The marketing activities of nestle

The marketing activities of nestle 1. INTRODUCTION 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 companys 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 1930s 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 1980s 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 1990s, 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 Dreyers 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 LOrà ©al 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 companys strategy. Few of them are mentioned below: While sustaining a balance in terrestrial activities and product lines, the firms 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 Nestlà ©s consumer focus the launch of Jenny Craigs 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 its 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 customers 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 3.2.1 PRODUCT 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. 3.2.1.1. 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. 3.2.1.2. 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. 3.2.1.3. 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-studykit-kat-revitalising-brand-leader7-52-2.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 SAs operations in the various operations through growth and acquisitions. 3.2.1.4. 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 3.2.1.5. 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. 3.2.1.6. Diversification Diversification can be achieved either with related products and markets or unrelated products that are totally unconnected with the existing products and markets. Nestlà ©s Product Diversification is clearly evident from its product portfolio where they have pet foods which are different from the other products. 3.2.1.7. 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. Idea Generation 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. Idea Screening 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. Business Analysis 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. Product Development 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. Test Marketing 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 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. 3.2.1.8. Life Cycle of a Product The life cycle of a product consists of four stages: Product development Product introduction Growth Maturity Decline 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. Maggi Noodles 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 3.2.2. PROMOTION 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. 3.2.2.1. Promotion Tools PERSONAL SELLING: 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(). Its a one to one marketing. Tele marketing, door drops inserts, Door to door selling are all techniques used in personal selling. ADVERTISING: 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. Nestlà ©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 consumers response. Cognition, the thinking dimension of a persons response, and affect, the feeling dimension, are portrayed as two major intermediate advertising effects (Ambler, Vakratsas, 1999:26) SALES PROMOTION: 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: 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. 3.2.3. PRICE 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) 3.2.3.1. 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. 3.2.3.2. 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 competitors products with small price difference is also taken in to account. EXPLICABILITY 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 RD and it is not easy to give idea about the product development costs to an ordinary customer. COMPETITION 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. NEGOTIATING MARGINS 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. POLITICAL FACTORS 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. 3.2.4. PLACE Armstrong and Kotler (2001) describes place as the activity of a company to make the products available to the customers. 3.2.4.1. 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 manufacturi