One is the effectiveness of the product. The candy format is less effective in terms of the caffeine/herbal stimulant integration, such that the product may not be as effective as liquid Red Bull. We are concerned that by offering the candy in pieces with 50% of the caffeine as a can of Red Bull, the perception of the product's effectiveness may be compromised. There are also some potential limitations with fitting Red Bull Candy into our existing distribution systems. Distribution of beverages and dry goods to retailers is not typically done by the same company, or at least the same trucks. We may run into logistical issues with respect to placing the candies on the trucks. Thus, there are some logistical issues that need to be worked out, lest they impact negatively the distribution synergies between these products.
We will therefore need to research the following. We must study consumer perceptions of the product's effectiveness. Red Bull has been successful because it is perceived as effective. Consumer perceptions will therefore be critical to successful diffusion of Red Bull Candy into the marketplace. If there is a deficiency, we need to have studies on hand that can help us find ways to improve product effectiveness. We also need to study distribution -- we believe a solution can be found that would allow us to achieve distribution synergies, but we must work with our distribution partners in order to ensure that this is the case.
c) The following complications suggest that the idea may not be as feasible as first thought. One is that the concept of caffeinated candy has not taken off substantially. It is, at...
That would not be good enough for Red Bull. Another complication that could reduce the feasibility of this product is the price point. Our current concept has 6 pieces for the price of one Red Bull can. In other words, three times the amount of caffeine for the same price. This illustrates the price-cannibalization problem. The price points for candy are sufficiently low that if we priced in accordance with our beverage pricing we may have considerable difficulty building the market. Worse, our markup on the candy would be lower. We would cut into beverage sales, and weaken the company's overall profitability as a result.
Another complicating factor is that the business may not be large enough to support intense competition. The energy drink market is large enough at this point to support the high level of competition. We fear that the potential market for candies is smaller than for beverages. Yet, if we moved into the market, that would prove sufficient enticement for our beverage competitors to enter as well. Red Bull enjoyed multiple years of lead time in many cases that allowed for the development of dominant market position that insulated the company from the glut of competitors. With short lead times to develop candies and bring them to market (as little as 3-6 months), we will not have time to build that dominant position. If the market is significantly smaller, the level of competition far more intense, and our market position not as well established, we may have essentially developed a market in which we cannot profitably compete.
