How does an energy drink company own 5 football clubs, 2 Formula 1 teams, 1 Ice Hockey team, sponsors thousands of professional athletes and extreme sporting events all over the world, while almost entirely depending on one product?
We are all aware of the energy drink brand that is Red Bull. Over the years it has grown to be one of the biggest brands in the world. Today, the Austrian company ranks 69th in the world with a worth of $11.1B and has managed to do $6.8B in sales (Forbes 2020). Red Bull also has huge presence in the sporting industry. The company owns 5 professional football clubs, 2 Formula 1 teams, 1 Ice hockey team; also sponsors thousands of athletes all over the world and number of extreme sporting events including cliff diving, BMX, skiing, flying, downhill and free-ride mountain biking and skateboarding. So, how does an energy drink company, which essentially had only one product for the most of its lifetime, have such an extraordinary presence in the world of sport?
The rise of the brand
Let us first understand how Red Bull become a huge brand like it is today. The idea of an energy drink was taken to Austria by Dietrich Mateschitz after being impressed by a local drink in Thailand 'Krating Daeng'. He pitched his idea of an energy drink to investors in his native country. However, he got turned down because the investors did not see a market for the product in Europe. Mateschitz being so convinced of his product, he teamed up with the owner of Krating Daeng. Red Bull, after adapting the formula and flavour for the European market, launched their product in 1987. By 1997 it had captured the market all over Europe and entered the United States.
Marketing strategy
Since energy drinks was a new concept at the time, Red Bull had to come up with innovative marketing strategies to sell its products. To create a market for its product, Red Bull focused on the younger generations as its target market. Red Bull hired student brand managers that would do marketing for Red Bull in colleges. Red Bull also supplied entire parties on campuses. Moreover, Red Bull gave away samples at the beaches, gyms, and office buildings. Soon bars and clubs also realised the popularity of the drink and its ability to pair with alcoholic drinks. Red Bull therefore created a competitive advantage for themselves. But this was only the beginning of the unique marketing strategy for Red Bull. Red Bull creates brand awareness and continuously engages with customers in a deeper way than its competitors through athlete sponsorships and sports teams. Presence in sports gives the customers the unique feeling of drinking from a can that bears the same logo as a F1 team, same logo that can be seen on Olympic athletes, same logo that is on the equipment in extreme sports. Instead of conventional marketing through advertisements and billboards, Red Bull creates brand association by organising extreme sporting events and sponsorships. By associating its products with extreme sports and athletes Red Bull is able to distinguish itself from its competitors and remain the market leader.
Revenue
In 2019 Red Bull sold around 7.5 billion cans worldwide and made $6 billion. Because its association with extreme sports and athletes Red Bull is able to charge more for its products than its competitors. Moreover, Red Bull outsources its manufacturing and logistics, so that it can focus entirely on marketing. And the result of that strategy can be seen in the revenue growth over the years. However, depending almost entirely on one product could have eventually become a huge risk. That is where Red Bull’s presence in today’s sporting industry comes in.
Investments and new frontiers
Investments in sporting teams, athletes, events, and media production is not only for marketing purposes but also to diversify and create additional value chains along with the energy drink business. To take advantage of its involvement in sport towards its business, Red Bull engages in various services such as media production, team ownerships, broadcasting, and contract management.
A great example of an integrated value chain system is owning multiple teams in singel sport. Let us take the example of football teams owned by Red Bull. By owning 2 teams in Europe, 1 in South America, 1 in United States and 1 in Africa, allows Red Bull to create value in developing talent and transfer of players from different countries. Red Bull’s two Formula 1 teams also follow the same principle, by having 2 teams in a highly competitive sport allows Red Bull to develop talent, share valuable data, bear costs of competing and generate revenue. Owning a sporting organisation is also a great way to generate value for Red Bull. Red Bull purchased the football team in New York for estimated $25 million and now the team worth $290 million.
Red Bull Media House produces original content in the form of films, magazines, streaming services and music. All of these Red Bull inhouse operations are a great tool for the brand for storytelling, creating fanbase, stream its own events and generate revenue. Sponsoring the extreme sporting events too go hand in hand with the media house and the energy drink business. Investing in athlete sponsorships also serves a great purpose towards brand activation.
Although Red Bull in recent years have highly invested in sports, they still describe these as ongoing brand investments and not as revenue streams. Energy drinks still account for 97% of Red Bull’s revenue but investments in sport are certainly something to look forward to in the future.
picture credits - redbull.com
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