Principles of Economics - Red Bull

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ECONOMICS

“ASSIGNMENT”

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INSTRUCTOR

Melisa Changeriha

SUBMITTED BY

Muhammad Ali Shah

(M00418164)

PROGRAM: MBA

MODULE: Economics & Finance

(M4643)

MIDDLESEX UNIVERSITY

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“Red bull gives you wings”, that is one slogan which is known by everyone. Origins of Red Bull can be witnessed as an Austrian Company working since 1987. In terms of market share, Red Bull is the most popular energy drink in the world (Red Bull, 2012). The creation of Red Bull was inspired by a Thai Company who used to make energy drinks in Thailand. Over the time, the popularity of Red Bull is increasing and approximately 4.5 billion cans are consumed each year in almost 160 countries (Red Bull, 2012).

Since Red Bull is such a large company it would not be useful to determine the marketing strategy because it is believed that Red Bull simply cuts through lifestyles. So for a product like Red Bull the best marketing strategy would be behavioral segmentation. Red Bull is a special drink serving a niche market. Consumers of Red Bull are men and women of all ages, who are sporty and very hard working. Red Bull has a very trendy image and gets sold in a lot of bars and clubs.

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A.

Following is the assumed cost (both fixed and variable cost) of Red Bull for the year end 2011;

Table 1:

|No. of Units |Variable Cost |Fixed Cost | |Staff Cost |6 |4 | |Packaging |5 |3 | |Raw Materials (Aluminum) |8 |5 | |Distribution Cost |4 |2 | |Advertising |10 |7 | |Total |33 |21 |

As you can see above from the table 1 shows the Total, Marginal and Average Cost of Red Bull. Total Cost is the sum of fixed cost and variable cost. Marginal Cost explains the rise in total cost when output rises by 1 unit (Begg et al, 2008). Average Cost is the total cost divided by the level of output (Begg et al, 2008). If we look at the Table 1 we can clearly see that MC 1. This shows that as income goes up or down then quantity demanded will go up or down vice versa. If we talk about substitutes and complements then Red Bull’s substitutes will be Monster and its complement will be Vodka. Cross Price Elasticity of Demand for good X with respect to changes in the price of good Y is the percentage in the quantity of good X demanded, divided by the corresponding percentage change in the price of good Y (Begg et al, 2008). So with respect to the given definition we can easily identify that if the price of Vodka which is the complement goes up then the demand of Red Bull would go down. Another scenario is if the price of Monster that is the substitute goes down then the demand of Red Bull will go up.

C.

Market structure is Perfect Competition as seen in Table before. Now we will assume that my product is in a market where there are many firms, the properties of Perfect Competition are that there are many firms; second there are homogenous product, third that companies have perfect customer information about the product and fourth are free entry and exit into the industry. Since there are many firms in the market so with respect to that there will be many competitors that Red Bull faces. Red Bull is the market leader and according to Perfect Competition Red...
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