Introduction
The identification of an appropriate pricing strategy is a crucial factor in starting and running a business. It applies to the launch of a new item in an existing business or production. It is worth mentioning that the pricing strategy involves the complexity of maintaining a balance. One should not choose the too high price, as sales may fall, but at the same time, the price should not be too low, as profits will decrease. Considering the high competitiveness of the market in the selected product, namely the Red Bull energy drink, it is necessary to analyze the company’s existing strategy carefully. After the analysis, the aim is to develop a suitable strategy for Red Bull’s new product, namely coffee-flavored drink.
Red Bull’s Current Strategy
As it was mentioned, before developing a pricing strategy for a new Red Bull coffee-flavored product, it is necessary to analyze the existing one. Red Bull’s pricing policy is based on its top position in the energy drink market. Namely, being market leaders and known for their quality, the company can afford to charge the highest price. It allows the organization to maintain a leading position in terms of profitability, which is essential for the development of the company. Thus, today Red Bull products are about 10% higher in price than the highest indicator of competitors in the market (Dyer et al. 2020). However, it does not affect product sales, as customers are confident in the quality of drinks due to successful positioning.
Thereby, in relation to the competition, Red Bull applies the leadership pricing strategy. Compared to similar products in the category, the company relies on the customers’ confidence (Zacharakis & Bygrave, 2019). The company has created a competitive advantage by applying such a strategy. Due to higher prices compared to competitors, Red Bull has the ability to dictate its market conditions. In other words, if the company finds a way to make production cheaper and lowers the price, competitors will also have to lower the price. It is constituted by the fact that the market share of competitors falls on customers who are guided by the lowest price when choosing products. Thus, the rest of the manufacturers of energy drinks will have to adapt to the pricing policy of Red Bull.
The analysis of this pricing strategy includes determining the goals of the strategy and how to achieve them. As already indicated, Red Bull sets higher prices than its competitors. The company has achieved this strategy through successful positioning, namely as the highest quality product in the niche. Thus, the client is confident in the quality and is willing to pay such a price as it is justified (Intelligence Node, 2022). The impact of a leadership strategy on business success is obvious, namely generating significant profits through high value. Due to this, as already indicated, the organization can allocate funds for the development or launch of a new product line.
Maximizing Profitability
Talking about whether Red Bull’s pricing strategy maximizes profitability or market share, one may conclude that it performs the first option. Due to high prices, the company generates more profits by focusing on the financial aspect. However, it is worth noting that thanks to a successful positioning strategy, Red Bull is also firmly holding its market share. In other words, the high price and the emergence of new competitors do not affect or have a minor impact on the number of sales. However, unlike Red Bull, the rest of the companies held on to market share through the lowest price and were determined to adjust to the company’s pricing policy.
Possible Recommendations
My recommendations in terms of pricing decisions that may improve business success for the new coffee flavours are formulated by the main business success principle in terms of pricing set. Namely, after the analysis of certain product-related data, one should set the indicator which would maintain the balance between potential demand and production capacity (Dyer et al. 2020). In other words, the first step is to analyze the potential demand for new products. In the case of Red Bull, given the low diversity in products, as well as the popularity and confidence of customers, strong demand is expected. Given the production capacity, the volume of production will be high. Thus, in the first stage of launching a new coffee flavour, one can recommend setting the price 2-4% lower than the prices of other products.
Primarily, it is justified by the fact that the price should not be significantly lower since high demand for products is expected. It is due to the high level of customer confidence in the quality of drinks and the lack of choice of taste, which is a good addition solution. However, it is worth making the price a little lower in order to attract the attention of customers and recoup the project in the early stages. Indeed, if one has the option to try the company’s new products below the average cost, the choice will most likely fall on this item. Thus, it will stimulate sales and the popularity of the new product line and will allow one to gain a foothold in the market.
In addition to the above, this strategy will be appropriate in the context of the marketing mix. Thus, the product is a new drink with coffee flavour, the price formulates the proposed pricing policy, namely, slightly below average. Promotion involves using the popularity of the product, customer trust and advertising, and the place is formulated by stores and malls. This strategy will have a positive impact on the above four aspects since each of them complements the effectiveness of the other.
The proposed strategy’s impact on the economic success of the company is formulated by its long-term consequences. As already clarified, the demand for the new product is expected to be high, and due to the reasonable price, the company will be able to generate significant profits. In addition, Red Bull will capture an additional market niche, namely energy drinks with a variety of flavours. Moreover, many people love coffee, which will allow one to combine the taste of Red Bull and coffee. Thus, the long-term effects on the company’s economy include development, profit generation, and an improvement in Red Bull’s economic climate. A similar effect will be observed on the overall success of the company, namely, through new opportunities, Red Bull will be able to stimulate significant development. It may include creating a new product line, entering other markets, and improving existing units.
Conclusion
To conclude, one identified that Red Bull’s current pricing strategy is a leadership one. Due to the company’s popularity and the customers’ confidence in the quality, one can charge high prices. Accordingly, for a new coffee-flavoured Red Bull drink, a suitable price would be 2-4% below the average for the rest of the product. It will stimulate the attention of customers and the development of sales, but at the same time will allow one to recoup production and lead to further development.
References
Dyer, J. H., Godfrey, P. C., Jensen, R. J., & Bryce, D. J. (2020). Strategic management: Concepts and cases. (3rd ed.). John Wiley & Sons.
Intelligence Node. (2022). Premium pricing: The ins & outs of a successful brand strategy.
Zacharakis, A., & Bygrave, W. D. (2019). Entrepreneurship. (5th ed.). John Wiley & Sons.