DO RED BULL’S WINGS HAVE LIMITS?
Few people in the world know that Red Bull, the multimillion-dollar energy drink company, almost went belly-up shortly after taking off in the late 80s. The market was not ready for this new product, and it took an idea by its brilliant founder, Dieter Mateschitz, to save the company. “He introduced the drink into the then-emerging world of mountain biking and snowboarding clubs, where it was used as an energy booster. There were even some who referred to it as a legal drug. From there it spread to other sectors, and has finally become an outstanding drink not only in Austria, but also throughout the world,” said Wolfgang Mayerhofer, president of the Institute for Advertising and Marketing Research at the University of Vienna, where Mateschitz went to school.
The costly launch process was worth it, because today, almost twenty-five years later, Red Bull has become a company with revenues of 3.785 billion Euros, selling over 4 billion cans per year, employing 7,758 people, and with a presence in 161 countries. A true monster. How did it manage to do this?
The first key was to create a different product. “While soft drinks have become valid beverages for everyone, and the brands that produce them are wondering what they mean to people’s lives, Red Bull has emerged as a product specifically made to resolve one problem: if you want to stay at the top of your game all night, you’ll only get there with us,” says Cordy Swope, executive director for Europe for the U.S. consulting company Fahrenheit 212, located in a country where Red Bull sells 25% of the cans it markets around the world.
Staying alert all night is useful for people on the go, students who need to keep their concentration the night before an exam, or long-distance drivers, three of the audiences who have become true fans of this product. Many of the first group mix it with vodka in bars, a fashion that Swope believes fits in with a modern trend: tinkering with your insides like you would with a machine. Furthermore, in this consultant’s view, for many people Red Bull is the answer to the nightmare posed by the modern way of life: “We’re not talking about a shot of coffee. Red Bull promises a leap forward, past the horrors, fears, and boredom of everyday life.”
Wow. But the most striking part is that this company has dared to go where many other beverage brands have tried to be very cautious. “They exploit the dark side of consumers: people’s tendency to ignore their health concerns while tolerating potentially dangerous side-effects. When you ask Red Bull users, they admit they’re taking a risk,” says Cordy Swope.
Is it true? “There is no evidence that it has an effect on health if consumed by healthy people and not in excessive amounts. However, excessive consumption could be harmful and lead to serious consequences for people with a tendency to suffer from cardiovascular diseases,” says José Alberto Palma, physician at the Department of Neurology of the Navarra University Clinic in Spain.
Strangely enough, some experts view this danger as part of the company’s marketing strategy. “The idea of heart risk is an added benefit. It makes the experience more daring. In any case, the target audience for the product –young people– is not very concerned about their heart,” notes David J. Reibstein, professor of marketing at the Wharton School (University of Pennsylvania).
Such fears led to the product being banned in countries like Denmark or France, but have not prevented its success. “Red Bull has created a new category, energy drinks, and has built a culture around its brand that ties into all extreme attitudes, giving the impression that consumers of this beverage are something like superior beings who have different needs from everyone else,” says Cordy Swope.
This culture has been gradually transformed into a movement that joins together people who want to live life to the max, who are fearless, and who are all connected. And the product itself also displays a few unique characteristics: instead of seeking a pleasant flavor, a medicinal one was chosen; the size of the cans was reduced, and the price was increased –from $1 to $2.50 in the United States. Marketing is one of the aspects for which Red Bull receives the most praise: its network of ambassadors on university campuses, popularizing the brand at night spots, modern and attractive advertising, sponsorship of extreme sports and Formula 1… But a few experts believe that the key to its commercial success has been the innovation in the product itself. Here is where its flavor has played a fundamental role. In an article published in The New Yorker, a flavor expert acknowledged that Red Bull’s flavor was her favorite, because it got consumers to embrace the surreal. Mateschitz himself acknowledged in that article that he had tried to create an unorthodox flavor. And the flavor expert concluded that it is impossible today to create an energy drink that does not have the same unbalanced characteristics that Red Bull has.
Red Bull has created a new category: its own category. “That has been the most defining trait for them. If we study examples of category creation in other industries, like what happened with smartphones or social networks, we see evidence that the risks are great, but if you hit the nail on the head, the benefits are obvious,” says Cordy Swope.
Of course, as things stand, Red Bull is a success. What experts are wondering is whether the company will be able to keep on innovating. “They have recently begun diversifying with a sugarless version of the energy drink, a cola soft drink that is still not very successful, a concentrate –Energy Shot–, and three new flavors,” says Mayerhofer. Cordy Swope admits that the cola and Energy Shot products had to be taken off the market in the United States because consumers do not conceive of Red Bull beyond its traditional version. Although he is sure that the traditional Red Bull and its sugarless version will be successful for many years to come, he believes the company should look for something else if they want to be as ground-breaking as they were at the start. “Now that energy supplements have proliferated in all categories of food and drink, energy is no longer seen as a new and attractive thing people need. It’s seen as a functional need. If they want to be ground-breakers again, they’ll have to seek out other needs related to energy,” says Swope.
CHEAP PRODUCTS STEAL MARKET SHARE.
Another challenge is whether they can maintain the product’s high price that has generated such healthy profit margins. “This may become an added problem in saturated markets. Energy drinks have already been launched that have gained market share quickly because they have a more competitive price,” says Mayerhofer.
In addition, there are some aspects of modern life that clash with the Red Bull mentality: “There is a general trend toward natural and healthy food and drink that makes Red Bull look artificial and not right for my body as my temple,” says Cordy Swope. It also doesn’t fit in well with ecological concerns: “Consumers are more concerned today with the environmental impact of the products they buy. Soft drink cans are probably not the containers of the future,” says Mayerhofer.
Of course, one of the chief unknowns is knowing how to keep growing the company despite its focus on a small consumer base yet with an entire market range to cover. Even though its Formula 1 drivers keep on speeding along, the global stock of this magical and energizing drink will soon run out.
by Jordi Benítez
Capital Magazine, December 2011