Macro Environmental Analysis: Nestle - Term Paper Example

Macro environmental analysis: Nestle BY YOU YOUR ACADEMIC ORGANISATION HERE HERE HERE Macro environmental analysis: Nestle PESTLE Analysis This analysis template provides macro-level environmental information for Nestle in the United States. The political environment is one which is regulated heavily by food inspection agencies such as the Food and Drug Administration. The company is bound by an International Code which works to ensure the health and safety of breast milk substitute products and that marketing practices “conform strictly to national legislation” (Brabeck-Letmathe, 2007, p.9). When a business is bound to International regulations, there are going to process changes and policy changes which occur in the business, therefore the regulatory environment is of considerable importance to Nestle’s business strategy. Other than a high influence of regulatory agencies, no other notable political issues could be uncovered through research which might impact business operations in the US marketplace. The US economic environment for Nestle is somewhat volatile, with some consumers cutting back on their spending due to diminishing personal portfolios or concerns about when the global recession will end. At the same time, rising prices in many areas of the supply chain have caused Nestle to consider scaling back on its volume of suppliers from 600,000 to just 167,000 (Steinert-Threlkeld, 2007). From an economic perspective, Nestle appears to be aware of the downturn in the global economy and is making internal adjustments to ensure cost-cutting and streamlining of internal operations. Retail sales environments, in a variety of industries, are also experiencing sales declines in this marketplace due to lowering disposable consumer incomes in the US market. The overall pattern of spending and profitability has shifted from high expectations to lower expectations which impacts volume in a great deal of business divisions. Changing consumer spending patterns is a real concern at the economic level. The social environment generally favours the business of Nestle in their regions. Nestle’s US leadership is working with over 600,000 farmers in rural regions of developing countries to increase their living standards through productivity enhancements (nestle.com, 2008). Nestle is aware of the growing trends in consumers in the United States for positive corporate social responsibility, therefore Nestle delivers key partnerships in developing nations as part of satisfying social focus. Nestle understands it different multi-cultural employees and local citizens and attempts to operate their businesses to involve and engage stakeholders of different demographics. Consumers in this region make many of their purchasing decisions based on colleague or peer opinion about a particular product, even in the foods industry. Trends on healthy eating, such as avoiding chocolate or other dairy products, might cause alarm and show a certain marketplace volatility. Cultural trends in the US impact sales based on dietary beliefs and values at the time. The US technological environment supports internal improvements such as reduction of waste and recycling. In 2002, Nestle began recycling solid waste, such as coffee grounds, which were once put into landfills in the United States. Today, Nestle recycles these grounds into fuel for use by the facility. Any by-products in this process are turned into fertilizer or various composts (Green, 2005). Technological advancements in recycling technology point toward a technological environment where diverse business practices can be considered and supported. Even the milk production process is computerised with cow and batch information handled electronically in the United States (nestle.com, 2008). Further, the ability to manage multiple aspects of the entire business value chain, such as MRP and other procurement software, gives companies the ability to expand their business reach and also diversify how they internalise business operations. This is a favourable environment for Nestle. Research did not uncover any notable legal issues in Nestle’s operating environment other than a vague notation in the company’s annual report. There are fines in this US environment for non-compliance to different regulations, however nothing in the legal environment appears to impact Nestle’s business strategy. Nestle also recognises its potential impact on the environment, thus it works with different stakeholders to use more efficient power generation and consumption. The business currently operates 10 co-generation power plants as part of environmental focus (Green). The business is used to operating in a US business environment where eco-friendly objectives are typically on the forefront of consumer and regulatory mindset. These provide internal changes to how the business conducts its operations based on trends or regulations related to environmental impact. Waste reduction is a key environmental concern in the US marketplace with various legislation in place to ensure that businesses adhere to better disposal in a method which is healthy to consumers. This can put added cost on the business for changing process and represents a small business risk in this marketplace. Efficiency and environmental improvements are not always satisfactory to a corporate budget. The global marketplace Nestle operates in a rather predictable and stable consumer market in this area. However, it is a highly competitive environment with Nestle competing against major foods producers such as Unilever and Cadbury, among many others. The market is subject to revenue increases and decreases based on consumer buying trends or when a competitor has been able to successfully seize market share through innovative marketing. However, Nestle’s sales declines are never substantial which suggests an internal team capable of adapting to rapidly changing consumer preferences and demands. In some areas, the market is growing and in others it is declining. Again, this is based on consumer sentiment which is a very strong influence in this area related to product sales. The mass market customer appears to have more substantial buying demands which make the business environment more difficult in areas of product differentiation and competing strategies. For example, sales in dog food have spiked which was not expected by analysts, generating 9.1 percent in global growth in just six months (Mijuk and Greil, 2009). The sales increases in one business division appear to offset losses in others, thus making this a more stable environment due to the business’ ability and knowledge to diversify its business divisions in the global environment. The largest obstacle to increasing market share is the high volume of foods competitors in the world. Companies must focus on how they wish to position their brands in the minds of consumers in order to make their company stand out against competition. Nestle has a rather unique focus which identifies consumer sentiment about a product early in the design process to ensure that a consumer emotion becomes a relevant and functional product to meet that need (Green). Competition drives many of the internal processes and product changes which contribute to the evolution of the business through the years. The consumer profile Two specific consumer groups, mothers who purchase baby food and university students seeking coffee powder, will be spotlighted. Consumers, as a complete whole in this region, have been scaling back on their purchases of dairy products (Mijuk and Greil). This is evident in the declines in milk prices experienced by the dairy industry today. This impacts the buying behaviour of how mothers consider breast milk alternatives and basic dietary guidelines for their children. This target market seems focused strongly on safety in areas of infant foods products and can exert significant influence on Nestle (or competitors) if they perceive unsafe products. This is a trend-focused market which fluctuating values. This assessment is supported by recent drops in bottled water sales at Nestle due to consumer backlash and protest about an environmental issue (Wiggins, 2009). Therefore, food safety and ensuring that the business has enough relevant data, which is current and up-to-date, about consumer attitudes and trends are important to satisfying this fickle consumer market. Very little information about the secondary target group, the university student, could be identified. The 18-25 year old market is quite volatile, which is recognised by many retailers and businesses which cater to this age group (Fernie and Sparks, 2004). Decisions are often based on peer sentiment and the social relevance of the product or even the ability of a celebrity to elicit positive buying sentiment about the Nestle brand (Boone, 2007). Therefore, issues of socialisation and culture must be understood and always on the forefront of marketing strategy when attempting to appeal to a dynamic and also-fickle consumer market group. SWOT Analysis New product development and rapid turnaround time on new product launch is a superior strength at Nestle. The preliminary consumer research conducted to measure sentiment and emotion, along with the cash resources available to devote to new product development, gives Nestle the ability to launch new product options in a way that is responsive to consumer needs. This internal focus on knowledge exchange and product development with the consumer acting as the catalyst for the changes stands out over most competitive strengths. A recent downsizing in supplier volume led the business to devote new funds to new product development (nestle.com). Nestle also maintains experience working within multi-national environments. Internal talent in human resources, business administration, customer service, and even logistics divisions have adaptable track-records of performing business in demanding and dynamic business environments. The existing talent is a strong source of company strength. The company’s largest weakness is that the global managers handle control of local operations (Stroh, 2005). In a multi-cultural, multi-national business environment, it is important to try to link talent with culture in a way that is meaningful to the expatriate and to the local employee population. Having global managers in control of local operations limits the company in terms of cultural connection. Having a centralised leadership system would not give senior managers in control of local operations real-time, ongoing experience with different employee systems and the unique organisational cultures which exist in each business division. Having local talent, familiar with local culture, would seem to be a weakness which is driven by a rather traditional top-down management model controlled from remote business locations. This weakness could create problems with employee motivation and overall human capital management. The company maintains many opportunities for future changes to the business model. First, Nestle does not currently link the parent company name (Nestle) with many of its branded products. A recent study identified that using the Nestle name on its family of product brands can potentially bring success in marketing (Gomez, Coyle, Ebenhoech and Fallucca, 2009). Nestle uses stand-alone branding strategies to build a positive image for its products. Allowing the positive global reputation of Nestle to be incorporated into the stand-alone marketing concept could give Nestle more exposure or bring in a new type of customer demographic. Showing parent company support for different branding products might illustrate, to the fickle consumer who is trend-focused and environmentally-conscious, that the business stands by its products and guarantees their quality and performance. The largest threat to the business is the growing costs and inflexibility of the global supply chain. These costs stem from shifting demand versus supply and raise the cost of conducting business for the firm. Cost reduction efforts can lead to downsizing or reducing suppliers within the supply chain network. Information technology costs, as well, are part of this supply chain issue which is causing many companies to cut staff or improve efficiency to offset these costs. Rising costs in the macro-environment, in multiple areas of business, are of considerable concern to Nestle. To their advantage, competitors are feeling these same economic problems in the macro environment which is making efficiency improvements in the global supply chain currently. A recommended marketing approach This report identified the macro-level environment and the consumer marketplace, spotlighting challenges and strengths in both of these operating environments. Changes to current brand strategy is the most recommended approach for improving how the business operates in this volatile, yet often-predictable environment filled with efficiency improvements which occur regularly in areas of purchasing, production, and distribution (among many others). This recommendation is based on the information identified in the PESTLE and SWOT analyses conducted on Nestle regarding consumer behaviour patterns and the generic market environment for these desired consumer segments. The social environment in this region is often driven by media interpretation or portrayal of business activities when releasing public relations material. This focus spotlights issues such as inspections by the Food and Drug Administration or other quality-focused efforts. This gives fickle consumers a new focus on issues of food safety and also on company reputation as part of corporate social responsibility. Currently, it was identified that Nestle is not using its current brand name to act as a corporate mentor or sponsor for its stand-alone family of brands. Nestle can create a positive differentiation strategy which would give them competitive edge by spotlighting Nestle as a sort of brand nurturer which supports the consumer and the product as well. For example, using similar public relations releases which highlight different consumers who have been spotlighted in their focus groups or product development trials to gain their unique experiences with Nestle consumer research. Getting consumers familiar with the Nestle brand logo in this fashion can improve the global image of Nestle and also let customers know who is the main supporter of the brand family. Adding Nestle logos to existing packaging to link parent company with brand, as a socially-responsible and aware organisation, is the first approach to this new marketing strategy. The goal would be to create consumer connection with Nestle and improve sales volumes in the process. The eco-focused consumer is also a growing market opportunity across the globe with many buyers making their product purchasing decisions based on the environmental sustainability and improvement practices of well-known product brands. As part of the recommended new branding strategy, Nestle should spotlight its improvements in global agricultural infrastructure in a way that gives it meaning to consumers. For example, in store retail partnerships using in-store promotional materials can spotlight different agricultural innovations on retail shelves next to different Nestle products. Testimonials from global farmers or other suppliers can illustrate the environmental improvements in the global food supply and further build a positive eco-minded reputation in its desired target consumers. This would also have a mass market appeal to buyers who value socially-responsible efforts of today’s companies. This new promotional focus would have impact on operations only if it is successful in building a higher positive consumer sentiment leading to product sales increases. The marketing division at Nestle would be impacted with increased responsibilities to produce a print-style, in-store marketing campaign which is upgradable and relevant to changing consumer attitudes. The changes to existing brand focus would represent lower cost marketing alternatives and would give Nestle the opportunity to expand its international brand presence and consider parent company sponsorship of stand-alone brands as a competitive tool which is unique in its marketplace. Painting the image of Nestle as the innovator, the contemporary consumer advocate, and the environmentally-focused brand sponsor would appeal to many buying behaviours in the business’ target audiences and give the business multiple opportunities for positioning Nestle as a unique foods producer. Analysis indicated that Nestle maintained the internal talent and culture necessary to devote to a new type of branding strategy and the business definitely maintains the technology, expertise, and cash to explore a new concept in marketing strategy. Fortunately, by adopting this new recommended strategy, Nestle will not have to make process changes, unless the resulting sales increases dictate a measurable shift in raw materials purchasing or production demand. Nestle will have to consistently measure whether marketing is bringing the return on investment required and make adjustments to production and process depending on how consumers react to the new brand image for Nestle. Superior success of this new branding strategy could lead to any number of process improvements in the manufacturing environment if resulting consumer revenues improve the business’ profitability. In the short-term, this new marketing focus will have little negative impact on operations strategy in a company which is adaptable and used to flexible business structures. Conclusion Nestle definitely has a very strong internal business infrastructure equipped with the knowledge and expertise necessary to make consumer-driven changes to product and process. The macro-environment is, despite any drawbacks, relatively stable and supports ongoing profitability for Nestle through its ability to support new technological improvements and the company’s ability to conduct business in fluctuating consumer markets. The recommended strategy for improving Nestle’s brand image is based on macro-level factors and can build better relationships with consumers and also provide the company a new marketing opportunity for exposing stand-alone brands. Nestle, despite the need for a change in marketing focus, is quite competitive in its marketplace and generally seems to maintain a positive consumer sentiment about the variety, quality and relevance of its products. Most of this is likely attributed to Nestle’s strong focus on understanding what drives buyer behaviour and then trying to create a product which fits these needs in a rapid-response environment. References Boone, Louis. 2007. Contemporary Marketing, 12th ed. United Kingdom: Thompson South-Western. Brabeck-Letmathe, P. 2007. Nestle Corporate Business Principles. 5th ed. Accessed 9 Oct 2009 from http://www.nestle.com/NR/rdonlyres/8E1A804C-C292-4075-BFA2-2908C094D739/0/Corporate_Busines_GB.pdf Fernie, J. and Sparks, L. 2004. Logistics and retail management: Insights into current practice and trends from leading experts. 2nd ed. London: Kogan Page. Gomez, M., Coyle, P., Ebenhoech, S. And Fallucca, K. 2009. International branding effectiveness: The global image of Nestle’s brand name and employees’ perceptions of strategies and brands. Journal of Global Business Issues, 3(2), pp.17-25. Green, George. 2005. Operations and Technology Express, ExpressExec 6.01. Oxford: Capstone Publishing Ltd. Mijuk, G. and Greil, A. 2009. Nestle finds pet owners more willing to spend. Wall Street Journal, New York, NY. 13 Aug, p.B1. Nestle.com. 2008. Nestle: The world’s leading nutrition and wellness company. Management Report 2008. Accessed 8 Oct 2009 http://www.nestle.com/Resource.axd?Id=8F7FD5C9-D6A0-48BC-86A3-28D49BF20ECD Nestle.com. 2008. Nestle’s management of dairy supply chain in China. Accessed 8 Oct 2009 http://www.nestle.com/MediaCenter/PressReleases/AllPressReleases/Nestle+management+of+dairy+supply+chain+in+China.htm Steinert-Threlkeld, Tom. 2006. Nestle pieces together its global supply chain. Accessed 8 Oct 2009 http://www.baselinemag.com/c/a/Projects-Processes/Nestleacute-Pieces-Together-Its-Global-Supply-Chain/ Stroh, Linda K. 2005. International Assignments: an Integration of Strategy, Research, and Practice. Mahwah: NJ Lawrence Erlbaum Associates, Inc. Wiggins, Jenny. 2009. Nestle set to keep sales simmering. Financial Times, London. 10 Aug, p.20. Read More