Nestle Is The Worlds Largest Food Processing Company Marketing Essay

Nestle Is The Worlds Largest Food Processing Company Marketing Essay 1.0 INTRODUCTION The strategic management process is based on the belief that organization should continuously monitor internal and external events and trends so that timely change can be made as needed. An organization must be capable of wisely identifying and adapting to change. In this report, I will choose Nestlà © S.A, one of the most successful food processing company in the world to discuss its strategy management process. 2.0 COMPANY PROFILE Nestlà © S.A. is the worlds largest food processing company and is headquartered in Vevey, Switzerland. The company was founded by Henri Nestlà © in 1866. Nestlà © Company had made several name changes from 1866 to 1947, and finally adopted Nestlà © S.A. in 1977 as the companys name. Nestle S.A. has factories or office in almost every region of the world and markets a wide range of brands. The company is often described as the most multinational of the multinationals. in the current food industry market. Henri Nestlà ©, also know as of the main originator of condensed milk. In 1867, he developed the first milk food for infants and a baby who could not be breast-fed was rescued. Nestlà ©s invention responded to the need for a nutritionally safe alternative to breast milk. Thus, Nestlà © S.A has targeted to build a business based on sound human values and thoughts. The key to success of the company is due to its huge Research and Development network within the food processing industry. With RD as the competitive advantage, Nestlà © has become the worlds leading nutrition, health, and wellness company. The company is devoted in continuing to improve the nutritional value of their products while enhancing the flavour. Nestlà © achieves this through its brands and with initiatives like the Nutritional Compass and 60/40+. Millions of people choose to consume Nestlà © products everyday because the company sustain the quality as the fundamental ingredient in all of its brands. Consumers choose to place their trust in Nestlà © due to the companys dedication to achieve distinction and turn to Nestlà © brands to preserve nutritional balance in todays fast paced world. Switzerland-based Nestlà © S.A. has the highest ranking as the largest player throughout the entire world in the competitive position within the food industry. The rating reflects the companys competitiveness and market attractiveness. With combined sales of 110 billion (Swiss Franc) in 2008, Nestlà © states a diversified business portfolio, being the market leader in numerous product categories worldwide including bottled water, instant coffee, milk and cheese products, nutrition and baby food, ice cream, frozen foods, culinary preparations, and coco products. Nestlà ©s broad geographic coverage includes North America and Europe as well as Asian markets. The vision of Nestlà © RD is long term, it helps shape the future of foods making consumer needs into research priorities and convert new technologies into consumer benefits, and services. 3.0 STRATEGY ANALYSIS 3.1 Environmental Scanning Environmental scanning has the management scan internal environment and external environment. The factor which are the predominant factor for an organization factor is SWOT standing for strengths, weaknesses, opportunities and threats. 3.1.1 SWOT Analysis SWOT analysis is a strategic planning method developed by Albert Humphrey using data from Fortune 500 companies in the 1960s and 1970s. 3.1.1.1 Internal Environment Strengths Strengths include anything a company does well and its resources and capabilities for developing a competitive advantage. The greatest strength of Nestlà © is culture that is team focused and an open door policy. Nestlà © focuses on collectivism and performance orientation attitude which encourages employees to work harder. Nestlà © achieves broader range of products by improving existing and innovating new products. Consumer demands are switched to changes of taste, colours and design that have been undertaken to products such as Nestlà ©s Smarties and Kit Kats.  The launch of Kit Kat Chunky has proven that creativity and innovation can extend the life cycle of a product. Weaknesses The lack of certain strengths and things a company does not do well are viewed as weaknesses. Nestlà © is poor in targeting some of its products. Nestlà © MilkPak is a premium product targeted to upper middle and high class consumers. Most consumers in Pakistan are from lower middle and poor class. They are not afford to purchase it due to the premium price. Nestlà © has a complex supply chain configuration too and traceability is a critical issue for Nestlà © India. High standards of hygiene, quality of edible inputs and workforce are required in the food industry. Fragmented nature of the Indian market will cause more problems. 3.1.1.2 External Environment Opportunities The external environmental analysis a firms new opportunities for profit and growth. Nestlà © in Pakistan has a great opportunity for expanding its milk products because Pakistan is the seventh major milk producer in the world with annual output more than 22 billion litres. Threats Adjustments in the external environment present threats to a firm. For an example, shifts in consumers preferences. The major threats to Nestlà ©s products is Unilevers Walls, a famous ice-cream brand. It is distributed nationwide and has total control within the local market. Besides, economic slowdown can reduce demand, and inflation is getting higher and higher causing the purchasing power of consumers is decreasing day by day. 3.1.1.3 General Environment PEST Analysis Pest Analysis is used to illustrate a structure for the analysis of macro-environmental factors. Political Political factors include a country or governments regulations and legal issues and rules which a firm must follow. For example, Nestlà ©s famous brand Milo. The product stay within the law in all countries including being aware of legislation health and safety, commercial standards, consumer protection and trade description. Economical Economic factors such like economic growth, exchange rate and inflation rate will influence potential customers purchasing power and the firms cash flow. During recession, customers have less disposable income, demand for Milo might drop in the market. Social Social factors comprise the cultural aspects and demographic of the external macro-environment. These factors influence customer needs and potential markets size. The society are more aware of health conscious nowadays, Nestlà © can build up Milo as a new fashionable drink like 100 plus in the fitness industry. Technological Technological factors can reduce barriers to entry, improve products quality and influence outsourcing decisions. Advance in science allows Nestlà © to improve its product such as Milo, the company can add energy and healthier formula to Milo. 3.2 Porters Five Forces Analysis Michael E. Porter developed Porters five forces in 1979. It is a framework that helps marketer to differentiate a competitive environment. Threat of substitute products An analysis of the threat of substitute products will identify the consumers of a company might switch their purchasing alternative. There is a tendency for food and beverages manufacturers to produce broad range of products. These products may compete with one another to gain market share and become substitute for each other. Nestlà © Koko Krunch Cereal can be the substitute for Nestlà © Nesvita cereal drink since both of them are intended for breakfast consumption. Nestlà © is not offering all kinds of food and beverages, those unoffered kinds may act as the substitutes for the Nestlà ©s products. For example, Nestlà © has coffee in its product lines which is Nescafà ©, the substitute for it can be the soft drinks which are not in the portfolio of Nestlà ©. In this case the substitutes are very broad. Bargaining power of suppliers An analysis of the bargaining power of suppliers  will identify the changing price, quality and service of suppliers without consequence. Supplier power can be different due to seasonal or economic cycles. Supplier power is increasing as many of the food processing companies are not producing their own raw materials. Nestlà © itself gets material in the form of raw or semi-processed directly from farmers and trade channels. By considering the number of suppliers in the industry and the switching cost, the dependency to a particular supplier can be reduced. Nestlà © has operations in many countries throughout the world, if one supplier unable to offer good price for Nestlà ©, it can switch to other suppliers. The bargaining power of supplier depends heavily on the strength of the companys brand. Big companies such as Nestlà © can take advantage in bargaining. Bargaining power of buyers Food processing industry is very broad and rivals can come out with numerous product selections. When the companies step into the maturity stage, they will have even more products provided to strengthen the companys brand. Nestlà © Milo has strong market share and remains a constant favourite amongst Malaysia consumers. In order to further strengthening the brands image, the company added Milo Gold to its product range to keep the consumers loyalty towards the product. Threats of new entrants An analysis of the threat of new entrants will identify entry barriers within an industry. Industries with high barriers to entry will face low risk from new competitors than an industries with low barriers to entry. The competition of ice cream business in Pakistan is very small. This could create chances for other international ice cream brand to penetrate their products to compete with Nestlà © in Pakistan. The major substitutes of Nestlà ©s ice cream would be Walls ice cream and Hico ice cream. Competitive rivalry within an industry Rivalry among competing firms is the utmost of the five competitive forces. Firms within the same industry are competing with one another to gain customer share to increase profitability. The competitors are of roughly equal size which can make the competition even stiffer. They will attempt to gain dominance over another. Nestlà © and General Mills have joint ventured for breakfast cereal market. By having such joint venture these two companies can achieve better success instead of competing with each other. 3.3 Value Chain Analysis Value chain analysis is a development for understanding the general factors and conditions under which a value chain and its firms can achieve higher levels of performance. Manufacturing and the environmental footprint Nestlà © has a great commitment to the environment. They put in great efforts to protect the access of water and ensure everyones responsibilities as water users. Nestlà © moves to different fuel types to produce their products to improve the environmental performance. One of the significant steps in the  value chain is transport. Nestlà © initiated an experiment with  Schenker, to  evaluate the effect  of  different types of  transport, distances  driven and fuel type used to create a better environment. Nestlà ©s employees The company determined by skilled and motivated workforce for continued success. Nestlà © includes many nationalities, religions, and ethnic groups working together in one single unifying corporate culture. Farmers and Agriculture Nestlà © always assist farmers to be successful suppliers. This great effort is helping the entire region to develop a positive long-term impact to boost economic performance. Nestlà © share good environmental and water management practices with farmers by carrying out agricultural programs. Nestlà © insist code of ethics to maintain good and long-term relationship with their suppliers. Products and consumers Nestlà © strengthens its brands and customers loyalty to respond to consumers changing preferences. Nestlà © preserves the nutritious in its products while enhancing the flavour and improve the quality of their products. According to Julio Frenk, former Secretary of Health Mexico, from his experience in Mexico, he believes that Nestlà © is delivering genuine shared value through its products in the society. 3.4 Benchmarking A company should has its benchmark to improve quality of its products. In June 4, 2009, Nestlà © started make use of ASSET4 to benchmark its environmental, social and governance (ESG) performance. ASSET4 is the top supplier of idea, comparable, and auditable extra-financial information. According to Nestlà ©s head of Investor Relations, Roddy Child-Villiers said that Nestlà © is committed to improve its ESG performance via Creating Shared Value, which build continuous business triumph and the establishment of shareholder value to the creation of value for society at large. 4.0 STRATEGY FORMULATION Strategy formulation is the second stage in the strategic management process. In the aspect of corporate strategy, the current objectives and strategies of Nestlà © will be discussed as well as suggestions given on how Nestlà © to be more successful in the food processing industry. For example, what amendments should be made to achieve the development objectives and strategies of Nestlà ©, the lines of business that Nestlà © is in now, and how these lines of business fit mutually. There are three main components fall under corporate strategy. These components include directional strategy, portfolio analysis and parenting strategy. 4.1 Directional strategy Directional strategy refers to a firms overall orientation towards growth, stability and retrenchment. 4.1.1 Growth strategy Growth strategy has two fundamental categories, concentration within existing industries and diversification into other lines of business or industries. In this report, I will choose to discuss the concentration strategy of Nestlà ©. Concentration strategy can be achieved via merger and acquisition (MA). MA have emerged and are widely used in many industries today. Nestlà © has been using these form of strategic alliances to link technology gaps and resources, to recruit expertise and obtain market positions. MA are essential and potentially useful for a company that wishes to enter a new industry and new markets. Merger Merger is defined as the combination of companies. In 1905, Nestlà © S.A was formed by the merger called the Nestlà © and Anglo-Swiss Milk Company. Nestlà © stepped outside the food industry for the first time and diversify its business in the cosmetic industry. In 1974, Nestlà © became a major shareholder in LOrà ©al, one of the worlds leading makers of cosmetics. Acquisition Acquisition is the act of purchase or takeover of a company that is completely absorbed by the subsidiary or division of the acquiring corporation. Since 1985, Nestlà © has made over 50 acquisitions. Nestlà ©s growth strategy began with acquisitions to diversify its product offering. In the early 1990s, it used acquisitions to expand geographically. More recently, Nestlà © has focused its acquisitions on growing a select number of very attractive businesses in markets where it can achieve leadership positions. For example, Nestlà © has acquired Frozen Food in 2010. The factors of the acquisition are due to Frozen Foods number one position in United Stated and Canada as well as strong growth profile in North America by proving fast recovery in times of economic downturn. Meanwhile, concentration strategy includes two strategies which are vertical growth and horizontal growth. I will choose horizontal growth of Nestlà ©s for further discussion. Horizontal growth refers to the expansion of operations into other geographic locations and enlarging the variety of products and services offered to current markets. Horizontal growth can be achieved via joint venture. As an example, in 2001, Coca-Cola Company and Nestlà © S.A. continue their existing joint venture business, Coca-Cola and Nestlà © Refreshments. This co-operation will be renamed Beverage Partners Worldwide (BPW) to emerge their beverage segments, especially ready-to-drink tea. 4.1.2 Portfolio Analysis Portfolio analysis is basically a product portfolio in which a company rank their products and where their products are stands in the market. There are two popular portfolio analysis techniques that will be used to analyse Nestlà ©s portfolio. There techniques include BCG Matrix (Boston Contingency Group) and GE Business Screen. For this report, BCG Matrix is selected to explain the current standing of Nestlà ©s brand in India. BCG Matrix In 1960, Bruce Henderson, president of the Boston Consulting Group design BCG Matrix to develop business strategy. There are four categories of product position which are stars, cash cows, dogs, and question marks. Stars When an industry is growing and the share of a firm is high as well, then the firm is the leader in business. Nestlà ©s Nescafà © is one of the leading coffee brands in the Indian market. It has the strong position in the market which is incomparable by other brand within the country. Nescafà © has high market share in the industry as well as the growth rate is significantly high. In addition, the name of Nescafà © has become generic with coffee. Cash Cows When the industry growth is low but the firm has high market share, then the firms products are considered Cash Cows. Nestlà ©s Maggie Noodles has more households of consumption in India and has become the first preference of Indian children in terms of instant food, yet it is still considered as Cash Cows, not a star. It has a significantly high market growth rate in the Noodles market in India, but the market growth rate of Noodle consumption is not very high. Question marks Question marks refer to products with the potential to penetrate into the market and succeed but will require a lot of cash for development. Maggie Pickles has limited variety especially in this taste crazy country, India. Maggie Pickles is doubted for two main reasons. The first reason price and packing of the product is high, which seems to target customer from upper class. The second reason is it lack of significant number of alternative, therefore it is a challenge to maintain itself in the market. Thus, it is suggested that Maggie Pickles to review its packaging and price so every citizen in India can afford to purchase the product. Dogs If the industry growth is low and a firms share is instability or low, then the products of the firm is considered dog. Nestlà ©s Dahi is considered Dog because people in India was unaware that Nestlà © offers a Dahi. The product is facing competition from Amuls Masti Dahi. The concept of Dahis packaging is not favourable by the consumer who prefer to play it safe with the local manufacturer. Nestlà © Dahi is placed in as a Dog due to lack of growing market. It is recommended that Nestlà © has to think on what it can do to make everyone in India recognize Nestlà © Dahi. 4.1.3 Corporate Parenting Strategy Corporate parenting strategy is developed to examine each business unit in terms of its strategic factors, areas in which performance can be improved, and analyze how well the parent company fits with the business unit. Horizontal strategy To expand a business to another geographic location, extra cost such as import duties, logistics and other packaging requirements will weigh down a products launch in the targeted region. Hence building an overseas plant or subcontract the manufacture of the product to a licensed local manufacturer. Nestlà ©s has many manufacturer in almost every country in the world to manufacture its products. This strategy has helped Nestlà © to cut down the extra costs as I have mentioned above. Multipoint competition Multipoint competition refers to a multinational organization compete against other multinational organizations in a number of markets. Nestlà © competes in a wide range of geographic areas in addition of broad range of product categories. Therefore it faces competition from multinational companies such as Unilever and Philip Morris with similar product lines that cross regional bounds. Since Nestlà © is facing this type of competition, it is suggested that Nestlà © must compete briskly across its worldwide customer base. 5.0 STRATEGY IMPLEMENTATION Strategy implementation is the third stage in strategy management. In order to carry out the formulated strategies, Nestlà © needs to establish annual objectives, planning policies, motivation employees and allocate resources. This stage is also known as the action stage of strategic management and it is often considered to be the most complicated stage. It needs the collaboration from all the employees at all levels in Nestlà © in terms of personal discipline, commitment, and sacrifice. In this stage, I will discuss several issues that will affect to Nestlà © during the process of strategy is being implemented. 5.1 Management Issues Management changes are essentially more extensive when strategies to be implemented move a firm in a major new direction. I will select several factors from the management issue to discuss how are they going to affect Nestlà ©s organizational performance. Annual Objectives Annual objectives are especially important in strategy implementation, whereas long-term objectives are particularly important in strategy formulation. Annual objectives represent the basis for allocating resources. Resources Nestlà © need at least four types of resources in order to achieve desired objectives. Financial resources. One of the major strengths of Nestlà © is its RD which contribute a lot in supporting the companys strategy implementation. In 2006, Nestlà © invested CHF 1.73 billion in RD and over CHF 1.5 billion in Venture Capital. Thus, the company needs sufficient financial resources in order to continue its RD. Physical resources. Nestlà © has a committed sales force which is the major resource strength in terms of physical resources. It is very important as part of the companys success particularly after the strategy is implemented, and the employees able to develop markets and sell its products. Human resources. Human resources is one the significant concern while implementing strategy because it is the backbone of any organization. The fact that Nestlà © is more people and product than system oriented reflected in the way HR is functioning and is organized. Technological resources. RD at Nestlà © is an international group of science and technology centres of excellence. Its RD has a long tradition of building its own machines based on extensive in-house engineering experience. Proprietary technological claims in all products categories assist Nestlà © to maintain and improve its position as market leader. Rewards and Incentives The Real Rewards in Nestlà © USAs investment in you is a comprehensive package for waged employees. Compensation is a key part reward of Nestlà © USAs Real Rewards package to help to attract, motivate, and retain a workforce of top performance. There are three types of compensation of the Real Rewards package. Base Pay. Based Salaries are designed to be competitive which based on data specific to different position as measure in marketplace. High performance over time is recognized by base pay that is higher than the market. Short-Term Incentives. Short-Term Incentives Pay is designed to reward employees (typically yearly) for their accomplishments and contribution to Nestlà © USAs success. Long-Term Incentives. Nestlà © USAs Long-Term Incentives Plan are designed to motivate and reward those in eligible leadership position for the companys sustained success for a longer period, often three years or more. Human Resources Nestlà © Human Resources Policy encompasses those guidelines which represent a sound basis for effective and efficient HR management in the Nestlà © Group around the world. Learning is part of the company culture in Nestlà ©. Employees at all levels is conscious of the need to upgrade constantly his or her skills and knowledge to achieve personal and organizational goal. 5.2 Marketing Issues Marketing variables can determine the success and failure of strategy implementation. Market Segmentation Marketing segmentation is the process in marketing of grouping a market to identify different groups of customers with different needs or responses to marketing activity. Consumer can be segmented on the following characteristics. I will use Nestlà © Juices to discuss how Nestlà ©s marketing team is going to target the market segmentation. Geographic Segmentation, Region. People would prefer to drink juices during the hot weather or summer season. The marketing team can segment the market on the basis of high temperature zones. To boost the demand of its juices products, they can focus more in the region where the consumption remains almost the same all the year around. Demographic Segmentation, Gender. Women will be the best targeted customers as they usually shop for their family. When they are convinced that the juices will be good for the health for their family, they will eventually purchase. Psychographic Segmentation, Life style. People belonging to luxury life style tend to spend more on luxuries as compared to people in the lower class. In strategy implementation, market segmentation is an important variable. It allows Nestlà © to operate with limited resources due to unnecessary of mass production, mass advertising and mass distribution. The market segmentation decision directly affect the marketing mix variables. Marketing Mix Product strategy. Nestlà © juices main competitive advantage is its quality leadership. The company aim provide the original and best quality to their customers and fulfill their need. Place strategy. In Pakistan, Nestlà © established the distribution channels for its juices products in famous cities such as Karachi, Lahore and Gujranwala. Then they acquired maximum two to three suitable distributors in these cities to hinder from their own competition. Promotion strategy. The marketing team of Nestlà © use various sources to promote their target marketing. Sources used such like TV, Newspaper and Billboard to advertise their products. When Nestlà © launches new juice, the marketing team will use the promotion strategy that are mentioned to spread the awareness of their brand. Price Strategy. Nestlà © juices are available six flavored and two size. The packing of 200ml size is targeted for individual customer while 100ml packing is targeted for whole family. They charge price premium since they provided high quality and 100% clear juices other than competing low cost with their competitors. Nestlà © juices contain maximum profit margin compared to their rivals. Product Positioning After segmenting markets, Nestlà © can target particular customer groups, the next step is to find out what customers wants and needs. In 2009, Nestlà © launched two fortified juice drinks for children, Juicy Juice Brain Development and Juicy Juice Immunity. Customer wants. Children are targeted easily targeted for these two juice drinks because they can choose three flavours that are available including apple, berry and grape flavours in these two juice drinks. Customer needs. Parents are very concerned with their kids development. Therefore, these two juice drinks are specifically targeting brain and immune development in under five age group. 5.3 Research Development Issues RD is an investigative activities that a business choose to conduct with the purpose of discovering new products and to improve the existing products. Nestlà © is the global leader in the food processing industry with regard to RD. The RD expert team in Nestlà © have provided best practices and help in the companys implementation. For example, the RD structure offers the flexibility to use the huge sources of local ideas, bring them back and develop them for the global implementation. The major advantages of Nestlà © RD include: The company attract the best scientist and engineers from top-level universities who want to work and partner with them. To build plants, expand, grow, and market products and services more efficiently. 6.0 CONCLUSION In a nutshell, it is not easy to maintain the position as the world leader in food processing industry like Nestlà ©. A company must be able cope with any unexpected changes in order to survive and compete in the world of business. (Word Counts: 4435 words)