Evaluation and Comparison of the Marketing Strategies of Two Global Companies: Nestle and P&G - Essay Example

? Evaluation and comparison of the marketing strategies of two global companies: Nestle and P&G Table of Contents Introduction 4 Company overview 4 Nestle 4 P&G 5 SWOT analysis 6 Internal strengths 6 Internal weaknesses 7 External opportunities 7 External threats 8 Porter’s Five Forces Analysis 9 Threat of new entrants 9 Bargaining power of buyers 9 Bargaining power of suppliers 10 Threat of substitutes 10 Internal rivalry in the industry 11 Marketing Mix 11 Product 11 Price 12 Place 12 Promotion 13 References 14 Introduction This paper deals with a detailed comparative analysis of marketing strategies of two Global FMCG companies. These two brands are nestle and Procter & Gamble. Comparative analysis of marketing strategies of these two companies will be done through efficient methods and tools of marketing. SWOT analysis will help to identify internal and external factors, Porters Five Forces is to analyse the extent of market competition, and STP identifies the segmentation, targeting and positioning of a brand. Therefore, these three efficient tools of marketing will help to analyse overall marketing strategies of the two selected companies. Marketing strategy reflects the overall efficiency of a brand in the market in terms of demand of the products in the target market. It is one of the important areas of a business which drives the market demand and brand value of overall brand in the market. Nestle and P&G are two leading multinational FMCG companies which have been developing and implementing effective marketing strategies. Innovative marketing strategies by these brands create a benchmark in the market with their competitors. Through, both of these two companies operate in the same sector but there is substantial difference in main focused areas of business of these two companies. Main business of Nestle is confectionary food business whereas P&G’s focused area is beauty and household products. Company overview Nestle Nestle is the largest multinational confectionary food company in the world. Main products of the company are in the category of nutritional and health related consumer durables. The company formed by the merger of Farine Lactee Henri Nestle and Anglo-Swiss Milk Company in 1905 and headquartered in Vevey, in Switzerland. In terms of revenue and market, Nestle is the largest confectionary and notional food company in the world. The company has successfully developed a diversified portfolio of different popular brands. Major categories of products are starting from breakfast cereals, baby food, dairy products, bottled water, coffee confectionary, snacks, ice cream and pet foods. To compete with the regional competitors in foreign markets, the company has established production units in most of the foreign markets. It helps the company to offer competitive market price of its products. Nestle has developed 450 production units in 86 foreign countries. Demand of the Nestle product is so high that $1.1 billion revenue comes from only 29 brands. These brands include Kitkat, Nespresso, Nesquik, Nescafe, Smarties, Magi, Vittel etc. Nestle holds a large stake on world’s largest beauty product brand in terms of revenue and market share i.e. L’Oreal. Nestle has been followed acquisition aggressive strategy for rapid diversification into many foreign markets. The company holds the first position as world’s most profitable company in Fortune Global 500. The company currently has more than $200 billion market share and it helped the company to achieve FT Global 2011 ranking as 13th position. P&G Procter & Gamble is of the largest multinational fast moving consumer goods company in the world. It is a US based company headquartered in Ney York Stock Exchange. The company has successfully developed a large portfolio of diversified brands of different product ranges. Each of the brands holds wide numbers of products, most of that are very much popular in global market. P&G generated $82.6 billion revenue according annual report of 2011. The company ranked fifth position in the list of World’s most admired company by Fortune magazine. It holds this position based on the performance. The name Procter and Gamble comes from the Surname of two founders of the company, William Procter and James Gamble who established the company in 1837. The company has been achieved its current position in the world FMCG market through efficient business operation. The company has developed unique work culture in its workplace with expertise from diversified market, culture, skill and knowledge. Sustainable corporate governance reflects through the company’s purpose, values and principles. Key foundations for P&G’s success are its people and the brands whereas its consumers are the main drivers of its success. P&G brands can be categorised in two types. One is household care and another is beauty and grooming. Some of the most popular products in the household care category are Ariel, Mr. Clean, Tide, Swiffer, Duracell, Febrize, Charmin etc and popular brands in beauty and grooming category are Gillette, Camay, Olay, Old Spice, Pantene, Secret etc. For faster development of new product and having a large portfolio of brands, the company has achieved 25th ranking in World’s Most Innovative Company” by Bloomberg. The company is able to place its position in Global 100 Most Sustainable Corporations by Dow Jones Industrial Indexes. SWOT analysis Internal strengths Nestle is a globally popular confectionary food brand with a higher brand value. Therefore, the brand name itself is the incentive for the company to retain the demand of the brand in its large clientele. 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. P&G is one of the largest consumer goods company. Its management is well established and can work under different socio-economic factors for development (Belk, Russell, 1996, p.14). After working across the globe in a number of different sectors, the company has developed a strong and diversified distribution base. It can handle the dealers, wholesalers and retailers in an effective fashion. The company has achieved a strong financial base throughout its long term business operation, which can be used to diversify in new potential markets through acquisition. Internal 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. External opportunities Nestle has opportunities in many areas of its business. It can develop new product in many other categories of food product like processed food, ready to eat food etc. The company’s principal rivals, General Mills, Craft Food etc have used this opportunity and are 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. As a leading player in the FMCG market, P&G poses many external opportunities. Potential global markets will provide enormous opportunities for companies like P&G because of its product categories. Both household care and beauty products have sustainable demand in the global market. 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 (Gillespie & Hennessey, 2011, p.142). The product offerings should match the local preferences. 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. External threats One major threat to Nestle is the emerging competitions in the global food market. Most of the leading companies in this market have active market presence and brand value in confectionary food and beverage market. Craft Food, General Mill, Kellogg are 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. 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 (Douglas & Wind, 1987, p.35). 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. On the other side, one of the major threats of P&G 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. Market share of the company has been declining in some of its foreign markets. Porter’s Five Forces Analysis Porter’s Five Forces model is one efficient marketing tool to identify the extent of competition in the target market. It is very much 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 threats posed by new entrants, buyers’ power, suppliers’ power, competition and the power of substitutes within the industry. Threat of new entrants Nestle and P&G the two leading companies in consumer goods industry 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. Licensing and property prices are a further deterrent. The fixed cost as well as variable cost of staff and utilities makes entering tougher for anybody without a strong financial backing. 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. Overall, these two companies have lower threats of new entrants. Bargaining power of buyers Main business of Nestle is confectionary and nutritional food and it 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 (Dana et al, 1999, p.22). 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, both of these two brands pose higher extent bargaining of buyers. Bargaining power of suppliers Nestle faces lower extent of supplier power when dealing with its suppliers because the company has a large consumer base. 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 Nestle is lower than P&G. Threat of substitutes Regional brands are emerging in many global markets due to adoption of competitive pricing strategy. 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. Overall, both P&G and Nestle have lower threats of substitutes. Internal rivalry in the industry Craft Food, General Mill, Kellogg’s are the major competitors of Nestle. These companies also offer similar products to Nestle, and also offer 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. On the other side, P&G’s major competitors are Uniliveer, ITC etc and these two companies also offers similar product as P&G. Marketing Mix Product Nestle has launched more than six thousand products till now in the global 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. It also efficiently segmented the target customers according to the benefit of each product. Price Flexible pricing in different markets is the main pricing strategy 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 (Ger, 1999, p.32). Uses of different pricing strategies help the company to maintain sustainable demand of all the products 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. Volume selling strategy is one important pricing strategy of the company. Place Both P&G and Nestle 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 (Ghauri & Cateora, 2010, p.47). 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 small and medium confectionary outlets, departmental stores, supermarkets and hypermarkets. Promotion Nestle focuses on innovative promotional campaigns for both print and digital media. Nestle uses television as the largest platform for promotion of their new as well as existing products (Lee & Carter, 2009, p.85). 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 retailer and wholesaler promotions, consumer sales promotion strategy to retain the increasing market demand of their products. 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