To fathom the industry for energy drinks, it is essential to understand what an energy drink is and an energy drink is a carbonated beverage that has caffeine as the primary ingredient. However, it may contain other components such as Taurine and Ginseng intended to raise the consumer's energy levels.
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Running head: ECONOMICS ASSIGNMENT1 Economics Assignment Student’s name Institution affiliation Date
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ECONOMICS ASSIGNMENT2 To fathom the industry for energy drinks, it is essential to understand what an energy drink is and an energy drink is a carbonated beverage that has caffeine as the primary ingredient. However, it may contain other components such as Taurine and Ginseng intended to raise the consumer's energy levels. It has been archived that the production of mass-energy drinks began in 1904(Deegan, 2016). That energy drink turned out to be one of the most popular brands on earth, Coca Cola. At that time, Coca Cola was the first drink that was advertised as an energy booster, and one of its primary ingredients was cocaine. Before the launch ofCoca-Cola, the only stimulant drinks that were available were tea and coffee. However, over time the market for energy drinks has changed dramatically, it is in 1987 that the first modern energy drink was introduced in the market and until today, its manufacturer has continued dominating the market, Red Bull. New product-Red Bull Vito Red Bull has been launching new products in the past decade and is yet to innovate new flavors. Red Bull Vito is the new product line within their brand. One of the marketing objectives is to recognize Red Bull Vito as a unique flavor with stevia syrup and has extra energy. This brand also comes with several tastes, for instance, mango, lemon, apple, and citrus. This is to cater to the tastes and preferences of different people; thus, it will assist the company serves a broad market based on different flavors that it will serve. The primary objective is to encourage the purchase of Red bull products. Thus, the launch of Red Bull Vito will increase brand loyalty among the existing buyers who prefer consuming energy drinks and also among the upcoming clients hence ensuring a lifetime product value. Red Bull Vito will be strategic in increasing the number of consumers and make it an alternative beverage to regular products, thus drawing consumers’ attention increasing the company’s share of the market.
ECONOMICS ASSIGNMENT3 Red bull’s product diversification Red bull compared to its competitors has a limited variety of products. This has turned out to be a grave challenge due to the declining market share of the initial flavor energy drinks in the market. Thus, Red Bull strategized and produced a limited product variety in the U.S. that entailed three different flavors that is Red-cranberry, silver-lime, and blue-blueberry. Such new products are still fresh in the market to assess their success as the launching of new products did not go well in the past as a brand such as Red Bull Cola got discontinued. PESTLE Political The industry for energy drinks has been under tight regulations and scrutiny following incidents where Red Bull or other energy drinks have led to the loss of lives usually coupled with consumption of alcohol(Dudovskiy, 2016). While such deaths are few and within acceptable limits, they have gone further drawing attention from the media. It is the occurrence of such rare incidences that have led to legislators to react by starting to restrict the sale of such drinks. Since most of Red Bull’s political matters are embedded in the restrictive legislation, it would be prudent to look at from the legal perspective. Economic The market for energy drinks has continued to expand and grow at two-digit figure pace in the past decade. Such growth, however, remains unshaken by downturns and has gone a mile further to outperform other comparable industries(Haseeb, 2017). Thus, this a great testimony to the popularity of energy drinks mainly as they tend to be exorbitant compared to other substitutes such as coffee and mineral beverages. The fascinating thing is that it would be anticipated that due to the declining individual expenditure globally as a result of the 2008 financial crash, the
ECONOMICS ASSIGNMENT4 market for such energy drinks would decline, but that was not the case. It is a fact that global figures seem to be impeding the growth of sales in developed economies that are now way below the 10% mark, such statistics are high, and real growthfor a product such as Red Bull Vito in BRICS and the Middle East will be high. Social Companies in the energy drinks industry have an active role and platform where they are super active on social media platforms such as Twitter and Facebook. Red Bulls, in particular, is always mentioned in almost half of all energy drink associated tweets. Looking at this from the social side perspective, energy drinks such as Red Bull Vito will perceived as cool based on the extreme sports image and team sponsorships, they are seen taking part in across the globe (Shakarishvili, 2016). It is such cool images that have helped companies such as Red Bull become popular among clubbers, drivers and even students. However, energy drinks receive criticisms through digital media such as blogs, particularly with regards to the deaths arising from excessive consumption of energy drink combined with the spirits. As for students and clubbers, the use of both alcohol and energy drink is a common practice aimed at generating energy boost. Thus, such a practice is a double-edged sword for companies in the energy drinks industry. Energy drink enterprises are also being affected by the ongoing general wellness trend that has been gaining momentum for decades, and this has led to the launch of low carbonation and sugar-free choicesfor instance Red Bull Vito. Technological The advent of technology has led to technological forces that impact on such an environment and within the limits of improved manufacturing and transport abilities. Innovation in the energy industry stems from product segmentation(Shakarishvili, 2016). However, the
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ECONOMICS ASSIGNMENT5 most crucial technological aspect of the energy drinks industry is majorly the internet. Such an invention has allowed individual across the globe to interact with various brands at the comfort of their homes. Irrespective of whether such advertisements are viral aiming to create buzz, for instance, the Red Bull Stratus event that had the largest live audience on YouTube than ever or just interacting with fans in their social media fan page, such events always leave a significant impact. Environmental Environmental aspects are vital to the modern consumer. It has been reported that some types of pollutions arising from the manufacturing of energy drinks are mainly focused on package recycling. The aluminum can is the most common form of packaging for the Red Bull Vito and is 100% recyclable. However, some of the cheap brands employ plastic packaging for large commodities such as the 1-liter bottles; however, these are recyclable and only account for a small percentage of the sales. Legal Several measures are being employed against any unhealthy product for instance soft drinks particularly with regards to advertising for children(Deegan, 2016). Energy drinks are the ones being affected mostly due to political establishments that are aiming to impede their sale point. Such impediments arise from the reported rising obesity among children and adults and also deaths that are a high profile associated with consumption of energy drinks. Even though illegal regulators are employing measures such as sugar taxes to assist in reducing the use of such products, such ideas remain futile(Dudovskiy, 2016). Also, some restrictions are being imposed on advertising for the sake of children who have been reported to be prime targets for companies aiming to become identified by consumers prior to spending habits being established.
ECONOMICS ASSIGNMENT6 Opportunities Emerging markets The extensive presence with regards to Red Bulls market presents many opportunities in emerging economies such as BRICS, but also regional markets, for instance, the Middle-East and Latin America have recorded growth of sales that are exceptionally high irrespective of premium pricing in low-income countries(Deegan, 2016). State of the art production facilities The new manufacturing facilities established across the globe by Red Bull not only enables Red Bull to position itself but also to anticipate the high regional demand(Deegan, 2016). With such investment in place, it is clear that Red BullVito has an absolute advantage over its rivals. Less masculine image Red Bull Vitohas associated with a less masculine image compared to its rivals; thus, this is an advantage to Red Bulls as it may use to make advancements into the female market niche where energy drinks have conventionally not done well as characterized by little competition. Porter five forces of Red Bull Red bull is a beverage of an Austria based firm Red Bull GbmH. Red Bull is an energy drink, and in the energy drink industry, Red Bull commands the largest market share globally having more than 6 billion cans sold as per 2016 data(Adamkasi, 2017). The concept of Red Bull was inspired by Thailand’s based energy drink by the brand Krating Daeng. Thus, Red Bull comes as a modification of Krating Daeng to fit the taste of Western consumers. Red Bull also comes in 19 different assortments that are of different flavors. Red Bull continues to engage in
ECONOMICS ASSIGNMENT7 the sports industry through sponsoring sports events for instance air races and cliff diving among others. Red Bull continues becoming popular across the globe and is continually striving to venture emerging markets enabling the company to grow and increase its share of the market for energy drinks. Rivalry among competitors Many beverage firms produce energy drinks for instance Monster, Full Throttle, and Rockstar(Adamkasi, 2017). However, Red Bull commands a large share of the market compared to the agglomerate of competitors market share. The energy drinks industry continues to exhibit growth at a reasonable rate providing opportunities for rival companies as well. The competitors are emulating Red Bull by diversifying their businesses and engaging in several sports. However, despite Red Bull being the market leader with regards to share of the market it commands, the presence of many competitors translates to intense competition rivalry experienced by Red Bull is high. Threats of new entrants The ease of venturing into the energy industry is hard unless the new player has innovative ideas that will make the company stand out as unique in the industry fast enough (Lenst, 2013). The market barriers to entry are substantially high. It also evident that the existing players in the energy industry have put a massive amount of resources in terms of investment to get where they are today, thus, new companies will have to invest heavily as a start off to enable them to have a say in the market. In asserting economies of scale also takes time for new entrants. Establishing a global chain of distribution or even a regional channel of delivery is a barrier itself for new players. Commanding a markets share could be the toughest part as existing
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ECONOMICS ASSIGNMENT8 companies already have established brand images. Thus, for Red Bull, the threat of new entrants is low. Suppliers bargaining power Red Bull Vito employs a simple production process that involves only a few inputs. As such, Red Bull orders such materials in large quantities making it optimal for any company to become Red Bull’s supplier. Also, Red Bull’s switching cost is low if Red Bull switches suppliers making suppliers have no bargaining power or the power to influence prices by Red Bull. Thus, suppliers have weak bargaining power against Red Bull. Buyers bargaining power Despite having competitors in Red Bull’s market, the energy drink market is small and known for brand loyalty(Adamkasi, 2017). The large market share that is held by Red Bull has enabled it to command a particular bargaining power over other buyers in the industry. Thus, with Red Bull Vito, Red Bull can raise prices moderately and still retain its market share as it has immense brand loyalty. Energy drinks are more expensive than other ordinary beverages, and thus consumers of energy drinks are high-income earners of the society who are less sensitive to price changes. The caffeine in Red Bull Vito makes the consumer addictive to a particular level. Thus, the buyers bargaining power is moderate. Threat of substitutes Coffee and homemade fruit smoothies remain as the primary substitutes of Red Bull. The case of fruit smoothies is that they are natural(Adamkasi, 2017). However, several benefits arise withRed bull Vito such as its optimal caloric intake, take time to stimulate and its convenience. However, Red Bull is not without controversies such as being cited as not healthy, and this can lead to increased consumption of substitutes. Red Bull Vito has dealt with such a case by
ECONOMICS ASSIGNMENT9 ensuring that the inputs used are of the best quality. However, despite such controversies being cited, consumers continue taking Red Bull making the threat of substitution low for a beverage such as Red Bull. Organization management The popularity of Red Bull has been attributed mainly to its slim-line can. However, there is a rising trend towards larger cans directed towards taking advantage of low per capita consumers of energy drink against consumers of soft drinks and coffee. Thus, this presents a robust potential growth area following consumers’ familiarity with the brand. Financial requirements One of the financial objectives is to achieve sales of Red Bull products of about 50000 in the first six months of the year. At the end of the year, the company should aim to sell approximately 10000. Also, the company intends to achieve 30% of the energy market drink and achieve a net profit of 15% by the end of the fiscal year. Years Ending: Revenue20172018 Sales revenue$ 150,000 $ 175,000 (Less sales returns and allowances) Service revenue$ 50,500 $ 75,000 Interest revenue Other revenue Total Revenues $ 200,500 $ 250,000 Expenses Advertising$ 500 $ 450
ECONOMICS ASSIGNMENT10 Bad debt Commissions Cost of goods sold$ 55,000 $ 75,000 Depreciation Employee benefits Furniture and equipment Insurance Interest expense$ 2,000 $ 2,500 Maintenance and repairs Office supplies Payroll taxes Rent Research and development Salaries and wages$ 65,000 $ 85,000 Software Travel Utilities Web hosting and domains Other Total Expenses $ 122,500 $ 162,950 Net Income Before Taxes$ 78,000 $ 87,050 Income tax expense$ 15,600 $ 17,410 Income from Continuing Operations $ 62,400 $ 69,640 Net Income$62,400$69,640 Conclusion It seems that there are many opportunities for energy drinks making venturing in such a business lucrative. Opportunities in such a market are huge despite stiff competition among the big market
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ECONOMICS ASSIGNMENT11 players in the industry. However, financial constraints are real due to limited initial capital required to venture in the energy drink market. References Adamkasi. (2017, September 12).Porter Analysis of Red Bull. Retrieved from Porter Analysis: https://www.porteranalysis.com/porter-five-forces-analysis-porter-analysis-of-red-bull/ Deegan, S. (2016).Strategic Marketing:An analysis of Red Bull. Retrieved from SCRIBD: https://www.scribd.com/doc/224238148/A-Global-Strategic-Marketing-Analysis-of-Red- Bull-the-Energy-Drinks-Industry Dudovskiy, J. (2016, June 25).Red Bull PESTEL Analysis. Retrieved from Research Methodology: https://research-methodology.net/red-bull-pestel-analysis/ Haseeb. (2017, March 21).PESTLE Analysis of Red Bull. Retrieved from Marketing Dawn: http://marketingdawn.com/pestle-analysis-of-red-bull/
ECONOMICS ASSIGNMENT12 Lenst. (2013, November 19).Red Bull vs Burn. Retrieved from wordpress: https://redbullvsburn.wordpress.com/2013/11/19/an-analysis-based-on-porters-model/ Shakarishvili, S. (2016, July 1).Red Bull Analysis. Retrieved from LinkedIn: https://www.slideshare.net/ShotaShakarishvili/redbullanalysis419