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Red Bull doesn’t make anything… except money

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They’re an Austrian marketing company that owns cars, jet-planes, and sports teams, but does not own manufacturing plants.

Red Bull has aligned its business model with its operating model

In 1987 an Austrian entrepreneur named Dietrich Mateschitz created an entirely new beverage category and a global market for energy drinks. Mateschitz discovered the drink as a Thai jetlag antidote during a business trip to Bangkok. Motivated by the effectiveness of this elixir called Krating Daeng, which translates to Red Bull from Thai, Mateschitz licensed the product from the its Thai manufacturer, Chaleo Yoovidhya.

The Business Model

Value Creation

Red Bull offers a caffeinated energy drink that the consumer perceives as fun, active, and edgy.

Value Capture

In 2014 Red Bull sold 5.612 billion cans of energy drinks and made €5.110 billion in revenue, splitting the profits with its Thai licensee.

The Operating Model

The Austrian company does not produce the energy drink, their Thai licensee does. While Mateschitz tweaked the original formula to appeal to the European palate, his company is not a drink manufacturer. Instead, Red Bull’s capital and labor are expended to create and maintain the strong brand image of the Red Bull name.

Red Bull sponsors a number of extreme sporting events including cliff diving, BMX, skiing, flying, downhill and free-ride mountain biking and skateboarding. Red Bull’s logo can be often spotted on the parachutes of base jumpers and wing-suiters. In 2012, Red bull even sponsored the world record-breaking skydive in which Felix Baumgartner broke the sound barrier in freefall.

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Beyond sponsorship, Red Bull owns several extreme sporting events including Flugtag (an acrobatic flight competition), the Red Bull Air Races, and teams in multiple sports including F1, NASCAR, soccer, and ice hockey.

The Company Has Wings

Red Bull’s strong focus on the image of the brand rather than on product innovation aligns well with its customer value proposition.

Through the sponsorship and ownership of extreme sports teams, Red Bull continuously engages with the customer in deeper way than with traditional advertising: it allows customers to feel active and edgy by drinking from a can that bares the same logo as a Formula 1 car, a skateboard, and a record breaking parachute. To leverage this feature of its operating model, Red Bull often sells energy drinks on the site of the events it hosts or sponsors.

Red Bull’s more recent choice to sponsor olympic athletes such as Lindsey Vonn have allowed Red Bull’s name to also be associated with victory and success. Instead of spending marketing dollars to get Red Bull on the back cover of Sports Illustrated, the company spends sponsorship dollars to get on the front cover, increasing the perceived value of the drink.

The yearly Red Bull Flugtag, in which participants attempt to fly home-made human-powered flying machines off a pier about 30 feet high over the sea, serves to engage more intimately with customers and create a fun event for Red Bull drinkers to engage in. By doing so

The results of the strong alignment between sponsoring extreme sporting events and selling an edgy product have enabled Red Bull to remain the market leader in its category.

Sources:

The Economist – Selling Energy [http://www.economist.com/node/1120373]

Red Bull Company Website [http://energydrink.redbull.com/company]

BBC Three – Secrets of the Superbrands (Food) [https://www.youtube.com/watch?v=zgQPZV31cAU]

 

3 thoughts on “Red Bull doesn’t make anything… except money

  1. This was a very interesting and informative post — thank you!

    First, I very much enjoyed learning how Red Bull originated. There was a clear customer problem that the founder himself faced which was solved via a cross-cultural experience.

    Second, the asset lite model of Red Bull strikes me as part of a larger trend in global business. Developed markets remain very attractive profit pools given the levels of widespread discretionary income for products like Red Bull, and emerging markets, as they build manufacturing capacity, will be attractive places from a cost perspective. Even outside of the consumer products industry, the general global trend is towards increased outsourced manufacturing, as I’ve studied as part of my job before business school. Though initially seeming disjointed that owning extreme sports events is the core operating model of Red Bull, I now understand how their operating model is key to maintaining the customer value promise of an edgy drink to the consumer.

  2. Very interesting post – thanks!

    I’m a little more skeptical that a marketing-led organization will continue to win in consumer packaged goods much longer. I think this model becomes a little unraveled because consumers are increasingly aware and sensitive to what they’re putting in their bodies. This trend has weighed enormously on the soda manufactures in the last several years, and I think the general trend toward higher-end and healthier categories (e.g., coldbrew coffee, kombucha, and cold-pressed juices) will begin to bleed into RedBull’s business as well. Furthermore, bu pushing really hard on the marketing of a specific theme (action sports) RedBull has build an enormous amount of fragility into their positioning. Much of RedBull’s core millennial consumer demographic is beginning to age out of their interest (even, respect) for action sports. While the company has tried to back fill with other categories like music and art, it’s still not really credible there.

    A very large piece of RedBull’s sales come from mixed drink sales in bars and at parties. I believe this category is on the edge of being up-ended, mainly because no one has felt cool ordering a RedBull / Vodka in the last few years.

    I’ve seen a lot of RedBull’s business recently running a similar business in Brooklyn http://brooklyn-mate.com/. I think RedBull’s most differentiated capability has been their ability to build a bullet-proof distribution network and keep competitors locked out of their highest-value bars and events. RedBull has exclusivity agreements with most bars and events that serve the drink, and their incentive compensation structure encourages their distribution organizations (all the way down to the staff that delivers the drink) to form strong bonds with these venues and keep other beverage companies locked out.

    In the long run, it will be a company that has a sufficiently differentiated product and a positioning that’s cooler in each of these high-value setting that will finally begin to take share.

  3. First of all, I did not know Red Bull was a Thai jetlag antidote and the translation for the Thai words for that, so thank you for educating me. Second of all, I think it is quite clever that the company has managed to build this massive business and brand around something they do not manufacture without anyone being any the wiser. I think you have effectively laid out how the Red Bull brand and extreme sports image are intricately linked and how, in fact, the actual business model of the Red Bull company licensing the drink is driven by the Red Bull brand perception driven by the sponsorships, etc. that they are known for. What I wonder at this point is whether Red Bull has any plans to expand into other drinks within this niche extreme sports category or even leverage their business model in other markets. A question related to that would be whether the licensing agreement with the Thai manufacturer would allow them to do so. Great post!

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