BUS-FPX3030_Assessment3-1

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Premium Pricing Approach and Strategy December 17, 2023 BUS-FPX3030_Assessment3-1

Introduction The next phase in evaluating the marketing approach for the launch of Red Bull's latest coffee- infused energy beverages will entail a specific emphasis on pricing. The following will commence with an evaluation of the company's existing pricing strategy. This analysis will assess the impact of pricing decisions on Red Bull's competitive position relative to similar products, as well as their overall business and economic performance, and the effectiveness of the other elements in the marketing mix. Red Bull vs The Competition Red Bull, a globally renowned energy drink company, achieved impressive sales of 11.582 billion cans in 2022 (Red Bull, 2023). Red Bull employs a premium pricing strategy in relation to its competition. This indicates that they impose a premium on their goods, beyond the prices set by their competitors that offer identical products. Implementing premium pricing does not yield universal success as a strategy. Intelligence Node states that “ the premium pricing approach is based on the perception of status or scarcity. Put simply, there must be a factor that justifies the price. The predominant instances encompass: excellence, opulence, distinctiveness, and selectiveness ” (Intelligence Node, n.d.). Red Bull has established a distinct image for itself, surpassing other energy drink brands, and the corporation embodies all of these attributes. Red Bull capitalizes on its meticulously cultivated brand image by setting a price higher than that of its competitors but Red Bull is renowned for its high-quality ingredients and meticulous production methods, which are evident in its cost. The company's website provides a detailed

description of the ingredients and processes used in their products. They emphasize the use of locally sourced water from production sites in the Austrian and Swiss Alps. The sugar used is derived from sugar beet. Additionally, they incorporate synthetically produced ingredients like taurine, caffeine, and vitamins to maintain a consistently high level of quality in their products (Red Bull, 2023). Furthermore, the company has established the concept of uniqueness and exclusivity access by means of their high-level promotional events, sponsorships, and endorsements of prominent extreme sport athletes. Ultimately, Red Bull's price policy confers a competitive advantage over its rivals. Rahul Nayak highlights: “Red Bull has positioned itself as a brand with a higher price point compared to its most costly competition, with a 10% price difference. Consumers are willing to pay a higher price for Red Bull because of the superior quality of the product and the advantages it offers” (Nayak, R. 2017). Moreover, Red Bull's pricing approach enables them to earn superior profits compared to their rivals, granting them a competitive edge in allocating resources towards research and development, marketing, and other facets of their operations. Premium pricing has the justification of high prices via innovation and exclusivity (Hinterhuber, A. et all, 2018). Effects of Price Strategy on Business Success Red Bull's current pricing strategy prioritizes profit maximization over market share expansion. Nikita Sheth's article reveals that Red Bull incurs a production cost of around $0.09 per can of its energy drink. The wholesale price of a can is $1.87, but the recommended retail selling price in

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Western markets is $3.59 (Sheth, 2022). The company has positioned their goods as high-end offerings in the energy drink sector, allowing them to command a premium price compared to their rivals. By employing this method, Red Bull is able to enhance its profit margins while simultaneously upholding a robust brand image. Red Bull might first combine their premium price with a penetrative pricing approach when introducing their new coffee-flavored beverages. Penetration pricing is a marketing approach where new products are introduced to the market at a lower initial price in order to attract customers. To uphold its premium pricing and convey a sense of superior quality and exclusivity, Red Bull can slightly reduce the price and attract potential consumers who are curious about this new kind of Red Bull energy drink. The company can elect to increase the price when demand rises. According to Michael Keenan, in the short term, “ profit margins tend to be lower with penetration pricing. If successful though, heavy sales volumes compensate for the small margins ” (Keenan, 2022). Effects of Pricing System on Marketing Mix The pricing selections made by Red Bull for its new range of coffee-flavored beverages will impact the other elements of the marketing mix, namely place, promotion, and product. Red Bull's pricing decisions will directly impact their distribution methods and determine the potential distribution channels for their new goods. Since Red Bull is a national brand with good product design and production, it has high brand reputation and brand-preference consumers are loyal to the national brand (Zhou, C., et all, 2022) . However, if the price is set excessively high, people may exhibit reluctance to purchase the product. If that is the situation, Red Bull may have to seek alternative, potentially costlier, distribution avenues. In the event of being priced too low, Red Bull may face difficulties in covering their expenses and may need to reconsider their distribution strategy. Furthermore,

pricing selections have the potential to influence their promotional actions. Since a significant portion of their earnings is allocated towards promotional endeavors, the pricing strategy would be closely tied to the budget allocated for these events. Ultimately, Red Bull's price policies may have a direct influence on the product itself. If prices are excessively raised, Red Bull will face difficulties in maintaining competitiveness and will be compelled to seek methods of providing more benefits, features, or enhanced luxury and exclusivity in order to justify the higher price level. Despite Red Bull's target market being higher-income individuals, the elevated price may still exceed their budget and compel them to go for alternative alternatives. Effects of Price Strategy on Economic and Overall Success Red Bull's premium pricing strategy has been successful in the energy drink sector. Michael Morris notes, “ one of the more basic, yet critical decisions facing a business is what price to charge customers for products and services .” (Morris, M.H., 1987). Pricing strategy provides a systematic delineation of the elements that must be managed to achieve profitable performance in a business (Cressman, G.E., 2012 ). Red Bull has achieved both record-breaking profits and a strong market dominance with their premium price strategy. As of 2020, Red Bull emerged as the dominant brand in the energy drink industry, capturing 43% of the market share (Fontinelle, 2022). The brand has experienced a consistent growth in sales since then. The enduring dominance of Red Bull in energy drink sales worldwide demonstrates that customers are ready to pay a premium despite the higher price. The surplus earnings generated by the premiunm pricing strategy is thereafter allocated towards enhancing the company's brand image and promoting its products or services (Kong, 2020). This reinvestment strengthens Red Bull's connection with their consumer base and maintains the concepts of opulence, exclusivity, and distinctiveness. The

economic success of Red Bull relies heavily on its premium pricing strategy, which is supported by the company's increasing sales, dedicated customer base, and efficient production processes. This price approach will play a crucial role in ensuring the success of the new product introduction.

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References Fontinelle, A. (2022, June 7). “ The Jolting Rise Of The Energy Drinks Industry .” Investopedia. Retrieved December 13, 2023 from: https://www.investopedia.com/articles/investing/022315/energy-drinks-industry.asp#toc-red-bull Keenan, M. (2022, September 9). “ Penetration Pricing Strategy: Definition, Advantages, and Examples .” Shopify.com, Retrieved December 13, 2023 from: https://www.shopify.com/retail/penetration-pricing#:~:text=of%20penetration%20pricing- Nayak, R. (2017, December 12). “ Red Bull- Leader in Global Marketing .” Linkedin.com. Retrieved December 14, 2023 from: https://www.linkedin.com/pulse/red-bull-leader-global- marketing-rahul-kumar Cressman, G.E., (2012) “ 14 Value-based pricing: a state-of-the-art review .” Handbook on business to business marketing , G.L. Lilien, R. Grewal (Eds.), Edward Elgar, Cheltenham, UK (2012), pp. 246-274 Sheth, N. (2022, August 18). “ The Red Bull business model - How does Red Bull make money ?” Finty. Retrieved December 14, 2023 from: https://finty.com/us/business- models/redbull/#:~:text=Red%20Bull%20is%20more%20of

Hinterhuber, A., & Liozu, S. M. (2018). “ Thoughts: premium pricing in B2C and B2B .” Journal of Revenue and Pricing Management, 17(4), 301-305. Retrieved December 14, 2023 from: https://doi.org/10.1057/s41272-018-0138-0 Intelligence Node. (n.d.). Premium Pricing: “ The Ins & Outs Of A Successful Brand Strategy .” Intelligencenode.com, Retrieved December 14, 2023, from: https://www.intelligencenode.com/blog/premium-pricing- the-ins-outs-of-a-successful-brand-strategy/ Kong, S. (2020, February 19). “ How Red Bull Dominates the US Energy Drink Market. ” BetterMarketing.com, Retrieved December 14, 2023 from: https://bettermarketing.pub/how-red- bull-dominates-the-us-energy-drink- market-eb9543f1f659 Red Bull. (2023). “ Red Bull Energy Drink - Official Website .” Redbull.com. Retrieved December 14, 2023 from: https://www.redbull.com/us-en/energydrink/company-profile Zhou, C., Leng, M., Liu, Z., Cui, X., Yu, J. (2022, March 30) “ The impact of recommender systems and pricing strategies on brand competition and consumer search .” Electronic Commerce Research and Applications, Volume 53, 2022, 101144, ISSN 1567-4223, Retrieved December 14, 2023 from: https://doi.org/10.1016/j.elerap.2022.101144.

Kienzler, M., Kowalkowski, C. (2017, May 11) “ Pricing strategy: A review of 22years of marketing research ”, Journal of Business Research, Volume 78, 2017, Pages 101-110, ISSN 0148-2963, Retrieved December 14, 2023 from: https://doi.org/10.1016/j.jbusres.2017.05.005. Morris, M.H., (1987, May) “Separate prices as a marketing tool”. Industrial Marketing Management, Volume 16, Issue 2, 1987, Pages 79-86, ISSN 0019-8501, Retrieved December 14, 2023 from: https://doi.org/10.1016/0019-8501(87)90012-5.

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