can of Red Bull sold for around $2, which was around double the price of a 12 ounce can of Coke. In the UK, a 250 ml can of Red Bull was sold for around £1. However, despite the premium pricing, it was estimated that Red Bull’s sales were higher than those of items like beer, water, milk and soda in certain convenience stores. A unique feature of Red Bull’s marketing was that the company sold the beverage in only one size – the 250ml/8.3 ounce can. The company placed a lot of emphasis on packaging. Mateschitz wanted packaging to be one of the differentiating aspects of Red Bull, as he did not want the product to look like a typical soft drink. With this in mind, he approached a firm to manufacture aluminum cans with different dimensions from those used by soft drink manufacturers. The manufacturer came out with a slim, tall 8.3 ounce can, which was adopted by the company. The exterior of the cans was dominantly silver and blue and carried a picture of two charging red bulls (Refer Exhibit IV for a picture of the Red Bull can). Typically, soft drinks were sold in squat 12-ounce cans with script lettering (as with Coke and Pepsi). However, Red Bull’s packaging succeeded in giving the product a European image. The can’s smaller than the normal size also reinforced the feeling that the beverage was a ‘concentrated experience’. Red Bull used conventional advertising media like print and television only when the market was thought to have matured. Traditional advertisements were used to reinforce the brand rather than to introduce it to a target market. “Media is not a tool that we use to establish the market,” said David Rohdy, vice president of marketing at Red Bull North America. “It is a critical part. It’s just later in the development.”22 Red Bull created two television advertisements a year for its mature global markets. The advertisements were usually animated and had quirky themes. Most of the advertisements featured people sprouting wings and flying after drinking Red Bull. The print advertisements also evoked the company’s slogan (Refer Exhibit V for one of Red Bull’s print advertisements). According to analysts, Red Bull’s advertisements served to amuse viewers rather than to educate them about the product or entice them to buy it. However, despite its success with Red Bull, the company was unable to successfully extend its product line. The Red Bull beverage continued to be the main product sold by Red Bull GmbH, although a sugar free version had been introduced in 2003. “We are one of few companies around the world that can stay focused on one product. We do what we do best,” said Emmy Cortes (Cortes) director of communications for Red Bull North America.23

21 8.3 ounces is equal to approximately 250 ml in the metric system of measurement. 22 Kenneth Hein, “A Bull’s market – The marketing of Red Bull energy drink,” Brandweek, May 28, 2001. 23 Anni Layne Rodgers, “ It's a (Red) Bull Market After All,” Fast Company, October 2001.

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CONTROVERSIES

Red Bull had been a controversial product right from the start. When Mateschitz first planned to launch the beverage in Europe, he had to wait for three years to get approval in Austria, his home country. After that, it took another five years before it could be sold internationally, and Hungary became Red Bull’s first foreign market in 1992.

Red Bull’s launches in new markets were almost always preceded by controversy, usually centering on the nature of the ingredients in the drink. While exotic ingredients were acceptable in many Asian markets where food regulations were not stringent, in Europe, the beverage faced difficulties in getting approval from the authorities. As of 2006, Red Bull was banned in France and Denmark. In Norway, it was classified as a medicine that could only be sold in pharmacies.

The most controversial ingredient in Red Bull was taurine. Taurine, an acidic chemical substance, was an untested food product in many western countries and was thought by some to be harmful. The controversies were further fuelled by rumors that taurine was actually derived from the bile of bulls.24

Another ingredient, glucuronolactone, which was listed on the can, was rumored to cause brain tumors. Glucuronolactone, an artificially manufactured stimulant, was first developed for the American government in the 1960s, and distributed to American soldiers during the Vietnam War25 for stress and fatigue relief. The distribution was reportedly discontinued when several soldiers became ill and developed reactions ranging from severe migraines to brain tumors.26 As of 2006, the effects of taurine and glucuronolactone on the human body were still not well researched, which increased the mystery surrounding Red Bull.

Red Bull’s high sugar and caffeine content was also believed to pose health threats. While excess sugar could lead to hyperactivity and anxiety, caffeine was a dehydrant that could cause problems when taken in excess. Although Red Bull was positioned as a rejuvenating energy drink, if a person drank Red Bull after physical exertion, he or she stood a chance of actually accelerating dehydration, which could put a strain on the heart.

Red Bull carried a warning on the can that people should not drink more that two cans in a day. But reportedly, the company’s salespeople told potential consumers that there was no such limit. A Canadian newspaper once reported hearing sales reps tell a customer: “There’s no rule or regulation really of how much you can have. As long as you know how much your body can handle. Because everyone’s different… and everybody’s Red Bull experience will be different.”27

The biggest controversy surrounding Red Bull was its use as a ‘mixer’ with alcohol. Over the years, Red Bull had become popular in bars as a mixer and it was most commonly mixed with vodka or Jägermeister.

Mixing Red Bull (which was high in caffeine) with alcohol, reportedly reduced the drowsiness associated with getting drunk. So, people were able to imbibe more alcohol without feeling its effects. But health experts were concerned about the repercussions of mixing caffeine and alcohol and consuming them in excess. According to them, mixing an energy drink with alcohol could lead to abnormal heart beat and future heart problems. It could also lead to severe errors in judgment especially while performing activities like driving.

24 Some also claimed that it was obtained from bull gonads. But according to the company, the taurine in Red Bull

was synthetically manufactured. 25 The Vietnam War was fought from 1957 to 1975. The US was involved in the war from 1959 to 1973. 26 Glucuronolactone was a popular ingredient in energy drinks in the early 2000s. 27 “All in a label: Is Red Bull a “natural health product”?” www.cbc.ca, February 6, 2005.

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Red Bull did not openly promote itself as a mixer, but reportedly did nothing to discourage it either. Some people found it hypocritical that the company refused to associate itself with alcohol, when its first targets in a new market were bars. However, sources at Red Bull claimed that the company targeted bars as it wanted to position the drink as a substitute for alcohol and not as a mixer. “The idea is to place Red Bull where people need a lift. Dance clubs and nightspots are a perfect fit, but we don’t encourage drinking Red Bull and alcohol. The idea is that Red Bull is an alternative to alcoholic beverages,” said Cortes.28

While Red Bull was never co-branded or co-promoted with any liquor brands, the company did not actively discourage its use in bars. “We don’t try to control how people use Red Bull. We are no more concerned about it than Minute Maid is that orange juice is mixed in a screwdriver,” said Cortes.29

Some health activists also maintained that Red Bull was an adult drink and was unsuitable for consumption by minors. Some convenience stores even refused to sell the product to minors. But a random experiment conducted by a newspaper in Canada showed that children, even those below the age of 10, found no difficulty in buying the beverage. The company also did not mention explicitly that the drink should not be consumed by children.

Over the years there were several incidents reported of people consuming Red Bull and suffering severe after-effects. In the early 2000s, the Irish Prime Minister called for an inquiry into the ingredients and effects of Red Bull, after a student who had consumed the beverage died suddenly at a sporting event.

A school in California banned Red Bull from its campus after two students became seriously ill after drinking Red Bull just before football practice. Apparently the students suddenly became dizzy and disoriented. The school authorities also noticed that they were not perspiring at all, in spite of it being a very hot day. When the students were examined one of them was found to have an exceptionally high pulse rate.

However, paradoxically, it was thought that the rumors and controversies actually fuelled the sales of Red Bull. Analysts said that the rumors of Red Bull’s ability to give the consumer ‘drug-like’ highs, made more people want to try it out. The company also rarely reacted to or denied the rumors, no matter how controversial they were. The company’s strategy was said to be ‘rumor by omission’ where it consciously and carefully cultivated the mystery around the product and allowed the public to speculate on its nature and effects. This created a buzz, which turned out to be beneficial to sales. Some Red Bull sponsored websites even started a rumors section to ‘to keep the mythology growing and evolving’.30

THREATS TO CONTINUED SUCCESS

Red Bull was a market leader in its category in the early 2000s, garnering strong sales in its various markets around the world. Nevertheless, analysts were skeptical about the company’s continued survival and growth as there were several factors threatening the brand’s long term prospects.

Red Bull’s success had spawned a spate of imitators, all wanting to cash in on the booming energy drinks market. Some of the knock-offs even had names that evoked the Red Bull brand – Red Tiger and American Bull being notable examples. The US itself saw the launch of brands like Red Devil, NRG, Eclipse, Blue Ox, Niagara, Dynamite, Red Rooster, Energy Rush, SoBe Adrenaline Rush, Mad Croc, Hansen’s Functional, and Jones Whoop Azz, among others, in the energy drinks market during the early 2000s. Not to be left behind, certain American celebrities like rap stars

28 Jeff Edwards, “Liquid Cocaine,” http://archive.salon.com, February 2, 2001. 29 Jeff Edwards, “Liquid Cocaine,” http://archive.salon.com, February 2, 2001. 30 www.wirednews.com

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Cornell Iral Hayes, Jr. (known as Nelly) and Jonathan Smith (known as Lil Jon) also came out with their own brands. Nelly launched an energy drink called Pimp Juice, while Lil Jon launched the Crunk brand.Overall, it was estimated that as of 2005, there were 125 players in the energy drinks market in the US. Major beverage companies like Coke, Pepsi and beer major Anheuser-Busch had also come out with new energy drinks. Coke and Pepsi launched KMX and AMP respectively, while Anheuser-Busch launched 180, in the early 2000s. Analysts said that competition from big companies might affect Red Bull, as these companies, with their greater spending power, had the potential to give the brand a run for its money. “Strategically, Red Bull could be vulnerable to such giants as Coca-Cola and Pepsi, which can’t sit back and simply do nothing,” said John Hudson, coordinator of the graduate business school at the University of Palermo. “They could wind up competing in the same segment. It would be hard to fight that battle.”31 Smaller brands like Monster, Rockstar and Roaring Lion also posed serious competition to Red Bull. Monster, which was launched in 2002 by Hansen Natural, a major beverage and cereal manufacturer in the US, had become popular by 2005-2006. One of the reasons for its success was thought to be the Red Bull-like strategy it adopted to promote the beverage. Like Red Bull, Monster also sponsored extreme sports and the company had signed on Ricky Carmichael, a motocross and supercross (motorcycle racing) racing star as a celebrity endorser in early 2006. Rockstar, a Las Vegas based company, introduced an energy drink in the early 2000s, which by 2004 had become the number two player in the US energy drink market (Refer Exhibit VI for the sales of energy drink brands in the US in mid 2004). By 2005 the company had three versions of energy drinks – Rockstar, Diet Rockstar and Rockstar Energy Cola. The company’s biggest coup was the distribution agreement it managed to enter into with Coca-Cola Consolidated (CCBCC), Charlotte, N.C., Coca-Cola’s second-largest distributor in 2005. Another potential contender for Red Bull’s top spot was Roaring Lion. Roaring Lion was launched in the US in 2001 by some ex-Red Bull employees, and positioned itself as a direct competitor of Red Bull. The company’s slogan “Fly twice as hiiigh” was a take on Red Bull’s slogan, and the pricing and packaging were also aimed at taking advantage of Red Bull’s weak spots. Unlike Red Bull which did not attempt to associate itself with any alcoholic drinks manufacturer, Roaring Lion had formed relationships with several vodka companies and Jägermeister, which started promoting the beverage as a mixer in bars. It also sold the beverage in containers of different sizes, which was more useful for bar owners who needed different quantities for mixing. As Red Bull came only in one sized-can, bartenders found that there was a lot of wastage when they used only half a can or so as a mixer. Although Roaring Lion did not feature among the top energy drinks in the US as of early 2006, analysts said that the company was a serious potential threat to Red Bull. Red Bull filed cases against Roaring Lion and Monster on the grounds that they were giving incentives to bars and bartenders to give customers their drinks when they asked for Red Bull. However, the company claimed that it was unfazed by the competition as it was “Often copied never equaled”.32 In Europe too competition had increased, although Red Bull still held a large part of the market. Major retail chains Tesco and ASDA created their own in-house brands of energy drinks - Cranberry Diet Kick and Lemon & Lime respectively. Other Red Bull competitors in Europe included Shark from Austria and Battery from Finland, which reportedly had the second and third largest market shares in 2004-2005. Besides, some of the US brands like Roaring Lion and the brands from Coke and Pepsi were also present in Europe. In Canada Red Bull wannabes like RELOAD, Red Rain, Sobe and Red Rave were popular.

31 “How Far Can Red Bull Fly?” http://wharton.universia.net, May 19, 2004. 32 www.redbull.com

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Many of Red Bull’s competitors had introduced energy drinks in multiple flavors like cranberry, orange, lime and cola, among others. The reasoning was that energy drinks would find more buyers if they were offered in a variety of familiar tastes. Considering that Red Bull did not taste very good, this was a major threat to the company.

Analysts said that there was very little to choose between the various energy drinks crowding the market. All of them were essentially made of the same ingredients – sugar, caffeine and other substances like vitamins, amino acids and taurine in different proportions. The only differences were in the taste, where some drinks tasted better than others. However, it was not clear whether taste was an important consideration for consumers in this particular market.

However, according to Mateschitz, Red Bull had a strong brand, which competition could not hurt. “The market isn’t generic; it doesn’t exist if we don’t create it. It’s a branded market,” he said.33 “We created the market. If you appreciate the product, you want the real one, the original. Nobody wants to have a Rolex made in Taiwan or Hong Kong.”34

Another limiting factor in Red Bull’s long term success was the nature of the company’s target market. Red Bull’s main market consisted of college-students and young urban professionals. It was not clear whether the company would be able to retain these customers as they grew older. Energy drinks were generally not popular among older people because of their high sugar and caffeine content. Therefore, as its consumers grew older, the company would have to keep finding new customer groups.

Finding new geographic markets was also going to be difficult for the company at it was already present in most of the countries with sizeable demand. Analysts said that the company would only have to sustain and extend its existing markets, but also maintain its relevance to customers. However, the extent of organic growth the brand would be able to achieve was believed to be limited, as by the early 2000s, Red Bull had become as ubiquitous as Coke and Pepsi in convenience stores and other retail outlets. With this ubiquity, Red Bull also faced the danger of diluting its ‘coolness’ factor, by losing its exclusivity and its identification with a specific group of customers.

The fact that the company had only one major product was another question mark over the company’s prospects. Although Red Bull had introduced a sugar-free version of the beverage in 2003, the variant could not truly count as a new product. Besides, even by 2006, the sugar-free Red Bull was not able to replicate the original’s success. Considering the extent of competition in the energy drinks market, this had the potential to be a fatal weakness. Growing health consciousness among consumers was another factor that could affect the brand’s fate. Besides, it did not help the company that its formula for the drink was no secret and all the major ingredients were listed on the can.

Although Mateschitz had said that avoiding product extensions had been a deliberate strategy on part of the company, in 2002, Red Bull GmbH launched LunAqua, a brand of still water that was said to be bottled during full moon nights. The company claimed that water reached its highest bioenergetic power during the full moon. The water was launched in two variants, one of which contained caffeine. Although, with LunAqua, the company attempted to create a new category of ‘energy water’ the product was a failure.

In 2005, Mateschitz started test marketing a range of herbal teas under the Carpe Diem35 brand in Los Angeles. (The Carpe Diem brand was owned by Stock Vital Inc., an Austria-based company set up by Mateschitz in the 1990s.) These herbal teas were supposed to improve metabolism and boost the immune system. The teas had also been launched in Europe in the late 1990s, but had not met with much initial success.

33 “Selling Energy,” The Economist, March 9, 2002. 34 Kerry A. Dolan, “The Soda With the Buzz,” Forbes, March 28, 2005. 35 Carpe Diem is a Latin phrase which means ‘Seize the Day’.

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Mateschitz also planned to use the Carpe Diem brand to start a chain of fast food outlets offering Austrian and international food packaged in edible containers made out of potato. Another project in the pipeline was to start a quarterly magazine in Europe, containing articles on themes that evoked ‘the Red Bull world’ like extreme sports, nightlife, music and social trends.

However, the fate of LunAqua seemed to indicate that Red Bull’s new businesses might not be very successful. The results of a survey conducted by Vivaldi Partners36 and Forbes magazine to identify ‘Next Generation Growth Brands’, in mid-2005 seemed to reinforce this view. Next Generation Growth Brands were those that had outperformed their peers in the first four years of the 2000s, and had the potential to continue doing so in the future (Refer Exhibit VII for a list of the 2005 Forbes -Vivaldi Next Generation Growth Brands).

While Red Bull was ranked seventh among the top 20 growth brands, on account of the increase in its brand value between 2001 and 2005, the study found that it had very low brand resilience, or the capability to cope with change, proactively as well as reactively. The low brand resilience score was mainly a result of the Red Bull’s strong association with a single product, and the failure, or lack, of brand extension efforts by the company.

According to marketing experts, while Red Bull’s marketing strategy seemed rather simple and easy to pull off, this was in fact not the case. Subtlety was the key to a successful buzz marketing strategy, and Red Bull was one of the few companies that managed to execute such a strategy successfully. It was thought that a major part of Red Bull’s success came about because, as a private company, Red Bull GmbH had the flexibility to take risks, and market its product in ways that many publicly-held companies could not. This had helped Red Bull create a successful brand around a rather pedestrian product of questionable merit. However, it remained to be seen whether Red Bull was a fad that would soon be forgotten by its consumers, or an enduring brand with the strength for growth and survival.

36 Vivaldi Partners is a global consulting firm specializing in strategy, branding, marketing, and innovation.

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Exhibit I Krating Daeng – The Thai Red Bull

Source: www.solarnavigator.net

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Exhibit II Red Bull’s Ingredients

Each 250 ml can of Red Bull contained the following:

Ingredient Amount Taurine Also known as 2-aminoethanesulfonic acid, taurine is important in several metabolic processes of the body. Taurine functions in electrically active tissues such as the brain and heart to help stabilize cell membranes. It also has functions in the gallbladder, eyes, and blood vessels and may have some antioxidant and detoxifying properties.

1000 mg

Glucuronolactone A naturally occurring substance manufactured by the human body. Like taurine, glucuronolactone is supposed to detoxify the body. Little research has been done on the effects, and the only relevant studies have been conducted on animals so the risk to humans cannot be adequately assessed.

600 mg

Caffeine An alkaloid found naturally in such foods as coffee beans, tea, kola nuts, Yerba maté, guarana, and (in small amounts) cacao beans.

80 mg

Niacin (niacinamide) Also known as nicotinic acid or vitamin B3, niacin is a water-soluble vitamin whose derivatives such as NADH play essential roles in energy metabolism in the living cell.

18 mg

Pantothenic acid (calcium d-pantothenate) An antioxidant, water-soluble vitamin needed to break down carbohydrates, proteins, and fats. It is found in whole grain cereals, legumes, eggs, meat and other foods.

6 mg

Vitamin B6 (pyridoxide HCI) A water-soluble vitamin that exists in three major chemical forms: pyridoxine, pyridoxal, and pyridoxamine. Vitamin B6 performs a wide variety of functions in your body – for example, protein and red blood cell metabolism.

2 mg

Riboflavin Also known as vitamin B2, riboflavin is an easily absorbed, water-soluble micronutrient with a key role in maintaining human health. Like the other B vitamins, it supports energy production by aiding in the metabolizing of fats, carbohydrates, and proteins and can be found in milk, cheese, leafy green vegetables, liver, yeast, almonds and mature soybeans.

1.65 mg

Vitamin B12 (cyanocobalamine) Helps maintain healthy nerve cells and red blood cells, and needed for the production of DNA, the genetic material in all cells. Deficiency of vitamin B12 is the cause of several forms of anaemia. Also called 'cobalamin' because it contains the metal cobalt.

1 mcg

Standard non-medicinal ingredients: Carbonated water, Sucrose, Glucose, Citric acid, Inositol, Flavours, Caramel

Adapted from: “In the can: Red Bull’s ingredients dissected,” CBC Marketplace, www.cbc.ca, February 6, 2005.

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Exhibit III

Red Bull Racing’s F1 2005 Car

Source: www.wikipedia.com

Exhibit IV Red Bull Energy Drink

Red Bull Sugar-Free

Source: www.solarnavigator.net

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Exhibit V A Red Bull Print AD

Source: https://redbull.wordpress.com

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Exhibit VI Top Energy Drinks in the US by Brand - 2004

Brand Sales % change vs. prior year

Market Share

% change vs. prior year

Red Bull $120,330,056 68.4% 59.2 4.7 Rockstar $15,742,497 128.2% 7.7 2.5 Sobe Adrenaline Rush $14,051,204 12.2% 6.9 -2.7 AMP $13,032,334 12.8% 6.4 -2.4 Monster Energy $9,367,802 253.2% 4.6 2.6 Sobe No Fear $7,506,167 944.8% 3.7 3.1 Hansen’s Energy $3,546,663 -0.9% 1.7 -1.0 KMX $3,437,564 -44.6% 1.7 -3.0 Blue Ox $1,473,845 -28.1% 0.7 -0.8 Eas Piranha $1,110,173 115.0% 0.6 0.2 Bawls $1,017,352 77.8% 0.5 0.1 Hype $993,144 206.4% 0.5 0.2 Powerade $886,398 7.5% 0.4 -0.2 Rush Energy $842,228 508.1% 0.4 0.3 180 $785,026 -27.4% 0.4 -0.4 Category Total $203,295,104 55.1% 100.0 0.0 Source: Information Resources Inc., Total food, drug and mass merchandise for the 52 weeks ending July 11, 2004.

Source: Laurie Russo, “Sports, Energy Drink-Makers Take on Giants,” Beverage Industry Tabloid, 2005.

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Exhibit VII 2005 Forbes – Vivaldi Partners Next Generation Growth Brands

Name Brand Value 2005 ($ billion)

Brand Value Increase from 2001 to 2005 CAGR %

1. Apple 5.3 38 2. Blackberry 1.2 36 3. Google 8.7 36 4. Amazon.com 2.7 35 5. Yahoo 6.8 33 6. eBay 7.4 31 7. Red Bull 1.7 31 8. Starbucks 3.0 24 9. Pixar 2.9 23 10. Coach 3.9 22 11. Whole Foods 0.7 22 12. EA Sports/Games 6.9 21 13. MTV 7.0 21 14. Samsung 14.3 17 15. Victoria’s Secret 6.8 16 16. Nike 7.1 16 17. Toyota 25.8 15 18. Formula One 3.2 14 19. ESPN 9.3 14 20. Harley-Davidson 7.6 11

Source: www.vivaldipartners.com

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Additional Readings & References

1. Jeff Edwards, “Liquid Cocaine,” http://archive.salon.com, February 2, 2001. 2. Kenneth Hein, “A Bull’s market – The marketing of Red Bull energy drink,” Brandweek,

May 28, 2001. 3. “Red Bull: Raging success,” bbc.co.uk, July 13, 2001. 4. Anni Layne Rodgers, “It’s a (Red) Bull Market After All,” Fast Company, October 2001. 5. “Global Trends - Market Trends - Red Bull's new fortified bottled water,” Prepared

Foods, January 2002. 6. “The Year of the Energy Drink,” www.bevnet.com, January 1, 2002. 7. “Selling Energy,” The Economist, March 9, 2002. 8. “The Murketing of Red Bull,” Outside Magazine, April 2002. 9. “World’s Richest People: Dietrich Mateschitz,” Forbes, 2003.

10. “Red Bull vs. Lion in bar-mixer duel,” www.bevnet.com, September 24, 2003. 11. “Red Bull founder rides wave of success,” http://edition.cnn.com, 2004. 12. “How Far Can Red Bull Fly?” http://wharton.universia.net, May 19, 2004. 13. “Red Bull snaps up Jaguar F1 team,” bbc.co.uk, November 15, 2004. 14. Andrew Purvis, “Dietrich Mateschitz,” Time, December 20, 2004 15. Laurie Russo, “Sports, Energy Drink-Makers Take on Giants,” Beverage Industry

Tabloid, 2005. 16. Burt Helm, “Energy Drinks Build Their Buzz,” BusinessWeek, January 5, 2005. 17. “Red Bull,” The Independent, January 6, 2005. 18. “Raging Bull: Health warnings over popular energy drink being brushed off?”

www.cbc.ca, February 6, 2005. 19. “In the can: Red Bull’s ingredients dissected,” CBC Marketplace, www.cbc.ca, February 6,

2005. 20. “All in a label: Is Red Bull a “natural health product”?” www.cbc.ca, February 6, 2005. 21. “Mixed messages: Alcohol and Red Bull,” www.cbc.ca, February 6, 2005. 22. Kerry A. Dolan, “The Soda with the Buzz,” Forbes, March 28, 2005. 23. “Makers defend Red Bull after ban,” bbc.co.uk, July 18, 2005 24. “Energy drink market 'to hit £1bn',” news.bbc.co.uk, August 11, 2005. 25. “Red Bull confirms Minardi purchase,” www.grandprix.com , September 10, 2005. 26. “Red Bull swoop for Minardi deal,” bbc.co.uk, September 10, 2005 27. “Minardi bought by Red Bull,” http://tvnz.co.nz, September 11, 2005. 28. “Interview: Mateschitz on Minardi,” www.grandprix.com, September 13, 2005. 29. Andrew Murr, “Monster vs. Red Bull,” Newsweek, March 11, 2006. 30. “Red Bull masks alcoholic effect,” bbc.co.uk, March 26, 2006. 31. Bill Saporito, “U.S. Soccer Reboots,” Time, May 14, 2006 32. “Scuderia Toro Rosso,” bbc.co.uk, motorsport, May 31, 2006 33. Dan Knutson, “Mateschitz Ensures Red Bull Means Business In Formula One,”

http://indianapolismotorspeedway.com, June 16, 2006

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34. “Bull Marketed,” http://www.snopes.com/medical/potables/redbull.asp 35. “Speed-in-a-can: The Red Bull Story,” www.plan-b.biz/pdf 36. www.vivaldipartners.com 37. www.redbull.com 38. www.hoovers.com 39. finance.yahoo.com 40. www.wirednews.com 41. www.solarnavigator.net 42. www.grandprix.com