Analysis of Red Bull Distribution Channel
Comparative analysis of the distribution channels between Red Bull energy drink and major carbonated beverages
Issues, recommendations and their implications
SDM Section A
Anshul Sehgal – 10P010 Kayarat Ajit Krishnan – 10P023 Esha Sharma – 10P075 Jayant Bahel – 10P081 Mohit Ahuja – 10P090
Issue: Price volatility in Red Bull products being sold to retailers and wholesellers
Till 2009 Red Bull refrained from selling to wholesellers and used to sell the product to retailers at a single price. They relied heavily on store executions to get the necessary retail push. Since 2009, Red Bull has begun selling to wholesellers and began the practice of price cutting. The reasons for these changes in strategy was that the competition in the energy drink segment was increasing through the improved presence of XXX and Cloud9. As a result of these changes there is a high volatility in the prices of Red Bull in the retail channels. There are two consequences to high price volatility/price cutting: 1. Lower margins to the company: Selling at multiple price points and focusing heavily on retail push will lose the company a lot of money which it would have been entitled to had it sold on a single price. 2. Retailers remain confused regarding their costs for stocking Red Bull. Also, retailers complain about missing out on short-lived lucrative prices as they were already well stocked and couldn’t afford to buy more from the distributor when the low price was on. The cost per can of Red Bull varies from Rs 65 – Rs 75. The MRP of the product is Rs 85. Hence the retail margins vary from 11.7% to 23.5%.
Recommendations:
Red Bull should stop the practice of volatile pricing and should go back to implementing a single
landing price for retailers. Price volatility and the consequent high retail push makes sense for products that have a high amount of competition and low pull. This is also an effective strategy when the company is unable to execute the retail stores
Issues, recommendations and their implications
SDM Section A
Anshul Sehgal – 10P010 Kayarat Ajit Krishnan – 10P023 Esha Sharma – 10P075 Jayant Bahel – 10P081 Mohit Ahuja – 10P090
Issue: Price volatility in Red Bull products being sold to retailers and wholesellers
Till 2009 Red Bull refrained from selling to wholesellers and used to sell the product to retailers at a single price. They relied heavily on store executions to get the necessary retail push. Since 2009, Red Bull has begun selling to wholesellers and began the practice of price cutting. The reasons for these changes in strategy was that the competition in the energy drink segment was increasing through the improved presence of XXX and Cloud9. As a result of these changes there is a high volatility in the prices of Red Bull in the retail channels. There are two consequences to high price volatility/price cutting: 1. Lower margins to the company: Selling at multiple price points and focusing heavily on retail push will lose the company a lot of money which it would have been entitled to had it sold on a single price. 2. Retailers remain confused regarding their costs for stocking Red Bull. Also, retailers complain about missing out on short-lived lucrative prices as they were already well stocked and couldn’t afford to buy more from the distributor when the low price was on. The cost per can of Red Bull varies from Rs 65 – Rs 75. The MRP of the product is Rs 85. Hence the retail margins vary from 11.7% to 23.5%.
Recommendations:
Red Bull should stop the practice of volatile pricing and should go back to implementing a single
landing price for retailers. Price volatility and the consequent high retail push makes sense for products that have a high amount of competition and low pull. This is also an effective strategy when the company is unable to execute the retail stores
References: Interviews with: Mr. Praveen Kumar Ex-Assistant Sales Manager, Red Bull India Mobile: 9899181061 Mr. Amitabh Jha Ex-Senior Executive, HCCB Mobile: 8860623003 Mr Gaurav Sharma Ex Supervisor, Pepsico India Mobile: 9999003472 Field visits to the following markets: Sector 17 Market, Galleria Market on 04-August-2011 Interviewed on 03/08/2011 04/08/2011 15/07/2011