Question

Using Porter's Five Forces Model, explain the elements of competitive advantage or potential concern for each category in the Model for the company RedBull

Answer 1

Porter's Five Forces Model:

Porter's five forces model is a competition analysis tool that helps determine an organization/business its potential and position in the market industry. Aware of the power of five forces, a company can strategically place itself to strengthen its position and be more profitable in terms product demand, revenue, customer satisfaction and its associated financial implications.

The market for energy drinks grow in a accelerated manner because of increasing awareness among the consumers towards a healthier lifestsyle. For a energy drink giant company Redbull, the five forces that determines its competitive advantage over other players in the industry are as follows:

A. The bargaining power of suppliers: LOW

Energy drink being one of its kind has fewer suppliers of raw materials and inputs in the industry. Redbull, has a relatively smaller supply chain, uncomplicated and easy production process and few suppliers which do not give them cost advantage. Low cost inputs gives Redbull higher profits. Moreover, the suppliers and vendors of Redbull do not drive the selling price of the product. Since the bargaining power of its suppliers is low, its a competitive advantage for the company and directly boosts the profits achieved.

B. The bargaining power of customers: LOW

Although the energy drink industry is constantly growing, there are very few business in this sector which have higher brand image and more loyal customer base. Redbull is one such giant. Comparing to other companies, the customers prefer Redbull and at any day choose to pick the same Redbull drink. The demand is constantly increasing and the bargaining power of customers relatively decrease. The Redbull manages to sell its variants above the market level prices and still occupies a huge share in the market.  

C. Threat of Substitutes: LOW

The quality of Redbull energy drink is one of the factor due to which it has managed to attract huge loyal customer base and still manages to capture the potential customers. Thus, there are many identical substitutes for energy drinks in the market but they play no major role as a threat of Redbull's market share. Playing its role globally, it is not at all affected by the locally produced energy drinks.

D. Threat of New Entrants: HIGH

For Redbull, the threat of new entrants to this energy drink market is relatively high due to high price being demanded from its consumers. If the methodology and technology is easily available in the market to create an energy drink, the barriers for new entrants to enter this industry will be easily broken. If there are companies with a lower price range and quality as same as that of Redbull, the potential consumers can easily be affected and can shift to the new one.

E. Industry Competition: LOW

The market competition for energy drinks is very low unlike that of soft drinks which are manufactured on a large scale by the companies and in different range. The market share of Redbull is huge compared to other energy drink manufacturing companies in the world. The available ones are easily beaten up by Redbull in terms of quality and huge customer base. This low industry competition has a positive impact in increasing the revenue and is an added competitive advantage to Redbull.