Internal and External Environment of Nestle and Pepsi - Report Example

Internal and external environment of Nestle and Pepsi Nestle and Pepsi are my chosen companies for the study of external and internal environment andfor the study of competitive advantages and business strategy. Environmental Scan of Nestle: SWOT Analysis: Strengths: Nestle is operating in 86 countries with 6,000 brands. It has 280,000 employees around the world. It is continuously increasing its shares in the markets. Weakness: it is the most boycotted brand due to its infant formula. It shows lack of consumer research. Opportunities: Nestle should increase its product portfolio in different geographic regions Threats: Aggressive marketing of competitors like Kraft. Geographical barriers trade and tariff rules are great threat for it. Maintaining the brand image is also a big threat for Nestlé (Nash, 2000). PEST Analysis Political: Political factors can mold the business in a great extent. Due to which Nestle may bear different taxes which increase the operational cost of Nestle. Economical: Economical factors like inflation have a great encroachment over the Nestle business. Socia-cultural: People have more awareness about brand due to cultural factors so it is costly to maintain the social symbol. Technology: Rapid change in technology is a great threat for Nestle to maintain its innovation and enhance the R&D operations (Peter and Olson, 2004). Porter’s 5 forces Model The threat of substitute: Substitute low price products are the biggest threat for the company while Nestle is providing its customers with quality products at a reasonable price. The threat of new entry: Low entry barriers are there. Entry of any new firm having same standard products can be a great threat for Nestle. Competitive rivalry: There is high competitive rivalry because Nestle is competing with other organizations which offer the same products at low cost. The bargaining power of supplier: Due Supplier of Nestle have increased bargaining power. The bargaining power of buyers: New entrants and their offers have increased the bargaining power of buyers (Nash, 2000). Competitive advantages of Nestle: Nestle Company started off as the single idea from Henri Nestle who was a pharmacist. He formulated a mil formula for infants who had less tolerance for mother milk in 1866. This was the breakthrough for him as the entire Europe came up with the largest demand for this formula. Since then Nestle has been increasing the size the company and expanding in almost all countries. Not only business expansion but Nestle also has expanded the product line by introducing variety in every product they offer (Etzel, et. al., 2004). By using the innovation and renovation in the product line, Nestle has been able to gain competitive advantage in the global market. Nestlé’s trademark has become a barrier to many other companies with people considering its products as a benchmark to follow. Here are some of the competitive advantages that Nestle is enjoying at the moment: Nestle is leading the overall global market position. It is either number one or two brands in most of the countries and regions globally. The larger scope of Nestlé’s extraordinary business is providing significant and sustainable economies of scale in marketing, manufacturing and administration processes of the business. Nestle has developed a wide research and development department with capabilities and expertise that allow the company to lead in the innovative products which ultimately leads to flexibility in portfolio maximization and profitability (Etzel, et. al., 2004). Business strategies used by Nestle: Innovation: Innovation is one of the key business strategies that is bringing a sustained competitive advantage to Nestle. A great deal of applied and pure science research is part of R&D centers of Nestle in order to bring innovation but consumer benefit remains at the core of the business. Whatever designed or produced is customer oriented. The Nestlé’s innovative strategy focuses on providing: Health and nutrition Quality and safety of every Nestle products Texture, taste and convenience Nestle being a global organization follows the international strategies to create value and sustain the competitive advantage in the global business. Nestle basically opt for foreign direct investment in food businesses and dairy products. Due to the immense investment and confidence of the customers, Nestle has been able to change their strategy from a company that produces tasty and convenient foods and beverages to nutrition, science driven, wellness and health company. This transition has come off by the balance that Nestle kept between the sales in low growth-low risk and high risk-high growth countries. Measurement of strategic effectiveness Nestle measures the strategic effectiveness by establishing: Nestle Nutrition Corporate Wellness Unit As Nestle has become nutrition oriented company, it has established a global business organization Nestle Nutrition to focus on nutritional aspect. It is an autonomous business unit that functions globally which is responsible for profit and loss business of HealthCare Nutrition, Infant Nutrition and Performance Nutrition. This unit basically ensures and delivers the superior business by offering science based and consumer trusted nutritional products and services. Similarly, Nestle has formed Corporate Wellness Unit in order to integrate nutritional value added in beverage and food businesses. This unit not only develops the wellness and health organization across all the businesses but also strives to develop major communication both in external internal environment of the organization. It also aligns the Nestlé’s R&D and scientific expertise with consumer benefits. Pepsi Environmental Scan of Pepsi: SWOT Analysis: Strengths: PepsiCo is second largest company in the world. High growth in Net revenue, Operating profit, EPS Potent brand portfolio with key geographic market Opportunities: Increase in R$D investment in form of sweetener technology will increase sales. Growth in rising markets like China and India Acquisition and alliances Weaknesses: Its all products do not have all features of PepsiCo. Due to high competition, the demand for Pepsi is highly elastic. Threats: Rapid change in technology Strong competition with Coca-Cola and Cadbury Schweppes (Nash, 2000). PEST Analysis: Political: Change in Political factors lead to change the tax policy and trade restrictions and tariffs for an organization. Economical Economical factors like inflation, interest rate will increased and the purchasing power of people will declined and have a great affect on Pepsi revenue. Socio-cultural Socio-cultural factors affect the size and need of the potential markets. People know better what is good for their health and what is not? Technological Technological factors will increase the activity of R&D by rapidly adapting the change and that will lead to increase sale of Pepsi (Peter and Olson, 2004). Porter’s Five Forces Coca Cola is a big threat of substitute of Pepsi with same cost; only difference is brands therefore threat is very high. Threat of new competitors is very high therefore it can affect the market shares of Pepsi. The bargaining powers of supplier have increase due to the super normal profit of Pepsi and they can charge high prices for their services and resources. There is intense competitive rivalry in the market due to grow in the juice and soft drink industries. The bargaining power of customers has increased due to the best substitute with low price. It can affect the Pepsi prices (Nash, 2000). Competitive advantages of Pepsi: Pepsi turned out to be one of the most successful carbonated drink or soft drink after Coca Cola. Pepsi entered the market after Coca Cola and wasn’t a very big or instant success initially. It took some time for Pepsi to devise a strategy that would either beat or equal the coke gigantic market share and global expansion. Pepsi used several different strategies and business dimensions to capture the market share and develop economies of scale (Nash, 2000). After applying different strategies, Pepsi was able to gain the competitive advantage over several other beverages company and a rival and competitive status with Coca Cola. Some of the competitive advantages of Pepsi are: Pepsi came later in the market after Coca Cola. It took the advantage of market and kept the prices low to capture the market shares. This worked for Pepsi and now it is a direct competitor of Coca Cola. Pepsi has attained the purchasing economies of scale which has lowered their cost of production. This along with pricing strategy has been generating profits for Pepsi in a sustainable manner. Pepsi has a huge distribution network. Pepsi is known to be the first every company to use automobiles in the distribution process (Peter and Olson, 2004). Pepsi is using two basic strategies at the business unit level to maximize profits, offer value and be cost-effective at the same time. These two strategies are: Product-differentiation Cost-leadership Product differentiation: Pepsi followed the product differentiation strategy to bring something new to their customers. It introduced Dew and Diet Pepsi which helped targeting greater audience with different demands. Pepsi capitalized the unique perception of customers which helped brought different tastes. Pepsi has been involved in enormous promotional and packaging activities to attract the customers (Nash, 2000). Cost-leadership: Pepsi followed the strategy of lowest production cost which has helped it penetrate the market immensely and grab the maximum market shares. This also increased the profit margins as the lower cost and price difference has been favorable. Pepsi has been sustaining the competitive advantage and creating value by practicing the following strategies: Enhancement of distribution system Knowing and researching the foreign market environment to find the commonalities of the target buyers Adding new products and innovations while improving and maintaining the older products. Use of advanced technology Imaginative advertising Trendy marketing Assertive promotions Expansion into other industries like restaurants which include Pizza Hut and Taco Bell Alliance with major companies and corporations (Peter and Olson, 2004). Measurement of strategic effectiveness: For a company, the most important thing is to have sustainability in processes, strategies and profits as well. To attain this, Pepsi established a Sustainability Task Force that comprises of senior executives that are to ensure the effectiveness of strategies adopted by Pepsi. The task force is focused on optimization and minimization of efforts. The force is maintaining the sustainability in strategy application by reducing the use of resources like energy conversations and accepts such projects that would create additional resources like renewable energy sources. Similarly, the force is also working towards the effectiveness of strategies regarding the capital expenditures as well (Nash, 2000). Conclusion: Overall the controls used by Nestle are keeping the business in profit area and one of the leading companies however Nestle still needs to enter the European market immensely. Secondly, Nestle needs to expand its strategic dimension by including environment. Many companies are trying to reduce the environmental impacts of business which clearly is giving them a competitive advantage. So Nestle can secure its place by adopting including environment in the strategic development. The measures taken by Pepsi are enough to keep a good check on effectiveness of strategies and competitive advantage. References: Etzel, M. J.; Walker, B. J. and Staton, W. J. (2004) Marketing. New York. McGraw-Hill/ Irwin. Nash, E. (2000) Direct Marketing: Strategy, Planning, Execution. New York. McGraw-Hill/ Irwin. Peter, J. P. and Olson, J. (2004) Consumer Behavior and Marketing Strategy. New York. McGraw-Hill/ Irwin. Read More