Project Deliverable 2

Name Roll Number

Hassan Ali Tayyab 22110053

Ali Raheel 22110303

Muhammad Ahmer 22110242

Shafiq Motiwalla 22020304

Muhammad Saad 22110216

Overview of Current Channel Structure

Red Bull GmbH, an Austrian company, owns the Redbull brand. As a result of the company's
introduction in Austria in 1987, the worldwide energy drink industry got its start. Several
different flavours of Red Bull are available in 8.4-ounce cans, including the original, sugar-
free, and zero-calorie varieties as well as special editions. The drinks contain caffeine,
taurine, B vitamins, sucrose, glucose, and carbonated water as their primary ingredients.

Channel Overview:

Compared to other drinks in the same category, the company's distribution system is one of
the most meticulously planned and executed. This product is so popular and effective with
consumers that even distributors need it for their own success. Retailers and wholesalers need
Redbull because of its prominence in the minds of consumers. Their success is due in large
part to the fact that their products are available around the world, even in the most remote
locations.

Ø Traditional channels:

Red bull uses indirect channels to make their product available in the market and follows
an intensive distribution system. Redbull is distributed all around the world due to its
efficient and well sorted distribution channel. The company sells its product to the
distributors and whole sellers who distribute the product further. Redbull has certain
master distributors in an area who then appoint sub-distributors. Distributors follow the
direct store distribution (DSD) method to make sure that the product is readily and
conveniently available for the consumers. The major distributor of redbull in Pakistan is
Sigma group and potential market is convenient/super stores, retail stores, petrol stations
and entertainment zones.

Ø Online channels:

Red Bull being the market leader in its segment has also stepped in the online channel to
increase the sales availing the opportunities in the online segment. Focusing on intensive
distribution Red Bull is collaborating with Bazaar and the product is readily available on
other online market platforms such as Foodpanda, Daraz and other online shops. Due to
the advances in the technology and customer approach, the trends are shifting towards
 online, therefore, Red Bull is quite focused towards its online channel. Red Bull makes
10-12% of its sales through these online channels and the number is increasing rapidly.

Ø Vending Machines:
Vending machine is a technology-based channel of distribution that is also used by Red
Bull to sell their products. In Pakistan most of the vending machines at colleges, malls
and hotels do have Red Bull ready for sale. Approximately 1-2% of the Red Bull sales are
through these vending machines.

Current Channel Design Considerations

The distribution strategy of a company is a critical tool that determines the company’s
performance in terms of revenue. The distribution network could either be intensive,
exclusive, or intensive. The decision depends on the company’s objective in terms of
coverage and control. A company that aims to reach to a huge audience would go for
intensive distribution which allows it to place the product at every possible point of purchase
for the consumer. However, this would compromise on the level of control since to do this
effectively a company would require assistance through channel partners and that means loss
of entire control of the distribution network. Redbull’s distribution strategy is intensive and
lately, Redbull has been expanding its coverage to different points of purchase through the
distributor Sigma.

Sigma has a well-established network and allows Redbull to store its products to different
shops including grocery stores, supermarkets, mid-tier shops, public events etc. the
collaboration with Sigma has been effective since its evident that Redbull has now been
placed at many more stores than it was a few years ago. Furthermore, to place its product at
local Modern Trades and International Modern Trades Redbull deals with them through their
company. Since these stores are of critical importance to the sales of the company and stock
rival brands, it is essential that its carefully monitored hence the company deals with them.
The prices offered to these Modern Trades are different than the ones offered to smaller
retailers through distributors due to strategic reasons discussed above in the document.

Factors Affecting Channel Strategy

There are some major factors which are affecting the channel strategy of Red Bull. These are
mainly internet and online shopping, power of retailer, power of distributors and emergence
of modern trade.

Ø Internet and Online Shopping:

Red Bull follows a multichannel strategy but that was not always the case. Before the
pandemic started Red Bull like other beverage companies only used the traditional
indirect channel and relied on distributors to increase the coverage of their company. Due
to the pandemic, there was a shift in consumer preferences, and this changed the channel
strategy as well. As more customers were using online channel such as Food Panda and
Air Lift to order groceries and beverages Red Bull had to adapt as well. They have
product available on all the major online food deliver and grocery stores to match the
shift in consumer preferences from the traditional channels to online platforms.

Ø Power of Retailers:
Traditionally distributors were the recipients of company’s generosity and most of the
focus was on them. Recently due to change in power of retailers which command more
power due to increased foot traffic and more modern stores. This has forced companies to
come up with trade marketing functions and most of these trade marketing activities are
catered towards the retailers instead of wholesalers and distributors. Red Bull has started
a Field Marketing department whose responsibility is to increase consumer engagement at
Point of Sales and do Below the line (BTL) activities. This is because consumers want a
personalized product and traditional ATL activities and mass advertising has lost its
appeal. Thus, due to this factor, the company has changed its channel strategy and shifted
focus from distributors to retailers.

Ø Power of Distributors:
Power of distributors has been decreasing for the past few years and due to this Red Bull
has changed its channel strategy as well. Distributor’s power is decreasing because till
two years ago there were very few distributors and these big names such as Sigma, M&P
and Abu Dawood controlled majority of the market. Due to recent interest of foreign
investors and backed by VC firms’ new distributors such as Bazaar and Retailo have
entered the market. These new start-ups are offering lower rates, better services and the
convenience of ordering using mobile applications. Due to this the power of distributors
has dwindled and companies such as Red Bull who were using only one distributor have
started considering partnering with these new start-ups since they represent a fair share of
market as well and Red Bull does not want to lose their coverage but instead increase it
thus, they have changed the channel strategy due to this factor.

Ø Emergence of Modern Trade:

The emergence of modern trade has changed the way customer experiences shopping.
This is partly due to the variety along with the depth and breadth and partly due to
convenience and lower prices. Modern Trade stores represent a major share of weighted
distribution of sales for any company. Red Bull has 30% of sales through these
international and local modern trade stores. This has greatly increased the channel power
and due to that are demanding more favourable terms than company’s current distributor
Sigma. Because the majority of Red Bull’s target market shops in the modern trade stores
and due to proven track record of high sales of all SKUs company has given in to their
demand and these Modern Trade Stores sell the product for 250 Rs while the company’s
distributor sells to the retailers for 270-275 Rs. This has created a conflict between the
two channels and retailers have started buying from these modern trade stores as well.
This cannibalization effect has forced the company to enact a Trade Price across the
board since the distributor Sigma was threatening to pull out if this was not resolved.
All these factors combined along with ever-developing business situations and challenges
have forced Red Bull to keep evolving their channel strategy to keep up with consumer
demands, shift in preferences and change in powers of key stakeholders.
 Consumer preferences wrt Channel

To determine the preference of the customers, a small survey with a sample size of 147
Redbull consumers was conducted. The respondents were asked two questions. In the first
question they were asked to select the preferable channel between the three available options:
Traditional, online, and vending machines. The respondents could choose only one option.
The following graph shows the results for this question:

Among the 147 respondents, 112 (76.2%) said that they preferred the traditional channel of
distribution for obtaining RedBull products. Moreover, 29 people opted for vending machines
whereas as online channels had a meagre share of 4%.

After this, the respondents were asked the second question which is as follows: “What
features you look in a channel while making the purchase decision? “While answering this
question, respondents could select more than one option. The following graph shows the
results for this question:
The responses show that a large number of people have given their verdict in the favor of
ease of access and product quality as the features they look while making their purchase
decision for Redbull. Viewing these results with the results of the earlier question, it makes a
lot of sense as the traditional channels have greater ease of access as well as they direct
selling lead to maintaining better product quality. So, the results of both the questions
corroborate each other.

Even though, the sample size is quite small, and it doesn’t represent the preference of the
masses, it still gives a fair bit of idea about the consumer preference tilt towards the
traditional channels for buying Redbull products.