Impact of pricing decisions

PRICE ANALYSIS

Pricing Strategy Analysis: New Line of Coffee-Flavored Energy Drinks by Red Bull

Red Bull is introducing a new line of coffee-flavored energy drinks into the market. The product and place analyses carried out by the marketing team have all yielded positive feedback, and the company wishes to do a price analysis to complete the four Ps of the marketing mix. The price set will dictate how the new product line performs in the market. If the price is too high, it could affect sales given the level of market competition, while if it is low, it could eat into the company’s profits, thus threatening its sustainability.

Red Bull’s Pricing Strategy in Relation to the Competition

Red Bull is a market leader in the energy drink market. Its closest competitors in the US include Monster, Rockstar, CELSIUS, and the Starbucks Energy Drink. A quick price comparison of the Red Bull Energy drink and its main competitors on Walmart Online shows that Red Bull products are relatively more expensive. For instance, a single 355ml can of Red Bull costs $2.68, as compared to $2.50 for a similar can of Monster Salted Energy Drink, and $1.88 for a can of Rockstar Sugar Free (Walmart.com). The Red Bull energy drink 4 pack costs $10.48, as compared to Monster’s $7.18 and Rockstar’s $6.68 (Walmart.com). Similarly, the Red Bull 12-pack retails at $20.58, while Monster and Rockstar retail at $19.98 and $18 respectively (Walmart.com).

Based on the above observation, this analysis concludes that Red Bull adopts a premium pricing strategy, which involves tactically pricing one’s products and services higher than the competition (Datta, 2017). For a brand to use premium pricing successfully, it must demonstrate a return on investment in exclusivity, uniqueness, luxury or quality (Datta, 2017). Red Bull controls market share in the energy drink industry because the company was the first in the market and is known globally for producing the world’s best-selling energy drink. Therefore, the Red Bull premium pricing strategy thrives on the aspect of quality, which makes customers willing to pay the higher price. The strong brand in respect to quality serves as a source of competitive advantage for the company, and it has to retain the quality to attract more customers.

The Price Strategy and Business Success

The premium pricing strategy could equally be adopted for the new product line. This would help the company build a brand image and generate high revenues from the new product line from the start. However, according to Curtis (2015), the whole idea is to drive a perception among the target customer population that the new coffee-flavored energy drink has a higher value or yields more utility than the competition. Thus, charging the premium price alone will not amount to business success. Business success will depend on how well Red Bull can work on the quality of the new brand to create a value perception among customers (Curtis, 2015). This is created through high quality, not just in the product’s taste, but in the packaging, marketing style, personalization, and shipping to demonstrate that the product is worth the premium price (Curtis, 2015).

The adopted premium pricing model would focus on maximizing market share as opposed to profitability (Curtis, 2015). Selling at a premium means that the company increases its profit margin. However, the product line is expected to also have very high branding and unit costs as it seeks to create value perception. This, together with low sales volume, will eat into the generated profits (Curtis, 2015). In the long run, therefore, the product line aims at establishing a niche in the market by creating a value perception. A value perception as a premium brand would create a barrier that would limit the competition’s ability to position their coffee-flavored drinks in the same class (Curtis, 2015).

Pricing Decision Recommendations for Improving Business Success

While exercising premium pricing, it would also be important to ensure that the selected prices are competitive. Competitiveness implies that prices are optimized to reflect those offered by the competition for similar products. There are already several brands of coffee-flavored energy drinks from competitor brands in the market. While setting the premium price, it would be beneficial to be guided by these prices to ensure that the brand can adequately compete in the market.

Moreover, as a penetration strategy, Red Bull could consider bundle pricing for the new coffee-flavored brands by selling them together with other complementary products at a slightly lower rate (Curtis, 2015). For instance, the company could bundle the new energy drinks with branded pens, notebooks, or water bottles and market the bundle as a cheaper option to purchasing individually. This would help the new brand appeal to price-sensitive customers in the early stages.

The Effect of Red Bull’s Pricing Decisions on Place, Promotion, and Product

The selected premium pricing strategy would have an influence on the other three Ps of the marketing mix. Product has to do with the design and features of the brand. To ensure that the product is worth the premium price, Red Bull will have to emphasize the product’s high quality, design, and features so that customers understand why the bramd is worth the premium price. The pricing strategy will also affect the Promotion, which has to do with the way the product is advertised and marketed to customers. To create value perception for the new product line, Red Bull will have to adopt an iconic advertising campaign to appeal to quality-sensitive customers and encourage them to pay the premium. The advertising campaign will need to emphasize the high quality, packaging, marketing style, personalization, and shipping as well to demonstrate that the product is worth the premium price. Finally, regarding Place, the selected pricing strategy will dictate where the brand is sold to reach the targeted quality-sensitive customer. The premium price will call for the product to be availed in stores, retail outlets or ecommerce sites where high-income, quality-sensitive customers frequent. Having the product in a retail store in a low-income area where customers focus on price above quality may result in high costs and low sales.