Pestle Analysis of Nestle - Case Study Example

PESTLE ANALYSIS OF NESTLE Table of Contents Table of Contents 2 Brief overview of the NESTLE 3 PESTLE analysis and discuss how each element affects the company 3 The effect of the challenges faced by the organisation and how they might be addressed 6 References 9 Brief overview of the NESTLE Nestle is recognised as one of the reputed Swiss multinational organization, with it’s headquarter located in Vevey of Switzerland. It is the largest food and beverage organization in the entire globe comprising of a wide range of products such as baby food, coffee, dairy products, bottled water, ice-cream, pet foods, confectionary items etc. Since, its establishment in the year 1905, Nestle expanded in almost 195 countries that enhanced its total revenues and operating income by CHF 92.16 billion and CHF 13.07 billion by the year 2013. Along with this, the profitability of the organization also increased by CHF 10.02 billion by the year 2013 due to its numerous brands such as Kit Kat, Nescafe, Vittel, Maggi, Nescafe and Nespresso and many others. Due to which, the organization of Nestle became successful in enhancing its market share and brand value among many other rival players such as Pepsico, Unilever, Cadbury etc. (Nestle, 2013). PESTLE analysis and discuss how each element affects the company Nestle has strived to adhere to the global political, economic, social, technological, environmental and legal factors. The level of compliance of the company to these factors and the effect of these factors on the business practices and profitability of Nestle can be studied though the use of the PESTEL analysis. The PESTEL analysis is used to evaluate the macro environmental factors relevant to the company and their effects on the sustainability, profitability and business practices of Nestle. The PESTEL analysis of Nestle is given below. Political factors: Nestle is a well-known name in the global food industry. To maintain its reputation and ensure sustainability in its business practices, the company has to ensure that it operates in a compliant manner in its operations in various countries across the globe. The political issues are considered to be major factors that would influence the growth and sustainability of the international operations of Nestle. Many of the governments have become conscious towards promoting safe food to their citizens. Nestle supports these objectives of the various governments by promoting safe and healthy food which ensures that common health problems like diabetes, cardiovascular disease and obesity can be countered (Engel, Warshaw, & Kinnera, 2000). Economic factors: The economic factors like exchange rates, tax rates and rates of inflation play major roles in the profitability of Nestle. Nestle has always tried to analyse the economic conditions of a country while opening up the business in a foreign country. The specific economic measures like inflation rate, foreign exchange rates, rate of unemployment, taxes etc. can play a major role in influencing the profitability of the company (Bradley, 1999). Inflation rates can decide the saleability of the products in the country. Foreign exchange rates, on the other hand, directly impact the profitability of the company. The regulatory factors can impact the tax rates in a country. An increase in the tax rates would mean a subsequent increase in the selling prices of the products which will cause the number of customers of the brand to decrease because of price sensitivity issues. A decrease in the tax rates would lead to an opposite scenario in which the sales would increase. Social factors: Nestle is a global brand that has been found on the basis of human values and social responsibility. The company has been operating in a socially responsible manner for the last 140 years. Being socially responsible has been a major objective of the company since the beginning. The social landscapes of the different countries are seeing dramatic changes with a major part of the population being oriented towards safe and healthy food products. The company has faced serious social problems in the past like the Nestle boycott of 1977 done by the Infant Formula Action Coalition (Doole & Lowe, 2001). This boycott was done because Nestle tried to discourage breast feeding in order to boost the sale of its infant formula products. However, the people were much aware of the benefits of breastfeeding and thus there were severe repercussions to this strategy taken up by the company. This has made Nestle become more aware of social compliance. Today, the company produces a wide portfolio of products to suit different regions of the world while adhering to the social and regulatory perspectives in the country. Technological factors: The technological advancements are important to be taken up by Nestle. Nestle is expected to benefit from the investments made in new technology. Continuous innovation and improvement is needed for the company to sustain in the competitive food industry (Bonn, 2001). The company should remain ahead in implementing new technologies so that it can compete with competitors like Unilever, Cadbury, Kraft foods etc. Nestle faces the continuous need of investing in new technologies for use in the research and development departments to ensure that healthy and safe food is prepared by the company. With most countries becoming more technology oriented, it has become both easier and mandatory for Nestle to take up new technologies. Environmental factors: Environmental compliance is mandatory for Nestle because the company operates in the sensitive industry of food and nutrition. The company has to ensure that its production and manufacturing processes are in compliance with the environmental protection acts and that it uses environmentally compliant production processes. Also, it has to ensure that the products of the company meet the food and health standards as defined by the governments of different countries. Nestle also strives to give back to the environment and the global societies through its Corporate Social Responsibility (CSR) activities in which the company implements specific environmental protection programs and takes step to reduce any negative impacts of the business processes on the ecosystem (Nestle Corporate Website, 2013). Legal factors: Nestle has made significant changes in order to create a health oriented product portfolio that can be used to complement the efforts of the governments of various countries to create a healthy global population. The legal environments in the home country Switzerland as well as in the foreign countries affect the way the company operates. Since, the company aims at providing healthy and safe food to the global consumers, the operations of Nestle are in conformation to most of the legal and regulatory environments prevailing in different countries (Rajagopal, 2000). The effect of the challenges faced by the organisation and how they might be addressed In this age, the most important requirement of an organization, operating in any segment is sustainability and competitiveness. This is because; it is extremely essential for an organization to enhance its profitability and market share among other existing rival players. Similarly, the organization of Nestle also tried to enhance its market share and popularity by introducing products as per the desires of the customers and market trends. After analysing the above mentioned information, it might be stated that, buying behaviour of the customers acted as a significant challenge for the organization of Nestle as compared to its rival players. This is because; at the time of inflation, the rate of unemployment increased to a considerable extent. As a result of which, the per capita income or the disposable income of the citizens reduced that lowered their buying behaviour. However, due to lowering of the buying behaviour, the demand and total sale of the product of Nestle reduced that hindered its market share and reliability. Therefore, in order to cope up with that market trend, the organization of Nestle might reduce the prices of the products so as to retain its demand. Otherwise, it may not be possible for the organization of Nestle to retain its customer base and loyalty in the market of United Kingdom, Switzerland, Asia, Europe etc. (Carter, 2003). Other than this, introduction of point earning cards helped the customers to attain varied types of discounts and rewards. Due to which, the customers became extremely attracted towards the product lines of Nestle that amplified its total sale and demand among others. Furthermore, the organization of Nestle tried to offer low sugar and low calorie products to its customers so as to reduce the danger of obesity, diabetes, allergies, cardiovascular disorders etc. Thus, due to these above mentioned factors, the demand and popularity of the product lines of the organization of Nestle is increasing at a rapid pace in the entire globe. However, due to the introduction of these products, the demand and buying behaviour of the citizens increased, that improved the profitability and operating income for the organization of Nestle. Hence, in order to increase the buying behaviour of the customers, the organization of Nestle implemented varied types of strategies that proved extremely effective for the organization as compared to other rival players. In addition to this, consumer trend is also another important factor that offered significant influence over the organizational profitability and brand value. This is because; in this age, maximum extent of the customers desire for healthy and tasty food with low extent of calorie and sugars. So, that the rate of harmful disorders such as cardio-vascular disorders, obesity and many others gets considerably reduced in this age. However, in order to satisfy the changing taste and preferences of the customers, the organization of Nestle introduced varied products such as caramel cream, finger Kit Kat and many others. As a result of which, the demand and profitability of the organization of Nestle enhanced that amplified its dominance and position in this aggressive age (Alreck & Settle, 1999). Moreover, the consumer purchasing rate also increased that proved extremely effective for the organization thereby amplifying its brand value and reputation to a considerable extent among others. Furthermore, by introducing varied types of low calorie products, the intensity of competitiveness in the market among other rivals reduced that enhanced its prosperity and market value (Czinkota & Ronakainen, 2007). Other than this, introduction of varied types of confectionary products, baby products and coffee items proved effective for the organization of Nestle to increase its productivity and profitability in the market among many other contenders. Therefore, due to its wide range of product lines, in spite of changing trends of the customers, the portfolio and brand value of the organization remained extremely high in this age of competitiveness. Other than this, due to change of the life style and living standard of the citizens, most of them desire to shop through online sites. Keeping this point in view, the organization of Nestle also introduced its online websites so as to offer the enjoyment of shopping. This proved helpful for the organization of Nestle thereby amplifying its competitiveness and ranking in the entire globe among others. Apart from this, its customer base and total sale also increased to a considerable extent, as its website might be accessed from any part of the world. As a result of which, the demand and reliability of the brands of Nestle enhanced that increased its total revenue and productivity. In addition to this, the organization of Nestle became successful in increasing the level of awareness of the customers regarding the type of ingredients used in the preparation of the products, with the help of websites. This amplified its total sale and efficiency in the market in this age of aggressiveness and high bargaining power of the customers (Cateora & Graham, 2004). Hence, it might be stated that, all the challenges described above offered both positive as well as negative impacts but all of them proved extremely advantages for the organization of Nestle in order to retain its leadership position and reliability in the market among others rivals. References Alreck, P. & Settle, R. 1999. Strategies for building consumer brand preference. Journal of Product and Brand Management, Vol. 8 (2). Bonn, I. 2001. Developing Strategic Thinking as a Core Competency. Management Decision. Vol. 39(1). Bradley, F. 1999. International Marketing Strategy, 3rd Ed. New Jersey: Prentice Hall. Carter, S. 2003. International Marketing Strategy. Oxford: Butterworth Heinemann. Cateora, P. & Graham, J. 2004. International Marketing. New York: McGraw Hill. Czinkota, M. R. & Ronakainen, I. 2007. International Marketing. Stamford: Thompson. Doole, I. & Lowe, R. 2001. International Marketing Strategy: Analysis, development and Learning and Implementation, 4t Ed. Stamford: Thompson Learning. Engel, I., Warshaw, M. & Kinnera, T. 2000. Promotional strategy: Managing the market communications. Boston: Irwin. Nestle Corporate Website. 2013. About us. [Online]. Available at: http://www.nestle.com/aboutus. [Accessed on 21 June 2014]. Nestle, 2013. Healthier Products. [Online] Available at: http://www.nestle.co.uk/nhw2013/productinnovation/healthierproducts [Accessed on 21st June, 2014]. Rajagopal. 2000. Marketing Concepts and Cases. New York: McGraw-Hill. Read More