Red Bull’s Market
A Bull’s Market – the marketing of Red Bull energy drink Red Bull, Austria’s biggest export since Arnold Schwarzenegger, has methodically created and dominated the energy drink category much in the way players of the board game Risk would defeat their opponents. Dietrich Mateschitz, the owner of Red Bull International, created the highly caffeinated beverage in 1987. Five years later, the drink spread into neighboring countries like Hungary and Slovenia, followed by Germany and Switzerland. In 1997, Red Bull prepared to storm the U. S. market.
Today, the slinky 8-3-OZ can has completed its invasion into nearly every cold box in the United States. (Ohio, Tennessee and the Dakotas are among the few states without it. ) In less than three years, Red Bull singlehandedly established and then lifted the booming energy drink category from a base of $12 million in (wholesale) dollar sales to $42 million in 1998 and $75 million in 1999, per Beverage Marketing Corp. Others soon followed, building energy drinks to a $130 million business. Now Coke (KMX) and Anheuser-Busch (180) are jumping in.
Last year, Red Bull’s market share stood at 65%, while the company reportedly pulled in a cool $1 billion in worldwide sales. Just how Red Bull managed to accomplish so much, so quickly has become the stuff of mythology Some have written off the product by calling it a “flash in the pan” or derisively note that its handlers “got lucky”. A closer investigation of the company’s strategy however, reveals that luck had little to do with Red Bull’s success. The company’s consistent battle plan has been to “open up” a market by securing unusual distribution.
When Red Bull initially set up camp in Santa Monica, Calif. , it piggybacked on established distributors. Typically distributors will deliver a number of brands; a Pepsi house will handle Pepsi, Diet Pepsi and Mountain Dew, and may even pick up a non-competing rival like Dr Pepper. Sales reps even greased the wheels by paying for their accounts’ promotional, advertising and sampling costs for three months. But as the drink caught on, the company began taking a more narrow approach. Now, a Red Bull sales rep will contact a small distributor and insist that he or she sell only Red Bull.
Otherwise, Red Bull will set up a warehouse and hire kids to load up the vans and deliver product. These start-up distributors can focus their entire energies on getting Red Bull fully stocked in stores with prominent shelf placement. They generally break even within three months and are profitable within six. “They buy direct from Red Bull. There’s enough margin and volume to make it work,” said one Northeastern distributor. “I wish they’d give it to me, but they have the kids with the vans doing it. I’m looking forward to getting Snapple’s Venom [a new energy drink launching June 15] so I can compete with them. Next, the sales team visits key on-premise accounts: hot clubs and trendy bars. When owners begin buying a few cases, they receive a Red Bull branded cooler and other POP items. “That’s when we start doing business officially,” said Markus Pichler, evp-strategic planning, Red Bull North America. “We go to on-premise accounts [vs. retailers] 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. Plus, on-premise provides fertile ground for new drink trends. “In clubs, people are open to new things,” said Pichler. “The most important thing about [Red Bull] is, it’s working. If you had a tough week and want to dance, the product works. ” Perhaps a bit too well. Fueling Red Bull’s growth is a mystique created by outlandish rumors about its contents: it is “liquid Viagra”; its secret ingredient is bull’s testicles; someone overdosed from the drink because it has drugs in it. (The company shoots down these and other myths in an FAQ section on RedBull. com. Pichler wouldn’t talk about Red Bull’s natural fit with the “speed” crowd that frequents raves, taking designer drugs to stay awake for days at a time. Nor does the company endorse the mixing of Red Bull with vodka, Jagermeister or tequila-a ubiquitous bar call whose roots can be traced to Europe. “From a sales perspective,” Pichler acknowledged, “[the mixability] is a nice side effect. ” There’s more to the guerrilla strategy than building buzz at clubs. Sales teams will open off-premise accounts at convenience stores near colleges, gyms, health-food stores and supermarkets.
The company has divided the U. S. into eight decentralized sales units, each of which is handled on a city-by-city basis. One regional office in New York, for example, services Maryland, New Jersey Pennsylvania and Virginia. The Boston office handles the New England states and upstate New York. Each unit is responsible for creating distribution, making sales calls and developing targeted marketing plans. The mission: to find out where the target demo (men and women age 16-29) hangs out and what interests them. It’s their job to get the message out to the right clubs and at the right events.
While Red Bull relies heavily on bars and night clubs for its sampling events, alternative sports have also proven to be a successful product-trial arena. The company underwrites a number of extreme sports competitions and sponsors about three dozen alterna-athletes. Events include the Red Bull Huckfest, a ski and snowboard freestyle competition held in January in Snowbird, Utah; and the Red Bull “Flugtag” (German for flying day),premiering in the U. S. this fall. At the latter event, amateur pilots will create exotic flying machines and attempt to soar off the Santa Monica pier.
The brand also employs teams of “consumer educators,” who roam the streets and dangle free samples. With California as its stronghold, Red Bull made its way into Oregon, Settle, Texas and ski resorts in Colorado. It next moved into the Midwest, targeting urban markets like Chicago and its environs. Soon it showed up on the East Coast in Miami and New York. (The Big Apple had a head start: Europe leaked the beverage into the city) Newer markets include the Carolinas, Virginia and Washington, D. C. In the antithesis of any major’s marketing plan, Red Bull buys traditional advertising last.
Only when a market is deemed mature does the company begin a media push. The idea is to reinforce, not introduce, the brand. “Media is not a tool that we use to establish the market,” said vp-marketing David Rohdy. “It is a critical part. It’s just later in the development. ” Current ads, titled “Red Bull gives you wings,” focus around an animated bull character. The initial spot is set in the Renaissance era, where an artist is telling the man who commissioned his painting that he has created the perfect piece of art: Red Bull. “It’ll give you wings,” he said.
Indeed, in another ad, an energized bull is shown leaping over a city. The ads have begun airing during late-night TV in New York, and radio programs including The Howard Stern Show. A Santa Monica-based shop, Lunch, handles ads and POP materials for the entire U. S. Red Bull typically creates two new TV spots a year and runs them in mature markets. The brand spent $100 million in the U. S. last year, according to the company Measured media spending was only $18. 9 million last year, up from $9 million in 1999, per Competitive Media Reporting.
Red Bull’s runaway popularity had given it easy entree into mass merchandisers. It is currently the No. 1 product in Store24, where it is now a bigger seller than beer, milk, water and soda. 7-Eleven is experiencing similar results. “We have seen double-digit growth [in the non-carbonated segment]. Red Bull tops the list big time,” said Jim Jackson, category manager for non-carbonated beverages at 7-Eleven, Dallas. ” [Their success is due to] their single-product focus, major advertising dollars and distribution. They create demand before they even get it to retail. The picture may yet change, as Red Bull is now facing more than a dozen imitators, most notably Coke’s KMX and A-B’s 180. Knockoffs they may be, but distributors say they have been moving extremely well. “We’ve done a lot of the dirty work for them,” Rohdy said. Pichler was a bit more engaging. “We’re a fan of competition. It’s a positive for us,” he said. “It validates the energy drink category. ” Red Bull has already experienced the copycat phenomenon overseas. The company doesn’t appear to be concerned, however, having hit the $1 billion worldwide sales mark.
Besides, observers have said the also-rans don’t have a prayer. “Red Bull seems to have a cooler in every bar in every city. The sales force, that’s all they do,” said one new age beverage executive. “The big guys will not put that much energy into it and will lose interest when they don’t make any headway. ” After conquering the U. S. , the Red Bull army plans to move on. It is currently making headway in Brazil and South Africa, though South America and Africa as a whole remain largely untapped. If history repeats itself, it won’t be long before everyone on the planet gets their “wings. “