Course Subject Assignment Due Date

: Master of Science (M.S.) in Management : Marketing Management : Group case 3 (Nestl) : 13 March, 2011

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Contents
Instructions for case study . 2 Introduction .... 3 An analysis of Nestl case issues .. Alternatives in solving these issues . 4 7

Choosing the best alternative .. 9 Discussion questions 1. What have been the key success factors for Nestl? .. 2. Where is Nestl vulnerable? What should it watch out for? . 3. What recommendations would you make to senior marketing executives going forward? What should the company be sure to do with its marketing? 11 10 10

Bibliography and References 12

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Introduction
Nestl began in Switzerland in 1867 when Henri Nestl, a pharmacist launched his product Farine Lacte Nestl, a nutritious gruel for children. Nestl, which means little nest, is used in both the company name and the logotype and symbolizes security, family and nourishment. Nestl is today the world's biggest food and beverage company and employs roughly 280,000 people in over 86 countries and have factories or operations in nearly every country in the world. The Nestl family has grown to produce products that include chocolates, soups, coffee, cereals, frozen products, yoghurts, mineral water and other food products. Nestl has continued to expand its product portfolio in the early 70s to include pet foods, pharmaceutical products and cosmetics.

Nestl's strategy is directed by several fundamental principles such as innovation and renovation which ensures that the existing products grow and maintain a balance in geographic activities and product lines. Long-term potential is never sacrificed for short-term performance or profit. The Company's priority is to bring the best and most relevant products to people, wherever they are, whatever their needs, throughout their lives.

The companys business principles are vital to its framework for corporate responsibility. This framework also enables it to create shared value with suppliers, partners, customers and consumers across the world. Nestls corporate responsibility involves more than what the regulations and laws require, ensuring greater trust from individuals and organizations that does business with them.

Nestls main business principle is based on decentralization, meaning headquarters sets the overall strategy and ensures that it is carried out by each country but they are responsible for the running of its business. This approach is best summed up as: 'centralize what you must, decentralize what you can'. Nestl believes that they should think about their organizations globally but they deal with people by interacting with them locally. Thinking globally - acting locally

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An Analysis of Nestle Case Issues

SWOT analysis of Nestl Strengths: 1. Nestl is recognized as one of the largest and most powerful food producer globally, having factories in nearly every country over the world and employ over 280,000.

2. Nestl are low cost operators and produces low cost products that ensure them having the upper hand on competition and benefits the consumer by providing affordable products.

3. Nestl has a powerful brand positioning in the consumers mind and its product portfolio contains roughly 6,000 brands and is ranked as the largest bottled water corporation that operates in an environmental friendly manner.

4. Globally, Nestl is the biggest ice-cream producer, having a market share of approximately 17.5% (2006).

5. The business strategy of CEO, Peter Brabeck stresses the importance of internal growth by increasing sales volume by renovating existing products and innovating new products. His explanation of renovation is that to just keep pace in the industry, you need to change at least as fast as consumer expectations. Brabeck explains that, to maintain a leadership position, you also need to leapfrog, to move faster and go beyond what consumers will tell you. this strategy has led Nestl achieving their internal growth targets.

6. The joint venture of Nestl and General Mills benefitted both parties due to the experience and brand recognition of General Mills. General Mills products are widely distributed and have the leading brand of yoghurt in the U.S. The trust consumers have for General Mills brand and Nestl joining them has made Nestl a force to be reckoned with in the nutritional food market. It has also established joint ventures with giants like Coca Cola, and LOreal that are useful in providing knowledge on different technological aspects.

7. Nestl uses two forms of research, qualitative and quantitative so as to understand consumer opinions and trends. Qualitative research involves setting up small focus groups of consumers who express their ideas and opinions about their needs and views on different products. Page | 4

Quantitative research involves professional market researchers interviewing thousands of people.

Market research helps the company to keep in touch with an ever changing environment in which social attitudes and buying patterns are continually shifting.

Weakness: 1. Nestls timing in launching their product line in France was a big setback in gaining the market in the region especially for the dairy line. Danone beat them to the punch and has profited greatly from this. For the U.S Nestl entered a mature market and could not achieve satisfactory sales.

2. The lack of product information has caused misconceptions of some of their product ingredients, especially with the launch of LC-1, a healthy yoghurt drink which was withdrawn from some countries due to low sales.

3. The joint venture of Nestl and General Mills has restricted Nestl to be innovative, the success General Mills has experienced in the yoghurt market made them reluctant to expand their product line and so given competition an opportunity to exploit possible markets that Nestl could have provided.

4. A boycott against Nestl that started 1977 until today was prompted by the company's promotion of breast milk substitutes (infant formula) and has been accused of unethical methods of promoting infant formula over breast-milk to poor mothers in developing countries. This has put Nestl in a precarious position on their ethical values as a company.

5. The tainted Nestl formula scandal has caused inoperable damage to the companys image. The contamination of Nestls baby formulas In China caused the death of 3 children and more than 6,000 fell ill after consuming the contaminated milk. Many health departments all over the world recalled most of the companys top-selling infant milk formulas after the products tested positive for high levels of melamine a chemical that causes severe kidney damage.

6. Nestle product brand recognition is associated with displaying health benefits on their products but Regulators like FDA (Food and Drug Administration) and AMA (American Medical Association) are urging Nestl on removing such advertising displays after research proved that some products has no such attributes like low cholesterol and low fat properties. Parents have also reported a diabetic epidemic due to the consumption of such goods.

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7. The enormous diversification portfolio of the firm makes it impossible to run every division smoothly, logistics cost is fairly high and the supply chain is of a complex stature.

Opportunities: 1. Due to the increase of the health awareness in the society, more health based products are required.

2. There is a huge market for anti-allergy products or a product for Lactose intolerant consumers.

3. Providing incentives to the retailers can increase sales volume.

4. Asian consumers are mostly price conscious rather than health conscious. Nestl has an opportunity to have extensive strategies implemented to gain the market in those countries.

5. Most countries are recovering from the global recession, and now is the time to increase production rates to meet consumer demands.

Threats: 1. Slack quality control can cause contamination of products and stricter control should be implemented The FDA has been a continuous threat for the growth of Nestl through bad publicity.

2. The rise of inflation especially during and after the recession can hold two major threats: To maintain affordable product prices causes a decrease in profit margins. The increase of product prices can lessen the financial loss but can decrease the sales.

3. Package shrinking has cut cost for Nestl but has also caused dissatisfaction for consumers as they pay more for a lesser product.

4. For some products the market has matured or has been saturated which makes it even harder for Nestl to introduce or maintain new or existing products.

5. Malnutrition in developing countries and obesity in first world countries creates a logistics problem and product development becomes a complicated issue.

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Alternatives in solving these issues

Product Solution: Consumers are becoming more health conscious, and realize people are looking to adopt healthier lifestyles. Governments have supported this and have promoted the benefits of healthier living; this has created a market for healthy and nutritious food. Consumers want to buy good tasting foods that can allow them to have healthier diets. Nestl is keen to capture a greater share of this growing market.

Nestl's ongoing strategy is to develop a 'Wellness' approach that builds on its tradition of producing nutritional products. Nestl introduced and developed its Sveltesse ('slimness' in French) range. The range began with yoghurts and dairy products and globally now includes bottled water, ice cream, cereal bars and frozen prepared meals. For Nestl to fill this market gap they need to use the EVR (Environment, Value and Resources) business tool to decide whether this strategy is appropriate. The strategy the business chooses must match these three elements. Nestl's Wellness strategy must:

E - (Environment) Match the strategy to the Environment in which the business operates. For Nestl, it is a social environment, where consumers need nutritional products for a healthier lifestyle.

V - (Values) Ensure the strategy is consistent with the organization's Values. Nestl key principle is that of meeting consumers' needs for nutrition, enjoyment and quality they can trust.

R - (Resources) Ensure the company has the necessary Resources to support the strategy. With its science and technology base, Nestl is well funded and equipped to develop the required sciencebased improvements to existing products.

After developing an appropriate strategy Nestl has to look to ensure all its products maintain the standard and provide better nutritional benefits. This involves:

Keeping certain product lines even if it has a low profit margin to ensure customer choice variety. Reformulate products to have more nutritional value by reducing sugar, fat and salt quantity in the products.

Launching new products with scientifically proven nutritional benefits. The company needs to educate consumers about healthy lifestyles and proper nutrition. Ensuring all products show nutritional facts and what health benefits the product can offer. Page | 7

Nestl Nutrition aims to deliver better business performance by offering consumers trusted, science based nutrition products and services. They believe reinforcing leadership in this market is the key element of their corporate strategy. This market is considered that the consumers main motivation for purchasing Nestl products is based on nutritional value.

Public Relations Solution: Nestls policies on eco-efficiency, sustainability and the policy towards the use of water have projected the companys desire to ensure a better life for all. Nestl still means to go forward, developing new policies and initiatives on eco-efficiency, responsible business practice and sustainability. Nestl will also work with national and international bodies to improve sustainability.

Joint Ventures Solution: General Mills operates internationally mainly through joint ventures, but also through purchasing existing companies. General Mills has a fifty-fifty joint venture with Nestl in the cereal division; their products are available in more than 130 countries. The successful joint ventures have allowed the companies to share their resources and capabilities to gain a lucrative competitive advantage. General Mills functions horizontally using the acquisitions, mergers, and alliance technique. This allows the company as a whole to gain more market power and coverage throughout the world. Nestl would gain considerable control of the market through joint ventures or purchasing existing companies.

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Choosing the best alternative

The best alternative is not by implementing one solution but a list of solution according to their category or division. The following categories need to be addressed in order to provide the best possible solution:

Product: Meeting consumer expectations Ensuring an affordable yet healthy product Maintain a consistent standard Improve quality control

Marketing: Invest more in advertising Invest more in public relations especially for bad publicity Should become more actively involved in fund raisers and charitable institutions Be more transparent with product values

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Discussion questions What have been the key success factors for Nestl?
1. Global brand strategy: Nestl has products that resonate all over the world under a unified brand. These brands have the reputation of a global food company and the products specific attributes. have their own

2. Best quality at the lowest cost: The quality standard of Nestl made it a differentiator. Nestl goes to great lengths to enhance their relevance to consumers when considering the taste, appearance and price of their products. Nestl's existing products grow and succeed through renovation while maintaining a balance of quality in geographic activities and product lines.

3. Highly developed HR (Human Resource) department: Nestl regards its personnel as its most valuable asset. The HR department of Nestl takes great care and precaution when hiring personnel. Management of Nestl believes in open door policy and highly discourages bureaucracy in the operational process and believes that a happy employee is a productive employee.

4. Localization amidst globalization: Nestl has successfully achieved localization in the increasingly globalized food industry. (Product planning, production, marketing and services form a strategy of localization)

Where is Nestl vulnerable? What should it watch out for?

Most U.S. cities implemented a new policy to banish all bottled water from municipal buildings. Unlike Coca-Cola and PepsiCo - two of the big-four international bottled water companies - Nestls beverage division is almost completely dependent on bottled water.

Nestl got into the bottled water business when it bought Perrier in 1992. For over a decade Nestl bought a large number of small regional bottled water companies around the world. Today Nestl owns over 70 brands worldwide. The majority of these products are non-flavored still bottled water. Producing mainly regular bottled water has left Nestl vulnerable to the rapid downturn in sales of bottled water. Nestl reported a 1.6% drop in bottled water sales in 2008; as a result the company would cut investment in its bottled water division. Page | 10

What recommendations would you make to senior marketing executives going forward? What should the company be sure to do with its marketing?
1. Pricing strategy: A key benefit of maintaining a strong brand image in a competitive market is being flexible in the pricing strategy.

2. Promotional strategy: Nestl has used a wide range of promotional tactics, with the increase of internet users more emphasis should be done on on-line promotions

3. Distribution strategy: Sales of confectionery depend heavily on its availability, with market research showing that well over 60% of all purchases are made on impulse. Joint ventures with distribution companies should be considered.

4. Point of sale merchandising: Instantly recognizable packaging also helps to tempt customers in buying the product, some product packaging should be redesigned.

5. Focus on Foreign Direct Investment: Being a global organization Nestl should focus more on their international strategy.

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Bibliography and References

http://thebovine.wordpress.com/2008/11/27/nestle-ordered-to-recall-melamine-tainted-baby-formula-insouth-africa/ http://www.nestle-baby.ca/en/products/formula/starter/goodstart_probiotic.htm http://en.wikipedia.org/wiki/Nestl%C3%A9_boycott http://www.scribd.com/doc/13826325/Nestle-Marketing http://www.scribd.com/doc/21544545/Introduction-Nestle-Was-Founded-in-1866-by-Henri-Nestle-And http://www.thetimes100.co.uk/case-study--sustainability-water--7-122-5.php http://kylelacy.com/does-negative-social-media-and-pr-really-hurt-a-brand/ http://www.oppapers.com/essays/Nestle-s-3-Key-Success-Factors/436484 http://www.polarisinstitute.org/nestl%C3%A9%E2%80%99s_sinking_division http://www.wikiswot.com/SWOT/3_Consumer_Packaged_Goods_(CPGs)/Nestle.html http://www.freeswotanalysis.com/consumer-goods-swot/125-nestle-swot-analysis.html http://www.nestle.com/AllAbout/AtGlance/Introduction/Introduction.htm http://www.nestle.com/Resource.axd?Id=C6C11013-FF1A-40F4-994D-7BAFFC270218 http://money.cnn.com/magazines/fortune/mostadmired/2010/full_list/ http://www.allbusiness.com/trade-development/economic-development/5518413-1.html http://www.equalizerpost.com/2010/01/nestles-swot-analysis.html http://articles.castelarhost.com/nestle_background.htm http://www.docstoc.com/docs/12163694/Nestle-Marketing-Mix http://www.coursework.info/University/Business_and_Administrative_studies/Marketing/Nestle_is_the_w orld_biggest_known_brand_L92630.html http://www.scribd.com/doc/22274938/Swot-n-Pest-Analysis-of-Nestle-and-Coca-Cola http://remorph.blogspot.com/2008/09/swot-nestle.html http://free-pdf-ebook.com/2010/10/08/nestle-and-coca-cola-a-swot-analysis/ http://www.freeswotanalysis.com/consumer-goods-swot/125-nestle-swot-analysis.html

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