#13 How Red Bull got its wings?
Read Time: 12 minutes
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Onto today's Simplanation...
The year is 1986. Dietrich Matescchitz, an Austrian entrepreneur is nervously watching participants in a focus group taste a new energy drink. [Focus group is a research exercise where a company makes people try out a new product to gather feedback before launch]. Dietrich has already committed his life savings in bringing this Asian drink from Thailand and rebranding it for the European market. And hence, he desperately wants a very positive response from the focus group. The participants however didn't like the distinctive taste of this new yellow drink. Actually, they were disgusted with its taste. And worse than that, they were stunned when told that this drink would cost 2.5 times the normal soda cans available in the market. The focus group turned out to be a big failure. Any sane person would have dropped the idea then and there. But, Dietrich Mateschitz persisted and launched the drink in the European market.
Fast forward 35 years and this drink called Red Bull sells 7.9 billion cans per year - that's close to 1 can per person on Earth. Not only is it the best selling energy drink, but it is also considered the most exciting and adventurous brand across the globe. In today's Simplanation, we will look at how Red Bull, an almost unwanted product, got its wings.
Birth: The Thai Connection
Red Bull finds its origins way back to 1976 in Thailand. Chaleo Yoovidhya, born in a poor family, worked hard as a pharma salesman before starting his own company - TC Pharmaceuticals in the 1960s. It was business as usual until 1970 when he came across a life-changing business opportunity. Chaleo noticed that most of the energy drinks sold in Thailand were imported from foreign countries. Even the highest-selling energy drink called Lipovitan-D was imported from Japan. Most of these energy drinks focused on marketing only to the affluent residents of Thai cities.
But Chaleo realized that the affluent class were not the ones who would need the energy drinks anyways. Instead, it should be the middle and lower class working in tiring jobs who would really need these energy drinks.
After this realization, Chaleo set out to create his own energy drink. He used similar ingredients present in existing energy drinks: Taurine, Caffeine, Vitamin B and sucrose. He however made one tweak. Most of the energy drinks had a medicinal taste. Chaleo made the drink a little sweeter to suit the local taste. With the product ready, Chaleo turned his attention to branding.
Chaleo wanted to pick a symbol or logo which depicts energy and strength. So, he chose the Wild Gaur, a large and powerful bison found in South East Asia to be used in the logo for the brand. The finalized logo had two Red Gaurs charging against each other with a yellow disc in the background. He named the drink 'Krating Daeng' which means Red Gaur in Thai.
Finally, the drink was launched in 1976 and gained popularity because of its Thai name, affordable price and eye-catching logo. Besides targeting the large urban centres, Chaleo also took the drink to smaller towns well where the competition lacked presence. To improve the visibility of the drink, Chaleo started sponsoring Muay Thai (Thai martial arts) events. Muay Thai is the national sport of Thailand. This helped Krating Daeng become a household name in Thailand soon. In just one year, it became the second-most popular energy drink in Thailand, just behind Lipovitan-D. In 1978, two years after its launch, it snatched the No.1 spot and has never looked back since. Krating Daeng went on to become so popular it almost became like the national drink of Thailand.
Childhood: Taking Krating Daeng Global
Chaleo was very happy making money off Krating Daeng in Thailand. He had no plans to take it to other parts of the world till he met Dietrich Mateschitz. Dietrich Mateschitz was an Austrian salesman working for Blendax, a toothpaste company. He happened to visit Thailand for a business trip in 1982 (6 years after Krating's launch).
To recover from the jet lag, he bought a can of Krating Daeng. In no time, his jet lag was gone and he felt energized. Dietrich became an instant fan drinking many more cans during his stay in Thailand. He saw an opportunity to start importing and selling this drink in Europe. He returned home with a lot of Krating Daeng cans and approached investors with the business plan of selling Krating Daeng in Europe. But no investor showed any interest in betting money on Dietrich's plan.
Dietrich was undeterred. He reached out to Chaleo directly in 1984 offering him a partnership to distribute Krating Daeng in Europe. He managed to convince Chaleo that they could scale Krating Daeng to be a large global brand. Dietrich managed to raise $500K from savings and loans, betting everything on this partnership. Chaleo agreed to the plan where both were supposed to get a 49% stake each in the partnership. Chaleo's son got the remaining 2% stake. In this arrangement, the production would continue to be done by the TC Pharmaceuticals in Thailand. And Dietrich would manage only the marketing and distribution in Europe. Even to this date, Red Bull has its manufacturing and most of the other operations outsourced. It focuses only on marketing and distribution.
However, there were few changes that Dietrich made in the product positioning. He decided that the product when launched in Europe would target the young party crowd (ages between 18-30 years). Also, unlike Thailand, the drink would be positioned as a premium product. The price would be almost 2.5x the price of a normal soda. He also replaced the medicinal bottle of Krating Daeng with a new flashy can. For the English name, he chose Red Bull which came closest to Krating Daeng (Red Gaur).
The arrangement and the plan were set. Now, it was time to execute.
Adolescence: Bumpy Start and Growth Hacks
Dietrich wanted to start selling the drink in Germany and Austria first. But since it had chemical ingredients, the sale of it required approval from the authorities. However, due to the high level of Taurine in the drink, German authorities did not grant the drink approval. Dietrich decided to start with Austria alone in 1987.
But as we saw at the beginning of this post, the customer feedback he got from focus groups was utterly disappointing. The research agency helping Dietrich with the focus group exercise told him that probably a market for such a drink in Europe didn't exist.
Dietrich instead decided that if the market doesn't exist, he would create one.
He was clear that he first wanted to go after the party crowd. But, didn't have the budget to advertise Red Bull using traditional TV and print media. So, he focused on coming up with some creative and inexpensive growth hacks to make the drink popular. He started with hiring students to serve as brand managers who were supposed to popularize the drink in their respective circles. They were paid to organize large parties where free red bull cans were distributed to promote the brand.
To make more people aware of Red Bull, he paid students to paint their cars with Red Bull logos and attach large Red Bull cans on top. Dozens of customized cars driving on the roads introduced the Austrians to Red Bull for the first time. Given that it was the 1980s, such a type of campaign was very rare and caught everyone's attention.
Another crazy idea that Dietrich resorted to was "Littering". To create an impression that Red Bull was selling like crazy, the team started planting empty cans on the busy streets, night clubs and other public places. All these creative hacks worked wonders for Red Bull. And a drink which people hated during market research suddenly had a crazy demand. Red Bull sold close to 1 million cans in Austria in its first year.
By the way, whatever Red Bull was doing would classify as "guerilla marketing". It is an advertisement strategy in which a company uses surprise or unconventional techniques to publicize a product or service.
Bartenders started creating popular cocktails like Vod Bomb, Jumping Jack Flash and Liquid Cocaine mixing Red Bull with other alcoholic beverages. Word-of-mouth spread across the borders soon. And Germans started smuggling Red Bull in from Austria as it was banned by the German authorities. The demand was so strong that the container manufacturers couldn't supply the ever-increasing demand for cans in time. A lot of copycat brands started emerging as well. But none of them was a match for Red Bull's popularity.
Instead of basking in the early success of the drink, Dietrich decided to invest even more in Red Bull's branding. With the help of a close friend, he came up with the famous tagline: "Red Bull gives you wings". He wanted Red Bull to embody adventure and thrill. To further strengthen that image, he decided to start organizing fun, adventure events which Red Bull continues to do to date. The first one called 'Red Bull Flugtag' was organized in 1992 in Vienna. Participants were supposed to create funny manual flying machines which were then launched off a platform into a river. Many more such events were conceptualized and organized across Europe over the next few years.
Red Bull was on a roll. In 1994 (7 years after the Austrian launch), it made its way to neighbouring European countries - UK and Germany. By 1997, it was selling close to 1 million cans per day. Around this time, it entered the US market as well. In between all this, Dietrich quietly (well, not so quiet actually) became the richest person in Austria. However, he was not yet done. In fact, he was far from done.
Adulthood: Build a Business Empire
After kickstarting its global journey in Europe, Red Bull has moulded itself into a marketing machine. As mentioned earlier, all production of the drink is outsourced and Red Bull's sole focus is on marketing. It earned $7.4B in revenue in 2020 of which it spent a whopping 33% on marketing activities. In comparison, advertising majors like Coca-cola and Pepsi spent only 8.4% and 4.4% respectively of their revenue on marketing.
Side note - we don't have a lot of publicly available financial data on Red Bull since it is still a privately held company (not listed on a stock exchange). This means they are not obligated to disclose detailed financial statements like their public counterparts (companies listed on stock exchanges).
Red Bull has created an empire by investing that huge marketing budget into various entities that act as a channel to market their brand.
1. Sports Teams
In sports, Red Bull is most famous for its involvement in F1 racing where it owns two teams: Red Bull Racing (which had star driver Sebastien Vettel on the team in the past) and Scuderia Alpha Tauri. Red Bull Racing has performed really well in F1 over the years making many podium finishes.
Red Bull also owns five football clubs and three stadiums across Europe, the US, Asia and, Brazil. Besides these, they also own few hockey, sailing, motorsports and e-sports teams across the globe. All these give Red Bull strong visibility to various sports lovers.
While all these mean big costs, Red Bull also makes money off them by offering advertising space in its football stadiums and racing circuits. This is over and above the Red Bull drink sales generated from these events.
While other brands compete to get sponsorships for major events, Red Bull organizes over 40 adventurous and competitive events every year. The events include the flagship Flugtag, Soapbox races, paragliding, kayaking, mountain biking, cliff diving and road rage to name a few. These events help the brand sustain its adventurous image.
The investments in these events also result in grabbing a very high number of eyeballs on digital channels. One such example was the Stratos project in 2012 where Austria's Felix Baumgartner was recorded jumping from an Air Balloon 39 km off the earth surface. The video went viral on Youtube with 46 million views to date and other social platforms as well. Notice the Red Bull branding everywhere in the video (below).
3. Sponsorship deals with athletes
In an attempt to make its presence felt across all the major sports, Red Bull signed up top athletes from different sports and across the globe. Few notable signups include Footballers - Neymar, Alexander Arnold; Cricketers - KL Rahul. Ben Stokes; E-sports - Tyler Blevins; Basketball - Blake Griffin; F1 Racing - Verstappen; Tennis - Dominic Thiem. Red Bull went one step further than the traditional brands by establishing athlete performance centres. These centres train athletes to improve their performance.
4. Its own media company
With dozens of sports teams and events organized that garner millions of eyeballs across the globe, Red Bull has prime advertising space available for brands. So they run a TV channel (Red Bull TV) and a magazine (Red Bulletin), available on both traditional (printed books, cable TV) and digital platforms (website, youtube, etc), where they sell advertising space. They also produce tons of content from these events and games which can be reused by video creators across the globe. Their subsidiary company Red Bull Media House, set up in 2007, sells all this advertising space available across the entire Red Bull ecosystem to potential advertisers.
Finally, they also have also invested in a set of unrelated businesses like a fashion line called Alpha Tauri, a personality assessment website called Wingfinder, and an adventure vacation booking site called Destination Red Bull. Well, to be honest, they are not completely unrelated. You do see a connection that they are all about adventure or making a statement about an adventure which ties back with Red Bull's brand image.
Mario Gabriele's break-down of Red Bull's strategy in this excellent twitter thread perfectly sums up the Red Bull empire in a picture.
Red Bull's story only proves what is fast becoming more and more important today in business. That brand and storytelling can help differentiate you from your competition. Even in a space that hardly has any differentiation between products like energy drinks. It is no wonder Red Bull has the highest market share globally at 43%. Monster energy drink comes in a close second at 39% but there's no one else close by.
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