ANSOFF MATRIX FOR ANALYSIS OF FUTURE GROWTH
The table below demonstrates how although associated with extreme activities, Red Bull does not take high risks in its market expansion strategy. The Group has one key industry leading product that it uses to enter new markets, and generally follows this with the acquisition and sponsoring of sports and media teams and services, respectively.
Although this may seem to be a safe strategy, it can also present a problem as it does not allow the Sports and Media Businesses to expand independent of the Soft Drinks’ geographical expansion. When one considers the time and commitment invested in diversifying the business, it seems unwise that Red Bull’s continues to rely so heavily on a Cash Cow (Soft Drinks) that offers so little product development opportunities, despite currently performing well.
Red Bull Soft Drinks Family Market Penetration
- (low risk/ existing product/ existing market) Red Bull’s aggressive and tailored marketing campaign consistently draws new young consumers attracted by the brand sponsored lifestyle and sports events.
- (medium risk/ existing product/ new market) As a result of previous, very unsuccessful attempts, Red Bull has no plans to expand its product line. As such, the Group enters every new market with the same limited product line. (Appendix 5)
Red Bull Sport Investments Product Development
- (medium risk/ new product/ existing market) Red Bull continues to acquire new teams and to enter into sponsorships with different sports people, however, this is only undertaken as a support activity for the expansion of the Soft Drink family. In this way, whenever Red Bull Sport Investments enters a market, Red Bull Soft Drinks would already have entered it ahead of time.
Red Bull Media House Product Development
- (medium risk/ new product/ existing market) Similarly to the Red Bull Sport investment, the Media House is only introduced in markets were the Soft Drinks already has a strong presence. However, this Business Division continues to grow, with the latest addition being the introduction of an Online Fashion Retailer.
Red Bull’s initial expansion plan for the Soft Drink Family had it moving into established markets such as Europe and North America. The group has since then understood that these mature markets do not provide the best ground for expansion and has begun focusing on emerging markets such as Brazil, China, and India. This has also been accompanied by an expansion of its manufacturing structure, were Red Bull has built a factory in Brazil to decrease logistical costs in the area. (Appendix 7)
FIG 4. Red Bull’s Global presence.
KEY STRATEGIC ISSUES OF RED BULL’S CORPORATE STRATEGY
UNCLEAR SUCCESSION PLAN
As Red Bull continues to grow into a conglomerate of diversified businesses, it should consider taking the Group public in order to not only secure the implementation of a strong succession plan, but also to leverage on its attractiveness to obtain financing for future investments, which are currently being sourced from its cash flow.
LACK OF PRODUCT INNOVATION AND AGEING DEMOGRAPHICS
Although extremely successful, Red Bull’s product offering is also very limited, and according to consumer reports, does not have any differentiating factor. Previous attempts to expand the product line have failed to produce good results, which has the Group moving ahead with very limited options for growth.
Similarly, Red Bull’s marketing strategy also presents a significant area of concern. The product is aimed at a rapidly ageing target demographic who tends to change consumption habits as they age.
Parallel to this the younger Generation Z (15-25) has already shown that they have different ideas about what it means to be extreme and radical. Red Bull is counting on its ability to always attract young consumers to its products, which may not be the case in the long run. (Appendix 8)
INDUSTRY TRENDS REQUIRE DIVERSIFICATION INTO HEALTHY AND LOW-SUGAR CATEGORIES
As worldwide consumption of sugar continues to increase, so do concerns around the resulting high rates of overweight people and its implications to Health Systems. This is similar to concerns around caffeine consumption and the effect is has on children and adolescents. This heightened health awareness among consumers and growing concern from health regulators will most probably result in significant changes to the sector’s regulations, and subsequently require companies to modify product offering or be subject to possible fines and sale’s restrictions.
Taking into account Red Bull’s Corporate Strategy to date, the diagram below proposes Strategic Milestones that would allow the Group to integrate its business divisions and continue to grow in a manner that address some of the key strategic concerns related to Industry changes and global trends.
FIG 5. Red Bull’s three horizon diagram (own illustration)
RED BULL SYNERGIES
Red Bull currently operates across two very distinct business units, with limited resource overlap, meaning that its best strategy for growth is Connection of its business divisions. This will also allow the brand to continue its cross selling and combined marketing strategy, that has up to date been one of its key differentiating factors.
As the brand continues to grow, in accordance with the 3 Horizon proposal previously discussed, it should take advantage of opportunities for Customization of business units: the currently existing Media Services and Technology Software could become relevant for the Online fashion, Gaming and Hospitality expansion.
This future opportunity for cross utilization of software and services will also result in reduced costs and optimization of assets, offsetting any negative impact resulting from the need to modify resources and operations.
Based on Red Bulls current corporate strategy and organizational structure, the table below outlines growth options that would allow the group to take advantage of existing infrastructure to expand into markets with strong potential for growth.
New lifestyle products Licensing agreement to brand a new line of lifestyle products which will give Red Bull the opportunity to explore a new consumer bases (still young but less extreme) as part of their long-term plan for demographic diversification.
Hospitality (hotels & restaurants) Joint marketing strategy leveraging on Red Bull’s digital and media infrastructure. Initially designed to work as a non-equity sponsorship alliance, it can later evolve to an acquisition.
Sports Infrastructure Due to the high investment level, Red Bull could consider a Joint Venture effort with cross equity stakes or a full Acquisition. Seen as this is part of a long-term plan for expansion, the precise decision of how to implement this growth can be based on Red Bull’s performance in stages 1 and 2 of the expansion plans.
RED BULL’S INTERNATIONAL STRATEGY FOR EXPANSION
Red Bull has pursued a Global Integration plan as part of its expansion strategy, taking advantage of its market position and existing market knowledge to mitigate financial and operational risks across its business divisions. In addition, this also allowed Red Bull to optimise the use of its manufacturing and supply chains to maximise the benefits of economies of scale.
Looking forward, and as the Media and Sports Division continue to grow, Red Bull should still adopt one global integration plan that accommodates the whole business. In the case of the Soft Drink, the homogeneity of the Red Bull consumer and the purposefully limited product offering, make it the perfect standardized product for global integration. This would remain mostly the same with the new business divisions, were although more diverse, none of the products and services have regulatory restrictions or complex sourcing and scaling issues.
The main difference in approach would rest in the marketing strategy used to promote these products and services. Here, the recommendation is that Red Bull take full advantage of global appetite for standardized consumer products, but tailor its marketing campaigns to accommodate social and cultural differences.
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