Red Bull's Success Is Its Singular Focus
Red Bull's success seems to be its singular focus on selling just one thing. Clearly It dominates the energy drink market. It sold roughly 1 can for every human on the planet in 2019 – 7.5 billion cans (Wikipedia) – being 10% of the 75 billion cans sold since founding in 1987.
As good entrepreneurs know, success is more likely when focussing on a single niche – a specific product or service for a narrowly-defined market segment. Rather than trying to be a one-stop-shop for everyone, a niche business ensures each function – like brand positioning, marketing message, quality, production systems and supplier relationships – reinforces other aspects, concentrating and magnifying the effect in each area.
In a niche business you’ll more likely get one thing right for one type of customer rather than spreading yourself thin across diverse product lines and markets.
So it might be surprising to know that with such a strong brand and product, Red Bull the business does not manufacture Red Bull the drink.
Every aspect of production and distribution of the Red Bull product is entirely outsourced. Red Bull is not in the energy drinks industry, and not even the soft drinks or beverage business. As one author puts it, “Red Bull doesn’t make anything…except money” (Harvard Business School).
And in making money, Red Bull has many revenue lines. From owning more than just one Formula One team to several soccer teams, other sports teams and various extreme sporting events, Red Bull draws revenues from a variety of sources and businesses. For example, having bought the soccer team “New York Bulls” for $25m in 2006, its value has 10-Xed to $290m today (Athletic Interest).
Although Red Bull benefits from being the first in its market – co-founder and CEO Dietrich Mateschitz created the energy drink market – there’s no shortage of competing products.
So what exactly is Red Bull’s continued success?
The one thing that puts Red Bull ahead of the rest is its singular focus on marketing.
After launching, students were hired as brand ambassadors to hold parties and build market traction. As you may have noticed, this quickly grew into sponsoring athletes and extreme events like Red Bull Air Race and Red Bull Rampage (Red Bull Bike).
Its marketing is so effective, for example, that although Red Bull invested an inordinate $50m in Felix Baumgartner’s 2012 breaking of the sound barrier in freefall from a balloon, the value of publicity achieved was estimated at over $6 billion.
And that’s why Red Bull doesn’t distract itself with production and distribution.
In fact, so good is Red Bull’s marketing as a premium drink that, unlike the product, profits are quite healthy. While it costs just 9 US cents to make one can, they wholesale at $1.87 and the suggested retail price is $3.59.
Yet earning that premium price doesn’t come cheaply. Of Red Bull’s revenues – $6.1b in 2018 – roughly one third goes toward marketing costs. That may seem like a high cost, but the return on investment is equally impressive, proving that the business model and focus on the core business of marketing pays off.
Red Bull’s success is indeed its focus – its focus on its core business of growing and maintaining the Red Bull brand. In short, everything and everyone at Red Bull, from capital to labour, is focussed on just one thing: marketing.
When it comes to focus in your business, it’s not enough to think about your niche – your product-market combination. You need to focus your entire business model around your core business.
[Image credit: Mountain Bike Action Magazine, Christian Pondella/Red Bull]