International Marketing - Nestle and Procter and Gamble - Essay Example

? International Marketing Table of Contents Introduction 4 Overview of the two companies 4 Procter and Gamble 4 Nestle 5 SWOT Analysis 6 Strengths 6 Weaknesses 6 Opportunities 7 Threats 7 Porter’s Five Forces Analysis 8 Threat of new entrants 8 Power of buyers 9 Power of suppliers 9 Power of substitutes 9 Competitors 10 Marketing Mix 10 Product strategy 10 Price strategy 11 Distribution strategy 11 Promotion strategy 12 References 13 Bibliography 15 Introduction This paper represents a business report about critical evaluation and comparison of marketing strategies of the two global FMCG brands: Procter & Gamble (P&G) and Nestle. This study deals with detailed analysis of marketing strategies of these two companies. Detailed comparative analysis of marketing strategies of these two companies will be analysed through application of popular marketing analysis methods and tools like SWOT analysis, Porter’s five forces analysis, marketing analysis, STP analysis etc. these methods help to identify the efficiency of marketing strategies developed and implemented by the companies (Cateora, Gilly & Graham, 2009, p.7). On the other side, evaluation of the effectiveness of marketing strategies will be done through cost effectiveness business operation and growth of revenue of the companies. Before starting in-depth analysis of marketing strategies, brief overviews of the two companies need to be discussed. Overview of the two companies Procter and Gamble Procter and Gamble or P&G is one of the leading multinational consumer goods company based in America. The company headquartered in Ohio, USA and listed in New York Stock Exchange. It has successfully developed a diversified portfolio of popular brands of consumer durables. There are numbers of products in each brand and most of the products are very much popular worldwide. According annual financial report of 2011, P&G has reported revenue of $82.6 billion. Based on this performance, the company was ranked fifth position in the list of World’s most admired company by Fortune magazine. It was in sixth place in 2010. Procter and Gamble was established in 1837 by William Procter and James gamble. Throughout this glamorous history of more than 170 years, the company has grown by revenue and market share in consumer durable industry. Unique organizational culture of P&G stands for its purpose, values and principles. P&G people and P&G brands are the key foundation of P&G’s success whereas P&G consumers drive this success. Global brands of the company can be categorising in two parts. One is beauty and grooming and another is households care. In beauty and grooming categories most popular global brands are Camay, Gillette, Olay, Pantene, Old Spice, Secret etc. On the other side, Ariel, Tide, Mr. Clean, Swiffer, Febrize, Duracell, Charmin etc are most popular brands in households care category. P&G ranked 25th position in “World’s Most Innovative Companies” by Bloomberg. It is also listed in Global 100 Most Sustainable Corporations by Dow Jones Sustainability Indexes. Nestle Nestle S. A. is one of the leading multinational consumer durables company in the world. It offers nutritional and health-related consumer goods. The company headquartered in Vevey, in Switzerland. Nestle is the world’s largest food company in terms of revenue and market share. Nestle has wide portfolio of popular food brands. This product portfolio includes baby food, breakfast cereals, bottled water, dairy products, coffee confectionary, ice cream, snacks and pet foods. The company has production unit in most of its foreign markets. It has more than 450 production units in 86 countries. 29 most popular brands of Nestle have contributed annual sales of more than 1.1 billion in 2011. These include Nespresso, Kitkat, Nescafe, Nesquik, Vittel, Smarties, Vittel and magi etc. Nestle is one of the largest shareholder of L’Oreal which is the largest cosmetics company in the World in terms of revenue and market share. Nestle was the merger of Anglo-Swiss Milk company and Farine Lactee Henri Nestle, formed in 1905. The company rapidly grew through diversification into new foreign markets and acquisition of small companies. Nestle ranked first position in Fortune Global 500 companies as most profitable corporation in the world. The company currenly has a market capitalization of more than 200 billion USD and based on this financial achievement, it ranked 13th in the FT Global 2011. SWOT Analysis Strengths Nestle is a reputable and globally accepted brand. The brand name is the incentive for the company to enjoy a large consumer base. Moreover, its consumers come from every corner of the world. It can therefore be said that the company successfully caters for the different tastes of all consumers around the globe, offering a variety of beverages. Its management is well established and can work under different socio-economic factors for development. After working across the globe in a number of different sectors, the company has developed a strong and diversified distribution base (Belk, Russell, 1996, p.15). It can handle the dealers, wholesalers and retailers in an effective fashion. In these years it has accumulated a strong monetary base, which it can use when venturing into new markets and in advertising campaigns. It has formed strong partnerships with various bottling companies, which helps it to meet the bottling requirements around the globe and avoid disruption in the supply of products in the market, which ensures a stable supply of funds to the company. Weaknesses Both Nestle and P&G have a streamlined focus for its product offerings. The offerings are all associated with the beverage demands arising within the global markets. Nestle has carried out various experiments in terms of product development, which in some cases have led to disruption to various pre-existing and well-known brands. In an effort to establish demand for its products, P&G has eliminated many local brands through mergers and acquisitions, which has resulted in the loss of revenues from these local brands. Opportunities Nestle has the opportunity to tap into the snack market. Pepsi, the company’s principal rival, has used this opportunity and is doing well. This diversification strategy needs to be implemented soon. A competitive situation will be created in the market and consumers will benefit. The Asian and African markets are rapidly emerging, which will fuel the demand for beverages (Gillespie & Hennessey, 2011, p.145). These markets will provide enormous opportunities for companies like Nestle. In an attempt to visualise the long-term perspectives, the global giant coined the term Vision 2020. Therefore the company has recently announced some strategic plans, with the help of which it has opted to exploit the emerging market conditions. The product offerings should match the local tastes. Although the company has already initiated such tastes, there is still room for development in this arena. Such strategies will cement the position of the company in global markets, increase sales and thereby enabling revenue generation to be anticipated. Threats Emerging competition in the global food market is the major threat to Nestle. Many leading players have active market presence and brand value in confectionary food and beverage market. General Mill, Craft Food, Kellogg’s is the major competitors to Nestle. Major reduction in international trade on food product i.e. imports and export duties of food products by the governments of most of the countries have intensified the competition in food market (Douglas & Wind, 1987, p.32). Another major threat is that taste and preferences of people has been changing day by day whereas the company has been offering similar taste of its food products since many years. Therefore, new entrants in this market are attracting the potential customers by offering new taste of food products mainly the different from traditional brands of leading food giants like Nestle. Another threat of the company is that people over the world started spending more on durable products mainly in electronic products which has been reducing overall sales of consumer goods. FMCG market has been declined in last 2 to 3 years. Rising price of raw materials of food products due to inflation in many countries is forcing the company increase price of its products. Therefore, the company is also losing its market share in many developing countries. Porter’s Five Forces Analysis Porter’s model is instrumental in planning strategies that are necessary to analyse the level of competition prevalent in the operating market of a certain company. The nature of the market is irrelevant in the model. The five factors that are taken into account in the model include the buyers’ power, threats posed by new entrants, the power of suppliers, the power of substitutes and competition within the industry. Threat of new entrants It is unquestionable that Nestle and P&G enjoy a large proportion of the market, yet it faces some tough competition from local competitors which can deliver products at cheaper prices. In order to deal with this kind of competition, the company provides brand value. The fixed cost as well as variable cost of staff and utilities makes entering tougher for anybody without a strong financial backing. Licensing and property prices are a further deterrent. However, franchising option is relatively simple as it does not require all the other hassle involved, such as spending money to establish the brand name locally; bit this option again needs strong financial muscle. Another barrier to entry is the location availability. Bigger cities that have greater sales potential have limited land availability and too much competition in high traffic areas. In smaller areas where the land might be available at a lower cost there is scarce demand. Therefore, threat of new entries to these two large players is very low. Power of buyers Nestle operates in the beverage segment and is under the purview of the FMCG sector. This segment is characterised by low-priced products, and there is also fairly low product involvement. Success for any company operating in the FMCG sector is dependent upon the methods of distribution used by the company. If buyers are not well catered for, they will move to the next available alternative. As the products are cheap and are easily available in the market, the buyers have huge market power. Buyer power is very high as the good is easily replaceable. It doesn’t cost much, so any buyer who does not like the offered product can easily switch to other brands like Uniliver. Though, both Nestle and P&G have limited global competitors but, these have many local competitors in each regional market. Therefore, buyers power of the both the brands is quite high (Dana et al, 1999, p.25). Power of suppliers As the company has a large consumer base, it enjoys significant power when dealing with its suppliers. Therefore, the suppliers do not have much power. This significant authority of the global giant has been achieved through its brand image over all these years. When companies wish to change to a different supplier, high transfer costs are involved. Number of suppliers of food ingredients is much higher than supplier of beauty and household products. This fact is true for any market. Therefore, supplier bargain power of P&G is much higher than Nestle. Power of substitutes Local brands are emerging in most parts of the world; therefore, the power of substitutes is tremendously high in this industry. The power of substitutes is positively associated with distribution methods and advertising campaigns. As Nestle has already found its place in the minds of consumers, the power of substitutes plays a significant role in the market-capturing possibilities of the company. These have different pricing strategies and different products but serve the same purpose of quick, good quality food experience. The small spending budgets of consumers in the past couple of years have impacted their ability to try more expensive options but those can be substitutes, nonetheless. On the other side, competitors of P&G also have many substitute products to the products of P&G. Therefore, threats of substitutes are high in both the brands. Competitors Nestle’s arch rival, General Mill, Craft Food, Kellogg’s offer similar products to Nestle, and also offers a diversified product mix. Local brands additionally offer stiff competition, with low prices and sound distribution methods. Rival firms are many and scattered throughout. And there threat is also quite high. Although, Nestle has the enviable position of being the first in the mind of the consumer with respect to fast food, it still needs to work constantly and hard to maintain the customers. Marketing Mix Product strategy More than six thousand products have been hosted by Nestle in the market. This represents the strengths of the company in terms of research and development in product line extension and product diversification. Most of the products are for daily use and rest are actionably used products. Products includes coffee, cereals, bottled water, processed foods, ice creams, candies, chocolates and a very unusual product category i.e. pet foods are the largest selling product categories of the company. Most of the products remains in the growth and matured stages of product life cycle. The company introduce new product in a product line immediately after one product reach to decline stage. This product strategy helps the company to maintain the sustainable demand of all the brands. One the other side, P&G has focus on beauty and household products. The product portfolio is very much diversified into many categories of product. The company has successfully identified specific need of the customers and positioned the products according to that. Price strategy Nestle offers flexible prices which is key success factor of Nestle. Marketing strategy includes different pricing strategies for different products and brands. Competitive pricing is mostly used for pricing of most of the products. Uses of different pricing strategies help the company to maintain sustainable demand of all the products (Hackley, 2009). The company also offers bulk purchase facilities with attractive discounts for supermarket customers. It also uses seasonal pricing for some products like Chocolates. On the other side, P&G also sue competitive pricing strategy for most of its products mainly for the products that have similar substitutes from other brands in the market. It also adopts seasonal pricing for mainly the beauty products. P&G also practice attractive bulk purchase pricing for the supermarket customers. This is part of volume sales strategy of the company (Ger, 1999, p.35). Distribution strategy Both Nestle and P&G follows similar types of distribution strategy. Distribution channel of both the company consists of company itself then distributor followed by retailers and end consumers. P&G has a market penetration of more than 140 countries. Its products reach to more 5 billion customers daily across the world. DHL is the major logistic service provider of P&G. In USA, UK, China and India, the company has both production units and strong distribution network. On the other side, Europe is the main market for Nestle as it generates highest demographic sales from Europe. Nestle’s products present in more than 86 markets across the world and all supermarkets, hypermarkets, departmental stores and small and medium confectionary outlets in 86 foreign markets (Ghauri & Cateora, 2010, p.47). Promotion strategy Nestle develops and implements innovative promotional campaigns for both print and digital medias. Nestle use television as the largest platform for promotion of their new as well as existing products. On the other side, P&G also adopt various promotional strategies for different products. TV is the mostly used promotional platform by P&G. Both the companies use consumer sales promotion strategy, retailer and wholesaler promotions (Lee & Carter, 2009, p.85). References Belk, Russell (1996), ‘Hyperreality and Globalization: Culture in the Age of Ronald McDonald’, Journal of International Consumer Marketing 8 (2/4), 23-37. Cateora, P. R., Gilly, M. C. and Graham, J. L. (2009) International Marketing, 14th ed. (International Student Edition), New York: McGraw Hill Dana Alden L. et al. (1999), ‘Brand Positioning through Advertising in Asia, North America, and Europe: The Role of Global Consumer Culture’, Journal of Marketing, 63(January), 75-87 Douglas S.P. and Y. Wind (1987), ‘The Myth of Globalization’, Columbia Journal of World Business, winter, 19-29. 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