Case 2

Mavesa's Nelly Brand:

Pricing to Gain Market Control

Submitted By:
Hari Padmakumar Jijo Francis Navtej Singh Sran

Case 2

Index
I. II. III. IV. V. Introduction 2 Market Research. 3 Market Analysis... 5 Case Analysis.. 6 Conclusion 10

VI.

Bibliography. 11

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I. Introduction
There was a huge recession in Venezuela during 1990 which caused a lower consumption of food and household products. The people were thus changing to low price brands. The market for the mayonnaise in Venezuela became really competitive during this time. This led Mavesa, one of the leading food manufacturing companies to reduce their product price in order to gain market share.

About the company:

Mavesa is one of the major Venezuelan company which produces wide variety of food products, beverages and cleaning products. It was founded in 1949 by Alberto Phelps, Andres Boulton, William Coles & Angel Cervine. It became the leading consumer production company in Venezuela by 1999 and had a yearly sale of $418 Million. Its headquarters is located in Caracas and it has
factories throughout the country. It has distribution services in more than 54,500 Venezuelan stores, which is about ninety percent of the total domestic stores. The companys

main products are spreads, sea food products, sauces,

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beverages and cleansing products. They are well known for their Mayonnaise and Margarine. They export their products to many major countries including North America, Europe and Japan. Mavesa is traded at the NYSE and at the Venezuelas Local Exchange. Mavesa was the market share leader in 34 product categories. The company had a steady and strong growth because of its management talent. The company adopted new organizational structures to adapt with the frequently changing market conditions and it gave more decision making power to the employees which helped in increasing the efficiency of production. The major competitors of Mavesa were Kraft, Albeca and Hellmanns. (mavesa)

II. Market Research

Venezuelan market is the fourth largest economy in Latin America. There is high inflation and customers always shift towards the low price products. The main target market for the mayonnaise customers is of age between 25 and 55 years old. There is a high demand for mayonnaise since it is consumed with different kinds of food. The growth for mayonnaise market is 2% per year. There are varieties of customers in this market segment. The major purchase of mayonnaise is done by the women and it accounts for 71% of the total purchase. The customers have low differentiation for appearance and packaging of products. The overall production of mayonnaise is about 11,000 tons. Sixty percent of the total market share is
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owned by Mavesa and the rest is owned by Albeca and other regional companies. The market is really price sensitive.

MAVESA'S SALES MIX

Mayonnaise 8% 12% 10% 6% 7% 35% Margarine 19% Other Spreads Other Sauces Sea food Products Beverages Cleaning Products Other 3%

The figure shows the sales mix for Mavesa Company in the year 1998.

Age Group of Customers

Age Group

Percentage

0-14 years 15-24 years 25-54 years 55-64 years 65+ years

29 percent 18.8 percent 39.4 percent 7.1 percent 5.6 percent

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III. Market Analysis

SWOT Analysis: Strength:
Mavesa was listed on NYSE and Carcas stock exchange. It is a leader in management style. Strong market leader in 34 categories of products. Control of its national distribution network. Strong growth in recent times Huge market portfolio Adaptive and responsive to changing market conditions Expanding geographically through acquisitions, mergers and exports It owns around 60 % of the industrial segments( restaurants)

Weakness:
Weak brand image Brand loyalty is low The price range of the sub-segment products are not amongst the lowest Mavesas broad product and market portfolio requires a high sales force which would lead to higher costs High overhead costs

Opportunities:

Growth in the salad dressing segment Growth in the industrial segment

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High growth in the household segment Consumer buying behavior of Mayonnaise: 16 times a month by both adult as well as children; used in all meals in a day Broadening the market segments: Household segment (77%) and industrial segment (23%)

Threats:
Competition from large multinational firms such as KRAFT and HEINZ. Recession in Venezuela and the subsequent de-valuation of the Bolivar Declining growth in the premium segment Competition from lower priced substitutes of other less-famous local brands

IV. Case Analysis

What opportunities exist within the family segment for Mavesas mayonnaise brands?

The family segment for Mavesas mayonnaise brand was mainly divided into two main categories: Economy and Premium. It contributed to around 77 per cent of the total sales volume whereas the rest falls under the industrial category. It was reported that mayonnaise was purchased mainly by women who formed the majority of the purchasers (71 per cent of the time).

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Economy Segment: This segment was created in the year 1990. Over the previous four years, there had been tremendous growth in this sector and was expected to continue rising at the same rate even in the coming years. This segment also varied highly from the premium segment in terms of consumer buying behavior. It was mainly due to the fact that the major criterion was the low price. As a matter of fact, mayonnaise brands had competed in this segment fiercely and since 1997, 14 new brands had entered this sub-segment mainly due to its progression and viability.

Premium Segment: The major unique selling point of this segment was the product quality. The key factors that contributed to quality were colour, level of acidity, thickness, fat content etc. Also unlike the economy segment, consumers were generally loyal to this brand. This was proven by the fact that Mavesa continued to be the market leader in this segment through their LTO brand. It was really different from other mayonnaise brands in terms of its quality and taste (It included a combination of spices like garlic, mustard, pepper and salt).

Describe the trade-offs faced by Mavesa. Should they decide to reposition

Nelly using price?

Even though Mavesa was still registering growth in its economy segment, the management decided to have more dominance over the market share. In-order to obtain that objective,
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Mavesa had to trade off their gross profit for market share. This was to be achieved by their new pricing strategy: i.e. by reducing the cost of the brand products.

It should reposition itself using price because the cost associated with a price decrease would be balanced by reduction in production costs so as to increase their market shares both in the economy segment as well as the industrial segment. This could be achieved because Nelly was the lowest cost producer in the low cost segment which could provide a big scope for this strategy. Also innovations such as lessening the amount of oil in the production process and the introduction of flexi packs in the designing section paved a major way in reducing the costs.

What

are

Mavesas

strengths,

given

the

current

competitive

environment?

In spite of the competitive environment and the varying role of the economy sub-segment, Mavesa still had its strengths. Some of them are:

The price reduction would allow Mavesa to gain control of the market share like it had done for the premium segment especially after the acquisition of LTO.

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Ever since Mavesa had acquired LTO, the focus had shifted from price to product differentiation as people gave more importance in quality.

The recent price changes would allow consumer to shift loyalty from informal brands back to Nelly.

What other strategies could Mavesa employ to take advantage of the

existing opportunities?

Some of the strategies that Mavesa could implement are the following:

They should consider the option of providing incentives to wholesalers rather than price reduction.

They should enforce a new level of brand image in-order to retain the customer loyalty. Increasing promotional discount to wholesalers. Improving the distribution channels, especially in the small and medium store segments through their wholesalers.

Giving more importance to Research & Development so that packaging and testing would be improved which in turn would lead to further reduction in manufacturing costs.

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V. Conclusion
Mavesa is a major food production company in Venezuela which reduced its price in order to gain market share. This was achieved by launching their product named nelly. Nelly created high household economy segment due to its low price. It was a good product but it couldnt sustain because it lacked brand image. Instead of reducing the price, they should have given incentives to the wholesalers. They should have developed new brand image in order to maintain their customer loyalty and improved their packaging. Mavesa could also have made improvement through product distribution in small and medium stores via the wholesalers and promotional discounts should have been provided. (writework)

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VI. Bibliography

(n.d.). Retrieved from writework: http://www.writework.com/essay/mavesa-s-nelly-brand-improvingdistribution-gain-market-co (n.d.). Retrieved from mavesa: http://listofcompanies.co.in/mavesa-sa/ Mavesa's Nelly Brand: Pricing to Gain Market Control, 9B00A008 (June 19, 2000).

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