Imagine going back in time 40 years and explaining that an energy drink company would rise to power, dominate Formula 1, own international sports teams and even send a man to the edge of space just so he could jump out and fall at 750mph+. The first question people would ask is probably – “what on earth is an energy drink?”
Red Bull’s business model is far from conventional, making it a fascinating case study for anyone studying business strategy. I’m intrigued by how Red Bull makes money, and its journey to becoming a universally recognised brand. Keep reading to find out more about some of the key business decisions that made this possible.
The Red Bull business model is unique, if a little mystifying!
Red Bull, like many successful brands, needs no introduction.
Red Bull is effectively the white labelling of a Thai drink called Krating Daeng. Dietrich Mateschitz, Red Bull’s founder, was travelling in Thailand and decided that copying the recipe and re-branding the drink would be a great way to make some money back home in Austria.
Some of Red Bull’s marketing has been downright confusing – remember those branded Mini Coopers with a huge Red Bull can on the back? What was that all about?
Their sponsorship of extreme sports makes a little more sense – I admit to wasting countless hours on YouTube watching Red Bull athletes dive off cliffs, mountain bike down impossible descents and complete death-defying stunts.
This sort of viral marketing is cheaper than traditional adverts – you make a video of your athletes performing death-defying stunts, and millions of people actively choose to watch. This is far more valuable than “end of part 1” adverts that annoy the viewer.
More recently, Red Bull has become a superpower on the Formula 1 scene. With Christian Horner at the helm, they have propelled Sebastian Vettel and Max Verstappen to win 5 World Driver Championships – with more to come for Verstappen, no doubt!
Thanks, in part, to some unique and strategic investment decisions, Red Bull has become the centre of attention in the energy drinks game. It is now one of the world’s most recognised brand names of any industry. They have essentially taken a low-cost, carbonated, caffeinated syrup and made it into a household name. Perhaps the most successful drinks brand since Coca Cola – and Red Bull didn’t need cocaine in its recipe to attract customers!
Wherever Red Bull goes, controversy and showstopping antics aren’t far behind.
How does Red Bull make money?
One of the questions I have always wondered was – how does Red Bull make money? How do they fund so many unbelievable projects and why are they so often massively successful?
Despite the mammoth expenditure on advertising, Red Bull’s revenue is huge, and it is still an enormously profitable enterprise. It seems that every penny spent is well worth the cost. A can of Red Bull costs $0.09 to produce and retails for an average of $1.79 – that’s quite the mark-up!
Despite them spending all that money on feats of extreme performance, parties and hangovers are the backbone of their company. Jägerbombs and Vodka-Red Bulls are actually the context in which Red Bull sells the best. So, really, the drink is more likely to give you a headache than give you wings.
Even after the huge mark-up from cost of production to retail price, Red Bull as a company manages to squeeze a 10% net profit margin out of their cans.
I love Red Bull, that may be obvious by now. As a financial advisor, I think it’s fascinating. I don’t really understand how it can be so successful, but it is! It’s going to be interesting to see where this brand goes in the future and how they shape the world. Personally, I am just hoping for another World Drivers Championship and Constructors trophy for Red Bull Racing – and perhaps some more points for Alpha Tauri.
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