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In this report we are trying to investigate and analyse the Marketing activities of NESTLE. We have analysed the marketing strategies of nestle through identification of the Organisation Orientation, understanding the impact of the Marketing Mix, SWOT analysis and Competitive Advantage.
1.1 HISTORY OF NESTLE
Nestle is one of the major food and beverages company in the world. It was established in 1867 by Henry Nestle, who was a trained pharmacist. The introduction of the company in the market was through the development of an alternative source of infant nutrition for mothers who were unable to breast feed and named it as Farine Lactee Nestle. He chose his surname 'Nestle' which means a 'little nest' for his company's name logo.
In 1904 Nestle introduced its chocolates in the market. But when the availability of raw materials reduced during the First World War, Nestle purchased lot of factories in U.S and increased their production to twice as their pre-war production. Immediately, after the end of the war consumers switched back their choice to fresh milk due to which Nestle recorded its first loss. However they streamlined their operations and brought production in line with sales and thereby dropping the debts.
The 1930's saw Nestle introducing several new products like Milo and Nescafe. Nestle achieved considerable growth after the end of Second World War because of diversification within the food sector. The sales of Nescafe instant coffee quadrupled between 1960 and 1974.
In 1980's Nestle drew flak from many organizations on account of promotion of infant formula over breast feeding which allegedly led to death of infants in less developed countries. The boycott of Nestle products was suspended in 1984 after Nestle agreed to comply with the international code.
Nestle had major acquisitions of the Italian mineral water company San Pellegrino, Spillers Pet Foods in UK in the year 1990's, and Ralston Purina in 2002. Nestle also formed a merger with Anglo-Swiss Condensed Milk Company with the aim of widening its product range and merged its ice cream business with Dreyer's in U.S.
Since its entrance in the market, Nestle has prospered in various product innovations and business achievements due to which it had become the major Food and Nutrition Company in the world. In 2010, Nestle was also recognised as the top 4th Innovative Company among the Innovative companies for food for by the Fast Company Magazine.
Nestle has introduced a wide range of products like chocolates, soups, coffee, cereals, frozen products, yoghurts, mineral water, food products, pet foods, pharmaceutical products and even cosmetics in the family of NESTLE. They diversified beyond food industry by acquiring a major share in L'Oréal cosmetics and acquired an American pharmaceutical company, Alcon Industries. In all these products one common outcome is the high quality of NESTLE.
There are several important rules in the company's strategy. Few of them are mentioned below:
- While sustaining a balance in terrestrial activities and product lines, the firm's goods are grown through innovation and restoration.
- The priority is given to Long-term prospective rather than to short-term performance.
- The aim is to deliver the best and most reliable products to people
2. ORGANIZATION ORIENTATION
There are different types of business orientations:
2.1 PRODUCTION ORIENTATION
Brassington & Pettitt (2006:12-19) believe that production orientation emphasizes on availability and affordability of the products and thus production oriented companies concentrate on efficient production and distribution techniques. Jobber (2001: 4) says that production oriented management believes in attaining economies of scale as their primary goal by producing only a small range of products or defining business by its production facilities. In production orientation their key focus is on their current capabilities of production.
2.2 PRODUCT ORIENTATION
According to Adcock et, al. (2001:17) product orientation is concentrated on products rather than needs and wants of customers. Companies following product orientation are interested in the quality, design of products which have greater value for money. Brassington & Pettitt (2006:12-19) say that these companies assume that the customers are interested in the products and that they are interested in the quality.
2.3 SALES ORIENTATION
According to Brassington & Pettitt (2006:12-19) sales oriented organizations believes that the products "are sold, not bought". They emphasize on personal selling and other sales techniques, assuming that the consumers are reluctant to purchase. Adcock say that sales orientation concentrates on promoting the products and that this is effective only for short time period.
2.4 Marketing Orientation:
Adcock (2001) says that market orientation occurs when the customers identify the difference in a company and when all the benefits offered to the customers are measured. According to Jobber (2001) marketing oriented companies focus on the customer needs and for them the opportunities arise from the changing needs of the customers or market.
Brassington & Pettitt (2006:12-19) believe that an organization which is concentrated in its marketing and production activities with the understanding of the customer needs and satisfaction is market oriented. The main advantage of a company being market oriented is that it would have a higher customer value and there would be a consistency in superior performance in the business.
Nestle concentrates on their consumers and tries to understand their physical and emotional desires. They have a wide range of products and consumed by all age groups. Nestle try to understand the economic, geographic and social factors which affects the diets of the consumers and try to concentrate on the nutritional and health value of the products. Example Nestle have used their research and technological expertise to their ice cream products to lower the calories and fats and yet to have the same taste (http://www.nestle.co.uk/ourbrands/productrange/icecream/). They have also introduced sugar free products in their confectioneries like Polo and lower sugar products like Kit Kat Light.
Nestle also have concentrated on the lower-income consumers and made their products available at affordable prices while providing a diet compensating the local dietary deficiencies and including relevant nutrition.
Nestle also try to understand the motivations, routines, decision making and purchasing habits of the customers by spending time with the people. Example: Nestle employees spent three days living with people in suburbs of Lima in PERU to understand their everyday aspects of their life, and based on their understanding they sold relevant products in the local markets and stalls (http://www.nestle.com/Resource.axd?Id=602C42FE-04D6-4669-BEE1-1027492FE5E8).
Another example of Nestlé's consumer focus the launch of Jenny Craig's weight management programme in France on 8th March 2010 (Press Release 2010, http://www.nestle.com/MediaCenter/PressReleases/AllPressReleases/Jenny_Craig_launch_in+Euro pe.htm?Tab=2010) and they offer menus and lifestyle advise in response to individual consumer needs.
Thus it's clear that Nestle is a Market Oriented company since they try to understand the customer or market needs and produce products accordingly to achieve the organizations goals. And they believe that people are the main strength of the company.
According to Narver and Slater (1990) marketing orientation comprises of three main components: Customer, Competitor, and inter-functional coordination. Customer orientation includes all the aspects of buyers in the designated area and competitor orientation includes the information about the competitors in the targeted area whereas inter-functional coordination involves the delivery of superior value for the target customers by the efficient use of available resources.
3. MARKETING MIX
"The Marketing mix is a set of controllable, tactical marketing tools that the firm blends to produce the response it wants in the target market" (Armstrong and Kotler, 2001). This is mainly used by organisations to increase the demand of their products in the market by understanding the customer wants.
Most of the marketing practitioners regard marketing mix as a tool as a tool for transaction marketing and the archetype for operational marketing planning
The above fig describes how a company could by research and successful adaptation can understand and develop products to match the customer's requirements. According to Baker (1999: 303), by understanding and matching the needs of the customers efficient management of marketing mix is possible.
3.2 COMPONENTS OF MARKETING MIX - Impact, Positive and Negative
Kotler and Armstrong (2001) define a product as any entity that can be offered to a market by a company for attention, acquisition, use or consumption that might satisfy the needs of their customers.
220.127.116.11. Product Mix
Product mix is the total range of products that are manufactured by a company. The major aspects to be considered in product mix are explained below.
Research on the reciprocal effects of brand extensions suggests that failure, poor quality, or low typicality of an extension has an adverse effect on the parent brand evaluations (Kumar, 2005:183). In the case of Nestle, the sales of noodles dropped after it introduced Atta noodles in 1996 as the consumer response was adverse.
"A Nestle brand name on a product is a promise to the customer that it is safe to consume, that it complies with all regulations and that it meets high standards of quality"
Packaging: Packaging involves designing and developing a cover for a product in order to make it attractive to the consumers. Packaging was just a means for protecting the product in the past, but today increase in competition has resulted in the need to differentiate the product from those of its competitors to attract the customers and to describe the features of the product in order to gain consumer recognition. Poor designs can be one of the reasons for reduction in sales of a product due to less customer satisfaction. Nestle uses very attractive packaging as one of their main marketing strategies.
For its efforts, Nestle has won several accolades such as the Silver Star and "Best in category" as "Best Packaging Innovation leading to a significant reduction in household waste" by the British Institute of Packaging for the Dairy Box biodegradable tray which is manufactured by using renewable resources.
18.104.22.168. Product Growth Strategies
"The emphasis in product portfolio analysis is on managing an existing set of products in such a way as to maximise their strengths, but companies also need to look to new products and markets for future growth" (Jobber 2007:405).The most efficient way for analysing the opportunities for growth in an organization is the Ansoff Matrix.
22.214.171.124. Market Penetration
Market penetration is the process of increasing its customer base in the existing market by winning over the customer base of its competitors for further growth by means of advertisements, promotion, price cutting, differentiation and seeking new segments.
This can be achieved by acquisitions in the case of Nestle, when it acquired Kit Kat from Rowntree in 1988 (http://www.thetimes100.co.uk/case-study--kit-kat-revitalising-brand-leader--7-52-2.php) and Kraft Foods' frozen pizza business in March 2010 (http://www.nestle.com/MediaCenter/PressReleases/AllPressReleases/Kraft+pizzas.htm). Nestle became the 2009 processor of the year by growing sales in Nestles SA's operations in the various operations through growth and acquisitions.
126.96.36.199. Product Development
Product development involves the development of new product ranges for an already existing market for further growth. One way of product development is replacing the old product with a newer version. Another means of achieving this is to expand its product line thereby providing more choices to the customers.
Nestle has opened a global Research and Development Centre in January 2010 for developing a new generation of Cereal based snacks and Biscuits
188.8.131.52. Market Development
"Market development entails the promotion of new uses of existing products to new customers or the marketing of existing products (and their current uses) to new market segments".
Nestle has launched the Jenny Craig weight management programme which is an existing business for the past 10 years in the United States, Australia, Canada and New Zealand to the new market in France in March 2010.
Diversification can be achieved "either with related products and markets or unrelated products that are totally unconnected with the existing products and markets".
Nestlé's Product Diversification is clearly evident from its product portfolio where they have pet foods which are different from the other products.
184.108.40.206. New Product Development
Development of new products is vital for the sustenance of any organization as it is essential for their growth. In order to develop a successful product, a company must have an understanding of its customers, the markets in which they operate and its competitors. The figure below shows the key steps involved in a new product development process.
The new product development cycle starts with the generation of an idea of the product. The major sources of new product ideas may be internal sources such as the research and development team of the company or external sources like competitors, brainstorming sessions for customers, the suppliers and distributors of the company etc. who can all act as sources of ideas for the organization.
This stage involves the careful scrutinizing of the ideas from idea generation stage to select the good ones and drop others by evaluating them against certain general criteria.
Concept Development and Testing
"In this stage a concept of the screened idea is developed. A product concept is the comprehensive version of the idea stated in meaningful consumer terms" (Armstrong and Kotler 2001:269). Concept testing involves the evaluation of the performance of the product concept by presenting it to the consumers.
Marketing Strategy Development
This stage involves the development of a primary marketing strategy based on the product concept before introducing the product into the market.
This stage comprises of an analysis of the sales, costs and the projection of profits for the new product to find out whether it satisfies the needs of the company. If it does, then the product moves on to the next stage.
If the product satisfactorily passes the business analysis then it is sent for product development which involves the development of a physical product by the research and development wing of the company. Then this product may undergo rigorous testing to ensure the safety and efficiency of the product.
In this stage, the product developed is introduced into a realistic market segment. "Test marketing lets the company test the product and its entire marketing programme- targeting and positioning strategy, advertising, distribution, pricing, branding and packaging and budget levels".
Commercialization of the product involves the introduction of the product into the market. The major factors to be considered in this stage are the timing of launching of the product and the choice of markets to introduce the product.
Nestle has been at the forefront of developing new customer- centric health products and their researches are aligned with consumer and business needs. For example, Nestle has made the vital breakthrough in Nutrigenomics, a study of effects of food and the constituents of food on gene expression. The researches in the field have enabled Nestle to achieve targets for developing a diet to manage canine osteoarthritis in an improved manner.
220.127.116.11. Life Cycle of a Product
The life cycle of a product consists of four stages:
- Product development
- Product introduction
Product development stage starts with the generation of an idea for a new product by the company. Product introduction is the phase where the product is introduced into the market. For example, consider the case of Maggi noodles. Nestle India Ltd. (NIL) introduced Maggi noodles in India in 1982. With its introduction, NIL created an entirely new food category - instant noodles in Indian market. Nestle attained the market leadership with this product in its category because of its uniqueness.
Growth stage involves the period of the product being accepted by the customers and increase in profits of the company. The introduction of a new product can alter the structure of the market by creating new benefits (Shocker, Bayus, Kim 2004:29). At the time of its introduction in India, Maggi noodles enjoyed around 50 percent market share in its segment. Maturity stage is denoted by a fall in sales growth of the product. The profit also falls due to increased expenses incurred for marketing the product efficiently against its competitors. Decline is the stage where the sales of the product decreases and the profits fall drastically. In 1990s, Maggi faced a decline in sales owing to the increase in popularity of its competitors. It was also because of the change in formula of Maggi noodles. NIL reinstated the old formula in 1999 and also launched soups and cooking aids under Maggi Brand name after which the sales increased
Stanton and Futrell (1987:418), describe promotion as an important element of marketing mix which aims in informing and persuading the market about the products and services of the company.
According to Baker (1999, 310) the method of communicating the product offer which is made by a company to match the needs of the customers and to persuade them to try the product is Promotion. They feel that the significance of promotion increases when the distance between the producers and customers increase and as the number of customers increase. Promotion activity does not depend on the demand; even if the demand is high promotional activities should go on in order to keep the manufacturers name before the customers.
Nestle uses promotion as one of the major source to reach their customers to make them aware of the different products introduced in the market and the value of the products introduced.
Promotion Mix according to Armstrong and Kotler (2001:387) also called as marketing communication mix consists of all the promotion tools in a perfect blend which an organisation uses to promote its products.
Nestle adopts a promotion mix with a perfect blend of several different promotion tools to promote the value of its product and make the customers aware of their different products.
18.104.22.168. Promotion Tools
According to Stanton and Futrell (1987: 418), personal selling is mainly used when the market is geographically concentrated (Few customers) and when the products are custom made. It is defined as a face to face communication with buyers in the aim of pursuing the customers to purchase by Simon(). It's a one to one marketing. Tele marketing, door drops inserts, Door to door selling are all techniques used in personal selling.
Advertising according to Groucutt (2005:215) is to communicate to a specific audience to stimulate action and its success is in the way the right information reaches the right person at the right time. Majaro (1993) say that advertising is any paid form f non-personal communication of products, services or ideas through a commercial media. (Stanton and Futrell, 1987) Promotion through advertising is mainly done when the market is geographically dispersed or when the product is standardised.
Nestlé's advertisements are well known in the market and they have made sure that the advertisements are attractive through all the possible media. Internet is one of the latest media used by nestle to promote their products, where they have different websites hosted for different products. Different strategies for each product like online competitions and distribution.
HOW ADVERTISING WORKS
Tim Ambler and Demetrios Vakratsas have formulated a framework for studying how advertising works for a company.
They have considered the input to be advertising own and competitive brands. Scheduling the media and message contents are the motivation factors or triggers the consumer's response. "Cognition, the 'thinking' dimension of a person's response, and affect, the 'feeling' dimension, are portrayed as two major intermediate advertising effects" (Ambler, Vakratsas, 1999:26)
Sales promotion represents non- media campaigns such as sampling displays, shows, exhibitions and contests (Majaro, 1993:35). Stanton and Futrell (1987:418) believes that sales promotions one of the fastest growing promotional methods these days. Free samples, Money off coupons, extra value offers buy one get one free, bundling, privilege points are all different methods used in sales promotion. Nestle also uses sales promotion as one of their promotion tools by offering programmes like every day eating coupon codes and discounts and offers for online shopping on nestle products.
Publicity is a promotional method where the organisation is not paying for the communication about its products and is benefiting from it (Stanton and Futrell 1987:419). This occurs either through a non-personal news story appearing in a mass medium or is delivered by a person in an interview or a speech. Publicity is achieved mainly through public relations activities. According to Jobber (2007) sponsorship provides more opportunities for publicity in the media.
Nestle is a well known brand in the market and its fame describes its publicity and the further publicity occurs during various interviews of officials of nestle. Publicity for nestle also occurs during the launch of every new products and when the annual sale reports are published. This publicity obtained by nestle is not by paying any of the media.
PUBLIC RELATIONS: According to Groucutt (2005:224) public relations is a means of communication used by organisations to deal directly with the customers and vice versa. There are different departments in organisations which deal with all issues or concerns of the company with any other organisation or individuals.
Nestle, public relation activities is evident from how they try to communicate with government organisations as well as the customers about the different issues that they face. Through public relations nestle try to bring to the attention of all the customers and organisations concerned about the various issues or concerns and the current approach they are taking towards these concerns.
Price is defined as the value of a product that we get in return for all the effort that was taken for its production and also for marketing of the same product. Price is the revenue earner so it is considered as the odd one in the marketing mix. It is also considered as an important market tool which is visible to both customers and competitors (Baker 1985). The price of a product depends on a number of factors like, changes in technology, effect of suppliers, competitive pressure and the increasing price sensitivity of the customers. Price is also directly dependent on the demand of the product. If the demands increase the price will also increase and vice versa.
Consumers generally show a keen interest in tracking the prices of the products which they usually purchase. This enables them to analyse the attractiveness of the product and be vigilant about the changes in price of the product, thus enabling them to compare the prices of the product in various stores (Vanhuele and Dreze 2002:72)
22.214.171.124. Pricing of the Product
"Companies usually do not set a single price, but rather develop a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchasing timing, order levels, delivery frequency, guarantees, service contract, and other factors" (Kotler, Keller, Brady, Goodman and Hansen: 2009). According to David Jobber, pricing of a product mainly depends on 3 factors: cost, competitor and the market.
COST ORIENTED PRICING
The most common method of pricing of a product is cost oriented pricing, in which it is divided into full cost pricing which involves the calculating of cost of all labour and materials and direct cost pricing which involves the calculation of only those costs that are likely to rise as output increases.
COMPETITOR ORIENTED PRICING
The approach to pricing which only depends on the competitor rather than costs when framing a business is called competitor oriented pricing. Every consumer will judge the price of a product by comparing it with a similar product in the same range which is produced by their competitor (Kotler, Armstrong, Saunders and Wong 2001).
MARKET ORIENTED PRICING
Market oriented pricing is one of the important area which depends on competiveness of a product in the market. For a new product the positioning strategy controls the pricing and for an existing product price will depend on the strategic objectives.
126.96.36.199. Price-Quality Relationships
Price is directly dependent on the quality of the product. As the quality of a product increases the price also goes up. Nestle is a quality focused company and hence to compete with current market it need to carry out the pricing process of the product very carefully. Nestle is a very successful company and all its products are at affordable prices.
PRODUCT LINE PRICING
Most of the companies usually develop product lines rather than single products. In product line pricing the management must decide on the pricing steps to set between various products in a line (Kotler, Armstrong, Saunders and Wong 2001). In product line pricing, cost difference between the product in the line, evaluation of customers and also the competitor's products with small price difference is also taken in to account.
Explicability is defined as the capability of sales people to explain a high price to customer. In market customer demands the economic justification of product prices. If the sales people fail to give a clear idea of the product development stages, it will reduce the value of product. As Nestle is very innovative it needs a high financial support for its R&D and it is not easy to give idea about the product development costs to an ordinary customer.
Competition plays an important role in the cost consideration of a product in a business. The main competitors of Nestle are Heinz, Kraft, ConAgra, Mars Incorporated, Hershey, Cadbury, General mills etc. Since all their main competitors are also well branded, they cannot price a product without analysing the competitors pricing. But the main advantages behind their successful pricing are that they are very superior in its market position.
In certain market customer expects a price reduction in some products. Competitive discounts, fast payment discounts an annual volume bonus and other promotional allowances come under this category. Nestle and its negotiations with its suppliers made them to gain a good reasonable margin in all its goods.
EFFECT OF DISTRIBUTORS/RETAILERS
Well qualified suppliers and efficient retailers is also a factor which affects the price of a product. If a distributor supplies a product with high price or a retailer sells a product in high margin it will cause the variations in price of the products. Nestle itself agreed that their distributors are well developed and hence the company can control the price of its products.
Nestle sometimes blames the policies of governments for its poor reflection on the exports. Some of the government policies which results in increase in packaging cost makes the product less competitive in the global exporting market.
Armstrong and Kotler (2001) describes place as the activity of a company to make the products available to the customers.
188.8.131.52. Place Strategies
The major factors to be considered while formulating a place strategy are Channels, Coverage, Assortments, Locations, Inventory, Transportation, and Logistics.
Channel distribution strategies deal with the decisions on making the products available to the target customers in usable condition. "A channel of distribution is the combination of institutions through which a seller markets the products to the user or ultimate consumer" (Peter, Donnelly 2004:145). As the time and finances required for setting up a channel of distribution are comparatively high, the place strategies are often critical for the success of a firm.
The channels of distribution can be of two different types on the basis of the targeted consumer. It may differ when the end user of the product is a consumer or an organization, the Consumer Marketing Channel and the Business Marketing Channel.
Nestle adopts the consumer marketing channel where the products from the producer reaches the consumer through the wholesalers or retailers. Nestle has e-marketing for some of its products where the products reach the consumers directly from the producer.
According to Donnelly (2004:150), the channel of distribution strategic decisions are determined on the basis of the following factors.
- Distribution coverage required
- Degree of control desired
- Total distribution cost
- Channel flexibility
Distribution coverage may vary based on the features of the product, the market and the target customers. The company may opt for intensive distribution, selective distribution or exclusive distribution.
In the case of intensive distribution, the company tries to sell the product through the maximum number of retailers and wholesalers. In selective distribution, the company may limit the number of wholesalers and retailers which are the best in that market while in the case of exclusive distribution; the manufacturing company may provide exclusive rights for distributing the product to only one or a few distributors.
Nestle has adopted intensive distribution strategy in order to make its products available to a large customer base. Nestle products are available through a large number of retail outlets. Besides this, Nestle has also launched an e-shop for promoting its confectionary in Japan which allows the consumers to buy Kit Kat chocolates online.
The coverage of Nestle is world-wide as it has a wide distribution channel and several manufacturing units at different places around the world.
"Marketing logistics involves the planning, implementing and controlling of physical flow of goods, services and related information from points of origin to points of consumption to meet customer requirements at a profit".
Nestle underwent a complete re- engineering of its supply chain which was aided by Total Logistics which has benefitted both Nestle and its consumers. "Nestle has been able to operate composite pallet loads for entire UK, combining beverages and confectionery through two vehicle fleets and two distribution hubs" (http://www.total-logistics.eu.com/logistics-clients/logistics-consultants-case-studies/nestle.html). Through this, Nestle has been able to decrease its fleet size and satisfy smaller delivery volumes without any increase in the costs.
4. COMPETITIVE ADVANTAGE
Competitive advantage can be defined as the advantage of an organization over its competitors which is gained by organizing and performing distinct activities. An organization can gain competitive advantage in either of the two ways:
Cost Leadership strategy: It means supplying a product at a comparatively lower price than that of its competitors.
Differentiation strategy: It means selling a product at a premium price by providing more benefits and features to the product so that the premium price is justified.
"Competitive advantage must be considered from a customer-based perspective. It can, however, be defined as one or more elements of an offering that competitors cannot or will not match".
4.1. General Strategies for Competitiveness in Market
"Satisfying customers is a central tenet of the marketing concept, but it is not enough to guarantee success" (Jobber, 2001).The competiveness is the main factor that depends on the sustainability of any industry in the market.
According to David Jobber competitor analysis seeks to answer five key questions.
- Who are our competitors?
- What are their strengths and weaknesses?
- What are their strategic objectives and thrust?
- What are their strategies?
- What are their response patterns?
Since Nestle is a multinational company with large verities of products they have lots of competitors in each area of their business. Dannon, Stonyfield Farm, and Yoplait from United States are their most dominant competitors in dairy products such as yogurt. Yoplait of General mills is the strongest competitor and they owned about 37% of total market shares through different branded products. The main contributions to their well famous brand are the customers trust and their innovative products. The main successful strategy that adopted by General Mills are formation of joint ventures and acquisitions. They also had joint venture with Nestlé in the cereal division where its products available more than 130 countries.
General mills mainly concentrated on focus business strategy. They attacked a specific segment of the market by their focus strategy. They mainly aimed their products for women, children and dieters. Health is also their main area of the focus which helped them to occupy a niche in the market and to become leading yogurt producers in United States.
Cadbury is the largest international confectionery supplier. They have global market share of 9.9%. Their strong financial power and high manufacturing competence and well established brand name gives them good strength to compete in market. The innovative products of Cadbury are also a weapon to compete in global market. But the main weakness of Cadbury is the lack of diversified products as Nestles had in confectionery and beverage market and also the improper balance of price in its products in the developed competitive market.
Heinz, Kraft, ConAgra, Mars incorporated, Hershey and Fry's are also their some of the upcoming competitors in the present market.
4.2. Porter's Strategies For Competitive Advantages
4.2.1. Generic Strategies
"There is no one universal competitive strategy and only strategies tailored to the particular industry and to the skills and assets of a particular firm succeed".
The lower cost and the differentiation are the two types of basic competitive advantages. For a company to compete with its competitor in a market it should adopt any of these four competitive strategies.
- Cost leadership
- Differentiation focus
- Cost focus
The ability of a firm to design, develop and also to sell a reasonable value product more efficiently than any other competitors comes under lower cost. But differentiation is the ability to provide unique and superior value to the costumers in terms of quality of the product, special feature and also in good services. Focus strategy is used when an organisation mainly concentrates on a narrow segment or segments with in a sector. Focus strategy is also again divided as cost focus and focus differentiation. Focus differentiation strategy concentrated only on a specific product with very high quality but the cost focus strategy is only focussed on the cost of the product independent of their quality.
Nestle has identified the basic elements of advertising- package, design, typefaces, pictures and content which are more likely to capture the attention of boys and girls of varying age groups (Nestle 2003:179). Nestle mainly focus on differentiation strategy. They differentiate their products with their competitors by giving them better customer satisfaction and quality with in an acceptable price limit. They reduce the risk of complexity of supply chain and lower attractiveness for discounters to follow this differentiation strategy. They also try to grow their products through innovation and renovation and target at long term performance.
4.2.2. Porter's Five Force Analysis
The five competitive forces that determine industrial competitions are,
- The threat of new entrants
- The threat of substitute products or services
- The bargaining power of suppliers
- The bargaining power of buyers
- The rivalry among the existing competitors
Porters five force analysis also determine industrial profitability because they shape the prices firms can charge, the cost they have to bear, and the investment required to compete in the industry. The threat of new entrants push downs the margin by bring new capacity and they seek new market share and hence the overall reduces the profit potential. The powerful buyer or suppliers bargain away the total profit among themselves and also the presence of very close substitute products limits the price competitors can charge without inducing substitution and eroding industry volume.
4.3 Competitive Advantages of Nestle
The main driving force for the growth of Nestlé's sales is its dairy products. Demographic factors, consumer tastes and the personal income drives the demand of a business. Their competitive advantages that help them to sustain in the emerging competitive market conditions are
A team of well qualified suppliers who always support nestle in all their development and growth through quality and excellence.
- Maintaining a good customer relationship according to the taste and demand of emerging market.
- Good quality of products and services at a lower cost increased their competitive advantages to a great extent.
- Advanced technology and innovative products to access new capability
- Nestle always tried to make a mutual understanding with the public sector for their diversity expectation and hence they seek government contracts to sharpen their competitive advantage.
4.4. Nestlé's Competitive Strategy
For every global business should have a well structured their own international strategies for competitive sustainability. For Nestle, their international business strategy plays a key role in the development of competitive advantage in their business. Direct foreign investment in the dairy and food sector are main contributors of nestles global competitive strategy. Nestle balances their sales between low risk area (developed worlds low growth nations) and high risk areas (Latin America and Africa) by identifying their possibilities in their market and taking high risk area as an opportunity of nestle to develop their profitable business in a very safe mode with ensuring their constant growth in that area and gives a good return to its shareholders.
Direct investment in multinational company helped nestle to frame a good economy and to grow their operating market. They occupied licences for LC1 brand Muller (a Germen dairy product) in Austria and Germany. According to appropriate market condition and local customer demand, they produce ingredients or corresponding process technologies which supplies to the current needs. The main example of this is the Sveltesse, the European diary product which contain two or three times more fat contents than American dairy products.
Nestles partnership with other large companies are also a biggest achievement in their international strategy. Their alliance with coca cola in ready to drink tea and coffee made them to gain a reasonable benefit. In Asia, Nestle is acquiring local companies so that they can form a group of regional managers who know very well about the local markets and culture than in European and American business. Their strategic advancement in these areas is due to their strong and well planned acquisitions. The Indonesia's largest noodle producer Indofood is a good example of this. They mainly aimed to expand their business to Indonesian market and also at the same time they exported Indonesian food products to several other nations
"Market growth has been closely associated with two issues: economic conditions and social change" (Nieuwenhuis and Wells, 2003).Nestle is a food, nutrition and health oriented company. Their key strategy behind their success is strengthening their leadership in marketing. All their market is based on quality products and customer satisfaction. The main factor that motivates a customer is to buy their goods is the nutritional content in their products. They also focused on creating a strong brand by creating brand equity. "A strategy based on strong brands is likely to be sustainable because it creates competitive barriers" (Aaker, 2001). A well established communication between nestles R&D and their customers internally and externally holds their business to achieve a good stability in the potential market. Nestle designed a Corporate wellness unit to integrate nutritional value-added in their food and beverage businesses. This organisation controls all the health, nutrition, wellness of organisation across Nestlé's beverage and food industries.
Nestle put forward nestle nutrition as a business area within their organisation and hence they calculated their business and market in the areas of Infant Nutrition, HealthCare Nutrition, and Performance Nutrition (http://www.nestlenutrition.com/). These all reinforces their competitive advantage in present market. They aimed to deliver a superior business to customers by offering trust, science based nutrition products, quality and services.
5. SWOT ANALYSIS
The formulation of a well- conceived competitive strategy for an organization involves the identification of the key issues from the business environment to monitor the internal and external strengths of the organization. SWOT analysis is one of the most effective tools used for this purpose. SWOT is an acronym that stands for strengths, weaknesses, opportunities and threats to the organization. It involves the careful evaluation of the strengths and weaknesses of the organization as well as its opportunities and threats to the organization
"The SWOT matrix is an important matching tool that helps the managers to develop four types of strategies: SO (strengths- opportunities) strategies, WO (weaknesses- opportunities) strategies, ST (strengths- threats) strategies and WT (weaknesses- threats) strategies".
SWOT analysis can be used as a means for determining the future courses of action of the organization.
After identifying the internal and external strengths, weaknesses, threats and opportunities to the organization, they have to work on converting the weaknesses to strengths and the threats into opportunities. For example, a reputable position can be attained in a new market via strategic alliances by which the strengths of both the companies can be combined to achieve the desired result. The activity of conversion of weaknesses into strengths and threats into opportunities is termed as conversion strategy.
Strengths are the skills and capabilities possessed by the organization which has a positive impact on the successful implementation of a competitive strategy. The factors such as the company's market dominance, the financial performance, production facilities and capacity, human resources, reputation of any particular brand etc. constitute the strengths of the organization.
Strength of Nestle is the presence of its factories or operations in almost every country in the world employing around 283000 people. The sales values have touched CHF 109.9 billion, with a net profit of CHF 18.0 billion
Nestle has recorded a financial growth even in times of recession by promoting the sales of smaller and cheaper versions of products in developing economies.
Weaknesses are the elements within the organization that hinder or have a negative impact on the successful implementation of a competitive strategy. It may include the inadequacy in financial resources, marketing skills or capabilities in relation to the competition.
Nestle do not have direct market outlets and this can be one of the weakness as it can cause difference in profit made. Their another weakness is not having enough raw material production units, they depend on either local raw material producers or through other trade channels.
Opportunities are the favourable conditions existing in the market environment which can be exploited by the organization to generate a better performance. Opportunities may be social, economic, political, environmental and demographic.
Nestle's weakness of not having a direct outlet can be converted as an opportunity by introduction of new direct outlets. The acquisition of Cadburys for an example is an opportunity since they are one of the main competitors for Nestle. Setting up their own farms and raw material production units is an opportunity as it would reduce the cost for Nestle.
By Acquisitions nestle can enter the new market, which is easy through already existing companies. Nestle has great opportunities in a society which is becoming more and more health conscious.
"A threat is a challenge posed by an unfavourable trend or development that would lead, in the absence of defensive marketing action, to lower the sales or profit of the organization".
Their weakness of not having enough raw material production units (which cause them to depend on other producers) and their dependency on other producers can threaten to reduce the quality of products they offer. The contamination of food products is a major threat to Nestle in the market.
Intense competition in its market segments also possesses a major challenge to Nestle as its competitors are also trying to increasing their product ranges which might make inroads into Nestlé's profit.
Another threat to Nestle can be the maturity of the markets which they are entering n. For example, in France, Danone has already established itself as a market leader in case of yogurt before Nestle launched its LC-1 division in France and could not compete against the well established Danone.
The consumers frequently tend to change their preference of brands, so change in consumer trends is a threat to Nestle.
5.5 Benefits of SWOT Analysis
"The benefits of SWOT Analysis are as follows:
- The planners gain a shared perspective on the state of the organization and the risks to be managed to achieve business or organizational continuity.
- The major barriers to achieving the strategic objectives are identified and responses developed.
- The present methods and means are audited to establish their effectiveness, and new solutions identified.
- New methods and means are generated to achieve required results and overcome barriers and problems.
- Hard and soft data are generated to assist planners in making reasoned decisions about strategies and tactics based on sound evidence.
- The relationships between internal issues and external issues can be identified and proactively dealt with.
- SWOT analysis helps to identify the major influences on behaviour and results in the organization".
Nestle is one of the leading company in food industry. They have a variety of successful products that is segmented into food and beverage industry. The way of innovative thinking and quality of the products made them a market leader in particular sector.
- Nestle has drawn flak for its unethical marketing practices in the case of baby food in developing countries by advertising that the infant formula was superior than mother's milk which has diminished the brand image of the company. Hence it must be ensured that such acts are not repeated and measures must be taken to improve its brand image. They can utilize the social media as a catalyst for this change.
- Nestlé's chilled dairy sector has been classified as unsatisfactory by the company itself. In order to resurrect it, they can opt for more acquisitions or joint ventures with the major players in the market.
- The cost of raw materials has been on a rise over the past few years which have caused an increase in the production costs. Acquiring local farms for their raw materials will reduce their production cost and hence they can improve their profit.
- Educating the consumers through campaigning is a possible way to grow their business. As Nestle is producing health conscious food products, they can use the packaging as a means to describe the nutrition benefits of their products.
- Currently, Nestle sells its products through wholesalers and retailers. Nestle can improve its profit margin further by establishing their own retail outlets
- Monitoring and evaluating their products and market continuously gives them a clear vision of their market position and it will helps them to shape a proper competition to take advantage over their competitors and also to set up a better brand image.
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