Product and Price Analysis of Red Bull in Central Europe

Table of Contents

Executive summary

List of Figures

1. Introduction
1 Marketing Mix - Theoretical approach
1.1 Definition of Marketing Mix
1.2 Product
1.2.1 Consumer Behaviour - Creating Satisfaction
1.2.2 Buying Process in Product Management
1.2.3 Product - Brand - Innovation
1.2.4 Marketing Services
1.2.5 Tools
1.3 Price
1.3.1 The Profit Motive
1.3.2 Pricing Strategies and Differentiation
1.3.3 Pricing Methods and Buyer Reaction
1.3.4 Competitor Reaction
1.3.5 Discounts
1.3.6 Delivery and Payment Conditions
1.4 Place
1.4.1 Distribution
1.4.2 Channel Strategy
1.4.3 Logistics
1.5 Promotion
1.5.1 International Marketing Communication
1.5.2 Advertising
1.5.3 Other forms of Promotion

2 Product and Price Analysis
2.1 Product
2.1.1 Buying Process
2.1.2 Products
2.1.3 Branding
2.1.4 Tools - BCG Matrix
2.2 Price
2.2.1 Pricing Strategies
2.2.2 Pricing Methods and Discounts
2.2.3 Competitor reaction
2.3 Outlook and Overview of Promotion and Place
2.3.1 Promotion
2.3.2 Place

3 Conclusion

Bibliography

ITM Checklist

Appendices

List of Figures

1. Boston Consulting Group Portfolio Matrix

2. Product Lifecycle

Executive summary

In this second assignment named „Product and Price Analysis of Red Bull in Central Europe” the goal is to analyse the “product” and “price” strategy and to give a short overview of their “place” and “promotion” strategy.

Red Bull as company was founded in 1987 with its slogan “Red Bull gives you wiiings”. The firm developed by Dietrich Mateschitz sold more than 35 billion cans until now and is available in more than 165 countries. The product is developed from a Thai energy drink and includes caffeine, taurine, B-Vitamines, saccharose, glucose and water, what can be consumed by people in many situations for their physical and social needs and Red Bull created an emotional binding. The product is only available in six different types but because of the well established brand and its young and modern image people have a positive association with it and so buy it.

The Company has worldwide steady growth rates although it is sold at a very high price level with compared to that low production costs. In contrast to that the competitors’ products are much cheaper, but Red Bull sticks to their prices even many competitors entered the market.. But it can be said that Red Bull is aiming for an abnormal profit and concentrating on internal and marketing orientation when setting their prices. The consumers are paying for the “way of life” and the quality.

To the place and promotion strategy can be said that Red Bull is available in 165 coun- tries (in nearly ever little shop) but produced only in Austria and Switzerland. The com- pany is widespread represented in sports sector where they are sponsoring much sports- persons and events.

To summarize that it can be said that Red Bull is a very successful and powerful com- pany and the world’s market leader in the energy drink sector but the challenge will be how to maintain the constant growth in revenue and market share. The authors hold the opinion that Red Bull should maintain developing their extreme sport sponsoring and should develop some new products as well as produce them from natural resources.

1. Introduction

This second assignment in marketing lecture is based on the first one with the title “Market Analysis of Red Bull based on the countries Germany, Switzerland and Austria”. In the first one we analysed and defined the Red Bull market in central Europe, therefore we found out that it would definitely be very interesting to have a more closed look on the product and pricing strategy in the marketing mix sector of the important brand Red Bull. To get a basis for this we would make some connections to our first assignment so that a critical analysis can be done.

Due to the fact that Red Bull is a well know brand all over the world we concentrated only on the pricing and product strategy in central Europe so that a combination can be done quickly by the reader.

In the first part of this assignment the theoretical approach is done and based on that we are trying to explain these ones in chapter three implemented on the Red Bull company. We would explain the marketing mix on a short way and after that go straight into the “product” explanation which includes the customer behaviour and buying process as well as the services in marketing and their tools. After that we will analyse the “price” strategy of the company what means to identify their strategy and methods as well as the prices itself. Additionally a short overview of the “place” and “promotion” strategy is given, but not focused on here.

In the last chapter number four we will give a conclusion and short summary of the work done to finish this assignment as well as some recommendations we tried to develop. We will generate this conclusion on the one hand to this second assignment, but on the other hand also based and integrated with the first one so that the reader is able to connect all of our results from both assignments.

1 Marketing Mix - Theoretical approach

1.1 Definition of Marketing Mix

Marketing mix is the combination of the marketing policy instruments used by a com- pany and contains McCarthy’s¹ four P’s which are product, price, place and promotion. “Product” means creating customer value and that the market is predefined and con- formed to the special target group for the product and adapt it equivalent to the market. “Price” means the cost of the product checked against the prices of competitors. “Pro- motion” means the communication sector which is the different modes of selling the product like sponsoring, promotions and so on. The last one of the four P’s is “Place”. This means the distribution area and the ways in which the logistics and supply chain can be optimized.²

1.2 Product

1.2.1 Consumer Behaviour - Creating Satisfaction

Today companies focus in a flexible way on the needs of the customers and are marketoriented compared to the past when they were product-oriented and not willing to change the product if necessary. So it is very important for firms to know who the target groups are, in other words, what kind of people are buying the product and what kind of people may influence them.³

1.2.2 Buying Process in Product Management

The buying process consists of four steps and there are also four parameters which influence the process.

The first step in the buying process is “need recognition” which can be explained as the customer’s needs popping up in emotional, psychological or functional ways. To find a solution for this, he analyses the level of need and meaningfulness for himself. The fol- lowing step is “information search” which means that by making use of internal and external resources, the customer tries to find other ways of recognition information. The third point in the buying process is “Evaluation of alternatives and purchase”. In this phase customers look at different brands that take into account and clarify their level of need. In addition, they consider their own experience or expectations of the product and also the opinion of others about it. The last step is “Post-purchase evaluation” where cognitive dissonance must be reduced or eliminated to reach the least customer pangs of conscience.

The four factors influencing the buying process are the buying situation itself, personal or social influences or the degree of involvement.⁴

1.2.3 Product - Brand - Innovation

Products fulfil needs of the customers which mean they are consumed and so this strat- egy is very important for firms. Everything that is linked to the product for customers must be perfectly delimited; this includes the employees and the company’s services or locations as well as other goods.⁵ The types of products like convenience, shopping, unsought or speciality products all lean on the marketing strategy.⁶ A brand can be a name, symbol, design or anything else. It connects the customer with the product and he associates different attitudes or values to it in the same way as a brand differentiates the products from all rivals. Very important for successful brands are that they are short named, have a history, only one brand, and fit to the marketing strategy.⁷

Innovations are new products for the company and/or for the market.⁸ New products are very important for all companies because with them they can enter a new market. New products can be replacements of old ones or they can also be extra products for current lines as well as new lines. New products can also be innovations. In that case it is a new market with no competitors during the start-up phase, because it’s a new product for the whole world.⁹ The innovation process is very risky and should be planned at multi- levels.^{10 11}

1.2.4 Marketing Services

The services offered are also a type of marketing. Here, people as well as their physical behaviour and the working process constitute an important part.¹² Because we are focussing on the product RedBull we will not go into this here.

1.2.5 Tools

BCG Matrix

The Boston Consulting Group Matrix, as shown in the explanation, is a matrix with four panels which can be seen as a product portfolio matrix. The aim should be to get a rela- tively well-balanced portfolio. The characteristics chosen can be internal as well as ex- ternal factors.^{13 14}

The first panel of the BCG matrix “Cash Cows” represent high profitable businesses in mature markets with a low rate of expansion. The second one “stars” are businesses with high market shares and high rated expansion; it must be invested into the product to hold these market shares. The next one “dogs” are products with low market share and low profits and even losses. It would be better to close this business field. The last one is “question marks” which means the products have a low market share but in a highly profitable market which is growing very fast. It’s very hard to estimate their po- tential.¹⁵ Following can be seen the authors own creation of Portfolio Matrix of the Bos- ton Consulting Group:

illustration not visible in this excerpt

1: Boston Consulting Group Portfolio Matrix

Product Life Cycle

The product life cycle can move in four phases: 1. Implementation: the product has en- tered the market and here are the highest investments and loses must be considered but often there are no competitors.¹⁶ 2. Growth: The product catches the break-even point and becomes more famous, and in addition the first profits are made.¹⁷ 3. Maturity: In this phase the profit gets smaller and the company has to fight with competitors for market shares. There will be a slower increase and prices can fall. 4. Decline: there is a glut on the market¹⁸, the company must bear that in mind and prepare themselves for it. Below can be seen an ideal type of product life cycle created by the authors:

illustration not visible in this excerpt

2: Product Lifecycle

1.3 Price

1.3.1 The Profit Motive

The profit motive is influenced by different prices. It begins with the total costs of the company, i.e. fixed and variable cost as well as the total revenue i.e. sales versus the price - in other words, turnover. Additionally there is the normal return, which means the minimum return needed to remain in business and the abnormal return which is much higher. In addition to this, the price elasticity between supply and demand must be considered connected to the adding value which is the market-place price and the input costs.¹⁹

1.3.2 Pricing Strategies and Differentiation

The price of a product reflects the amount of monetary units which are to be paid for the product of a special quality and quantity by the purchaser.²⁰ Prices are made by compa- nies who decide about the price they want to get, or about price changes or the price of new products. But all prices are affected by the market and so have to conform to it. There are three typical methods to set prices. The first is “internal orientation”, the sec- ond is “competitor orientation” and the third is “marketing orientation”.²¹ Additionally there are four different pricing models in which every company should fit to justify their prices: The first is cost leadership; the second is cost differentiation, the third is cost focused and the fourth is differentiation focused,²² it must be checked if in some mar- kets or regions or target groups a price differentiation is meaningful.²³

1.3.3 Pricing Methods and Buyer Reaction

The different pricing methods are based on different factors like cost orientation, the customers, competitor pricings levels, as well as on the market types like oligopoly, monopoly or polypoly²⁴. The legal requirements here, however, shouldn’t be forgotten. The four pricings methods are “Buy-response”, “Trade-off analysis”, “Experimentation” and “Economic value”.²⁵ Compared to that, buyer reactions to prices and especially to price changes are very important to bear in mind. The price elasticity which customers are able to follow must be identified as well as the ideal pricing model which means the labelling of products.

1.3.4 Competitor Reaction

Competitor reaction to prices is very important to monitor so as not to miss an important change on the market. Competitors must be watched all the time to get to know their strategy. This is especially the case if there are only a few of them. The range of choices customers have when buying different products, and decreases in prices²⁶ depend on the number of competitors and their products.

1.3.5 Discounts

Discounts are given to diversify the pricing level and to react quickly to sudden changes in the market.²⁷ The reasons depend on the products and it can be said that discounts are given e.g. to clean out the warehouses. There are four types of discounts: volume, phased, time and loyalty discount.²⁸

1.3.6 Delivery and Payment Conditions

These conditions are defined by the companies and can vary very much. Payment conditions can be e.g. methods of paying, security, deadlines, and interest rate charges for late payment.²⁹ Delivery conditions can be e.g. time and system of delivery, minimum volume amounts, and conditions for non-delivery or delays.³⁰

1.4 Place

1.4.1 Distribution

This part of the marketing mix includes all logistics activities starting from the location of production to the stores or directly to the customer. Here the six R’s of logistics play an important role: to have the right product of the right quality and right amount at the right time in the right place at the right costs.³¹ Involved In the supply chain are people such as the wholesaler who make acquisitions for large quantities of goods to go to the retailer who sells them to the customer.³² There are, of course, many other people in- volved in the supply chain but it is not relevant to this assignment to go into great detail here.³³

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¹ O’Riordan, L. 2013/14

² Runia, P., Wahl, F., Geyer, O., Thewißen, C. 2007

³ O’Riordan, L. 2013/14

⁴ O’Riordan, L. 2013/14

⁵ Schürmann, S. 2011

⁶ O’Riordan, L. 2013/14

⁷ Schürmann, S. 2011

⁸ Bruhn, M. 2012

⁹ O’Riordan, L. 2013/14

¹⁰ Bruhn, M. 2012

¹¹ Berekoven, L., Eckert, W., Ellenrieder, P..2009

¹² O’Riordan, L. 2013/14

¹³ Runia, P., Wahl, F., Geyer, O., Thewißen, C. 2007

¹⁴ Nieschlag, R., Dichtl, E., Hörschgen, H..2002

¹⁵ The Boston Consulting Group

¹⁶ O’Riordan, L. 2013/14

¹⁷ Runia, P., Wahl, F., Geyer, O., Thewißen, C. 2007

¹⁸ Runia, P., Wahl, F., Geyer, O., Thewißen, C. 2007

¹⁹ Meffert, H., Burmann, C., Kirchgeorg, M..2008

²⁰ Kuß, A., Tomczak, T. 2004

²¹ O’Riordan, L. 2013/14

²² O’Riordan, L. 2013/14

²³ Bruhn, M. 2012

²⁴ Bruhn, M. 2012

²⁵ O’Riordan, L. 2013/14

²⁶ O’Riordan, L. 2013/14

²⁷ Benkenstein, U., Uhrich, S. 1988

²⁸ O’Riordan, L. 2013/14

²⁹ O’Riordan, L. 2013/14

³⁰ Kotler, P., Bliemel, F., Keller, K.L. 2007

³¹ Kotler, P., Bliemel, F., Keller, K.L. 2007

³² O’Riordan, L. 2013/14

³³ Meffert, H., Burmann, C., Kirchgeorg, M..2008