Red Bull has been one of the most successful energy drink companies in the world, with a loyal customer base and a strong marketing strategy. A big part of Red Bull’s success has been their pricing strategy – they have always charged a premium for their product, which has helped to create an exclusive image.
Red Bull’s pricing strategy has also been very effective in terms of their marketing. By charging a higher price, Red Bull has been able to position itself as a luxury item, and this has helped to attract customers who are willing to pay for quality. Red Bull’s premium price point has also allowed the company to invest heavily in marketing and promotion, which has helped to build its brand equity.
Overall, Red Bull’s pricing strategy has been key to its success, and the company is likely to continue to use this strategy in the future. Red Bull’s high price point may limit its appeal to some customers, but it has also helped to create a strong brand that is associated with quality and luxury.
Red Bull doesn’t set their prices low, as you might think. Depending on the point of purchase, their energy drinks can cost anywhere from €2-€6. And Red Bull isn’t alone in this high pricing; most producers of energy drinks charge a premium for their product.
Red Bull’s higher-than-average price is justified by the company’s focus on quality ingredients, superior marketing and its Red Bull GmbH ownership.
Red Bull’s pricing strategy has been integral to the company’s success. The high prices allow Red Bull to spend more on marketing and distribution, which in turn helps the company to achieve its ambitious growth targets. Red Bull also uses a premium pricing strategy to help build perceived value for its product – Red Bull is seen as a luxury product and this image is reflected in its price point.
While Red Bull’s pricing strategy has been successful, there is always the risk that competitors will enter the market with lower priced products. Red Bull will need to continue to invest in marketing and distribution to ensure that it can maintain its premium image and justify its high prices.
On average, consumers have paid 66.29% more per litre for energy drinks than substitutes since 2004 because they believe that energy drinks provide unique benefits, such as an increased energy levels.
Although consumers are generally aware that energy/sports drinks come with a heftier price tag than non-functional sodas (e.g. Coca-Cola), this has not impacted sales negatively–in fact, majority of UK consumers are still willing to buy them. This is likely because people can see and taste the real value in these items Forsyth, 2011).
Red Bull has managed to successfully keep prices higher than its competitors by segmenting itself as a “premium product”. Red Bull is able to do this by appealing to a target market of young adults who are willing to pay more for the benefits that Red Bull provides.
Red Bull’s pricing strategy has been very successful in driving growth and profitability for the company. In 2011, Red Bull sold 4.6 billion cans of energy drink, generating $5.2 billion in revenue. This represented a 9% increase in sales from 2010 (Forsyth, 2011).
Red Bull’s high prices have allowed the company to maintain high margins and generate significant profits. Red Bull’s net profit margin was 20% in 2011, meaning that for every dollar of sales, Red Bull earned 20 cents in profit. This is significantly higher than the average net profit margin for non-alcoholic beverages, which was 9.4% in 2011 (Forsyth, 2011).
Red Bull’s pricing strategy has also been successful in driving brand loyalty and customer retention. Red Bull’s customers are highly loyal to the brand and are unlikely to switch to cheaper alternatives. In a 2011 survey of energy drink consumers in the United Kingdom, 72% of respondents said they would not switch to a cheaper alternative even if it was available (Forsyth, 2011). This high level of customer loyalty allows Red Bull to charge premium prices and maintain high margins.
By setting the prices high, Red Bull causes the consumer to assume that their product is of premium quality. According to Penny Coase, a “premium brand” is one that always commands a higher price than similar products offered by mainstream brands; sometimes, the difference in price can be significant. However, there are different levels or tiers of pricing and of premium quality. (Coase 2010)
Red Bull could be seen as being at the top tier of the premium prices, making it a very successful product. Red Bull also use a skimming pricing strategy whereby they charge a high price when they first introduce a new product to the market and then slowly lower the price as demand starts to fall. This is common in fast moving consumer goods (FMCG) and Red Bull have used this strategy effectively.
Red Bull’s marketing mix has enabled them to successfully penetrate most global markets and become the world’s leading energy drink. Red Bull continue to dominate the energy drink market with a 62% market share. Red Bull’s main competitors are Monster Energy, Rockstar Energy and NOS Energy Drink.
By “premiumization”, I mean that Red Bull charges a higher price than its competitors, which results in increased margins and less need to compete on discounts. Even though the absolute price of Red Bull is high compared to substitutes, it’s still affordable for most people because the cost is only a small portion of their disposable income.
This type of pricing puts Red Bull into the “masstige” category (Silverstein & Fiske, 2003), which allows them to access a larger market while still maintaining their quality image. According to Silverstein and Fiske (2003), masstige goods are play “a sweet spot between Mass and class,” being more expensive than conventional products yet priced lower than luxury items.
Red Bull have also been able to successfully employ a ‘skimming’ strategy (Kotler et al., 2009), by targeting early adopters with a high price and then lowering the price as the product becomes more mainstream. This is evident in how Red Bull was originally positioned as an upmarket alternative to coffee and energy drinks and is now more commonly consumed as a mixer with alcohol.
One of the main reasons Red Bull has been able to successfully employ a premium pricing strategy is due to the value that consumers place on the Red Bull brand. A key part of Red Bull’s marketing strategy has been to create a strong emotional connection with their target market and this is something that has been very successful in building Red Bull’s brand equity. “Red Bull isn’t just a drink, it’s a lifestyle choice – an attitude, an enabler, something that makes you feel good… It conjures up images of excitement, adventure, youth and fun” (The Red Bulletin, 2014).
This emotional connection that Red Bull has been able to create with its consumers is one of the main reasons that the brand has been so successful and is a key part of Red Bull’s pricing strategy. Red Bull knows that its consumers are willing to pay a premium price for the product because they perceive it to be worth more than just the functional benefits that it provides.