No offense to Wednesday’s guest speaker, Richard Tait, but I can’t stand energy drinks and I don’t understand why many people habitually consume them. Nevertheless, I have always been impressed with Red Bull’s continued popularity considering the massive amount of choices out there. It is not easy for any company to stay dominant in a saturated market, even if that company created the market. Competitors who charge much less, and some say have better tasting products, are everywhere yet Red Bull stays dominant much in part to its marketing strategy. The brand also seems to be everywhere, from red bull can-formed cars passing out free product on the street to its sponsorship of extreme sports, like airplane acrobatics, or conventional (and really expensive) deals like its multi-year championship winning formula 1 teams and ownership (and actual naming) of soccer clubs (Red Bull New York of MLS and Red Bull Salzburg of Austria). I have never been able to understand how Red Bull could spend so much money on marketing considering my perceived understanding of the market and their revenues. Now on to the research…
Because US Market Data is more accessible, I discovered that Red Bull controls about 40% of the US market, with its closest competitor being Monster and its plethora of varieties (in 70 countries, Red Bull controls between 70-90% of the energy drink market). Red Bull’s 2010 Revenues were $5.1 billion, bigger than I thought they would be. Since Red Bull is a private company, complete company financials are difficult to obtain but I just wanted to run some assumed numbers to figure out the marketing impact on Red Bull’s bottom line. It is estimated that Red Bull spends 1/3 of its marketing budget on Formula 1 racing, which cost it $690 million in 2011. Assuming a contribution margin of 50% (2.55 billion – after production and transport costs) , a marketing expenditure of $2.1 billion (84% of gross profits) sounds like a staggering amount. The company has gone a long way since successfully implementing buzz marketing tactics since its US debut in 1997.
Further reading about the brand provides a readily shared opinion that Red Bull, an Austrian company, is essentially a marketing company that sells a product that originated in Thailand. Although I don’t think that the statement that it is purely a marketing company is entirely accurate, since Red Bull owns the recipe and controls the distribution, it still explains why Red Bull would spend so much on marketing.