International Marketing Strategy: Nestle S A - Case Study Example

International Marketing Strategy Report Company Chosen: Nestle S. A Introduction Nestle is one of the largest food company in theworld. With headquarter in Switzerland, the company sells its products in 196 countries with production centers spread in 86 countries (Nestle Annual Report, 2013). Some of the products are: Branded coffee, beverages, baby foods, ice creams, chocolates, frozen foods, pet foods to mention some of them. Real growth of the company started after World War II. The company competes with Unilever, PepsiCo, ConAgra, Cadburys and many more in different segments across the world. The paper explores the company’s marketing strategy employed internationally with special reference to Spain and Europe in general. External & Macro Environment It will be appropriate to do PESTEL analysis that involves scrutinizing various scenarios in Spain such as political, environmental, social, technological and legal. This will largely reveal how external influences may impact the performance of the company (Professional Academy , 2013). Political: Spain has a democratic political setup where elections are held at fixed interval and elected representatives rule the country and enforce their economic agenda. Political environment, as such, is conducive to making investments for manufacturing activities in Spain. It is important to note that Nestlé operates in Spain for last several decades imbibing political environment of the country. Economic GDP growth rates and unemployment rates define the general economic state of any country. Any company’s performance in the country will largely depend upon these economic parameters. The following graphic shows changes in Spain’s GDP between 2007 and 2014. Declining GDP and Increased Unemployment Rate in Spain Source: http://www.tradingeconomics.com/spain/gdp-growth-annual GDP growth rate in Spain that was around 4 percent in the beginning of 2007 began declining and touched to negative 4% in 2009. However, it recovered thereafter slightly to register positive growth rate during 2011, but the recovery was short lived and by the end of 2012, the growth rate again touched to negative territory again. Unemployment rate in Spain is ruling very high since 2008 touching almost 26 percent in 2013. Unemployment rate measured in the last quarter is above 24 percent that is substantially higher than historical average. High unemployment rates lead to less disposable income for common masses affecting revenue of the most companies. Nestle too has to face the brunt of this important macroeconomic parameter on its income from Spain across all product lines (Unemployment Rate in Spain, 2013). Social With the total population of Spain being 47,370,542 as per July 2013 estimation, over 70% of the population in Spain is below age 54. A large proportion of this population is likely to be Nestlé’s customers in one way or the other (Index Mundi, 2013). Technological As in other industries, technological changes are frequent in Food industry. With the technology-friendly environment that prevails in Spain, Nestle has no issue in establishing its operations in Spain to cater to the needs of local population in its varied product lines. It is evident from the fact that Nestle has made a EUR 6 million investment at its factory recently in Pontecesures to increase production facility of condensed milk by 50 percent. Environmental Spain being a part of European Union, environmental regulations are strict. Keegan and Green (2010) argue that companies need to operate globally with sustainable means as one of its major social responsibility. All companies operating in Spain needs to follow tough environment regulatory measures while establishing operations there. However, Nestlé’s own performance on sustainability issues is commendable and the company constantly works towards reducing water and energy consumption in its all manufacturing activities. Nestle needs to follow sustainability path not only in Spain but at all places where it operates. Legal Like other European Union member countries, Spain too has safety laws, employee laws, consumer laws, and antidiscrimination laws. All companies operating in Spain need to comply with these laws. All employees must be treated fairly and equally. All food products must follow local health and safety laws to avoid any fines, penalty or compensation apart from cancellation of license to manufacture. Nestle needs to comply with these laws stringently. Being an international company, any violation to these laws may affect its operations worldwide. SWOT Analysis Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis is a strategic tool that can be employed to decide about the strategic options that Nestle have. Strengths and weaknesses are internal factors while opportunities and threats emerge from external sources (Investopedia, 2013). Accordingly, strengths and weaknesses of Nestle can be identified for its business expansion in international markets keeping in view opportunities and threats that exist in markets. Internal Factors External Factors Positives Negatives Source: Investopedia.com Strengths Nestlé’s major strength lies in its strong brand equity across most of its product lines. Some of the well-known brands are: Nescafe, Kitkat, Nesquick and several more are its famous brand names that consumers patronize for last several decades. The company has strong R&D establishment to add newer products meeting the needs of customers across most regions. Besides, the company has strong balance sheet to meet any unforeseen eventualities (The World of Nestle, 2011). Weaknesses The company has faced with poor product quality controversies in the past recalling its products giving adverse impression among consumers. The company has been accused of using child labor at its cocoa farming in African countries and often has been the target of environmentalists. Being a fortune 500 companies, Nestle needs to remain extremely careful to avoid such controversies in future. Opportunity By virtue of having a strong brand equity and leadership status in several product lines, the company can swiftly expand into new emerging markets and get established there. The companys ability to modify its products according to the local needs of the new markets provides immense opportunities. Glaring example is the product Maggie launched in India in 1983 with huge success (Chamikutty, 2012). Threats Food regulations are stringent and any misdemeanor or poor quality can spoil the brand image of the company with huge penalty provisions. Supply of raw materials and fuel price fluctuations are big threats to its production systems in the third world countries (Nestle Annual Report, 2013). Nestle’s Product, Price, Promotion and Distribution Strategies American Marketing Association (2007) states, “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large." Nestle’s international marketing philosophy revolves around these aspects. Nestles products can be classified into several categories such as cereals, coffee, chocolates, beverages, ice creams, infant foods, healthcare nutrition and many more. Nestles one of the core business is the milk products and ice cream division posting revenues of Euro 14.1 billion in 2013. Nido and Nespray are the main brands in this category. However, the chilled dairy sector has not been the main forte of Nestle. In ice cream segment, Nestle became the number one company globally replacing Unilever. Nestle has taken this lead through Moevenpick ice cream brands in several countries including Spain. The companys most products fall under the category of fast moving consumer goods (FMCG). Pontecesures factory in Spain is made to cater local as well as export needs in the markets of Europe, Africa and Asia. This factory consists of eight production lines to manufacture condensed milk. For Nestle, Spain serves as an export base as it exports almost 40 of the production available from its 12 manufacturing sites located in Spain. The companys investment at Pontecesures in Spain has boosted its exports by 12%. In November 2011, the company invested Euro 10 million at its factory in La Penilla de Cayon, Spain to manufacture different varieties of chocolates. Nestle has established total 12 production sites in Spain. At least, 60 percent of its production caters to the needs of local market. Nestle offers Nestle Caja Roja praline – customized chocolates in Spain through its newly developed website (Food Drink Business Europe, 2012). Food is local is the mantra of Nestle meaning products are offered as per local taste and preferences. There is no uniform taste across the world. Nestle takes into account peculiarity of local cultures and food preferences and that is why customers at all locations get attracted to the company products. Differing flavors and tastes are offered at different locations even within a country. That is why there are over 10,000 Nestle product variances and almost 500 factories to produce them across 80 countries (The World of Nestle, 2011). Nestles product pricing is flexible and takes into account affordability of population to which it caters. That is why the same product is available at varying prices at different locations. Nestlé’s main promotional campaign is Good Food, Good Life that amply demonstrates its concern for consumers around the world. Nestlé’s promotional efforts are significant in electronic media ever since the launch of new products. Nestlé’s promotional efforts keep on increasing as it expands to newer markets. Distribution network is so wide and well-established that customers never have to struggle to find any of Nestle’s products in any part of Spain. Positioning Approach of Nestle As per Sharifi (2013), customer satisfaction depends upon how company performs on key issues such as cost, quality, dependability, speed and flexibility. Nestle has surpassed expectations of the customers in these key areas through proper positioning of its products so that customers can distinguish most of its products from those offered by its rivals. For example, in nutritional product category, Cerelec is exclusively developed for growing babies; Nestle NAN is the nutrient formulation positioned to enhance babys immune system. Similarly, PowerBar Triple Threat is positioned to fulfill the needs of sports persons and so on (The World of Nestle, 2011). International Market Expansion Based on the Ansoff Growth matrix, Nestlé’s product growth strategies can be described as per the following. Market Penetration Lee and Carter (2012) argue that market penetration is a strategy to expand in existing market with existing products. This is to increase the market share of existing products. This is achieved by sales promotion, competitive pricing strategies, publicity campaigns and personal selling. This is to continue maintaining dominance in growth markets. Even introducing loyalty schemes is a part of it. Nescafe, Milo, KitKat are some of the products that fall in this category where Nestle has often employed various marketing strategies to increase its market share in Spain. Market Development This marketing strategy is necessary when existing products are introduced in new markets. Opening new distribution channels is a part of it. Direct selling to customers through e-commerce and mail order is the strategy employed. Creating new market segments adopting different pricing strategies falls under market development. Launching of Nescafe in China is an example of market development of existing product (Lee and Carter, 2012). Product Development Lee and Carter (2012) emphasize that innovation, research and development activities are necessary to develop new products. Identifying customer needs is must before developing new products. Often, such product features are not offered by competition. Nestle employed product development strategy in the European market including Spain when the company developed nutritional and health products to launch in existing market. The company opened new distribution channels for Maggi when Nestle launched the product in India in 1983 (Chamikutty, 2012). Diversification New products are developed to serve new markets meaning diversification from the existing line of business. It is necessary to identify the gaps between the product offered by rivals and the needs of the market. Nestle took diversion from the existing product lines completely to launch cosmetic products. LOreal cosmetic products are a diversification from the existing product line. Since 1980, the L’Oréal factory in Burgos in Spain began catering to cosmetic products. That can be taken as a diversification from the food products to enter into a new market (Lee and Carter, 2012). The BCG Matrix Boston Consulting Group developed the BCG Matrix, essentially as a decision making tool to focus on certain products that offer promise for growth and discard some of them who are languishing in the market with low or very low market share and offer no hopes for growth. Matrix can be depicted as per the following. Source: http://oxlearn.com/arg_Marketing-Resources-The-Boston-Matrix_11_35 Nestlé’s numerous products fall in the category of either stars or cash cows due to their leadership or high market share in the market. Cerelac, Nescafe, and KitKat are universal cash cows including the market of Spain. Nestles diversification in pharmaceutical business can be classified as dog because of its low market share. Cosmetics is a high growth market at least in some of the countries but Nestle’s share in those market is low among many formidable competitors. Maggi is a leading brand in many markets enjoying leadership position. Maggi has grown focusing on children as a fun product. Maggi growing annually at the rate of 20% enjoys 75% market share in India can be classified as a Star product (Chamikutty, 2012). The company adopted many strategies to become and remain a star performer in the fast noodle market in India. Some of them are: distributing free samples, availability in small packing, providing gifts on return of empty packets. Nestle expanded the market by launching soups, ketch ups where the growth possibilities are tremendous. Nesles long-term business objective is to produce and market its products keeping in mind sustainability aspects for its all stakeholders that include consumers, employees, shareholders, and business partners (The World of Nestle, 2011). Recommendation of Marketing Strategies Source: http://www.cgma.org/Resources/Tools/essential-tools/Pages/porters-five-forces.aspx?TestCookiesEnabled=redirect The Porter’s Five Forces Model is a tool to find company’s overall competitiveness. The five forces are: supplier power, buyer power, threat of new entrants, threat of substitutes, and the degree of rivalry. Each of the forces exerts its influence on the long-term competitiveness of the company (Porter, 2008). The extent of bargaining power that suppliers have in supplying raw materials, labor etc. may impact the profitability of the company. Nestle is in food business and it has several suppliers in its fold. Moreover, it procures raw materials globally where raw materials are sourced most competitively. Nestlé’s manufacturing operations are spread across 86 countries so the company has tremendous leveraging in locating its supplies. Even labor issues can be tackled without much of the difficulty as production programs can be adjusted on such issues. On this front, Nestle definitely comes out will full points because of its huge consumption of various ingredients. Consumer (buyer) is king and buyers are often individuals when buying any food items; they judge the product from various perspectives such as its brand equity, pricing and availability. Nestlé’s bargaining power will always be restricted to charge premium prices for its products. The company’s failure to garner appropriate price from consumers is likely to affect its profitability significantly. Moreover, the company has to price its products most competitively so as to penetrate and expand its geographical reach. Threat of New Entrants always looms large in most of the product lines; however, that cannot affect the company’s competitiveness except that new arrivals have some outstanding features and capable of snatching market away. The only solution to this for Nestle is to keep adding new products in the market through its R&D facilities and innovations. At times, it becomes important to acquire new emerging but prominent companies so that future threat is minimized. In keeping with this practice, the company has acquired several small companies in the past and merged with Nestle. Nestle needs to continue with this strategy in the future also. Threat of Substitutes is always there in food business due to variety of products that can be generated out of research and as per needs of the market. Nestle can never be complacent on this front as younger generation prefer to experiment on new products and any new arrival on food front may fast replace the existing ones if they look identical in its several features. ‘Degree of Rivalry’ is perhaps the most important aspect amongst all and that is why it occupies center stage in Porter’s model. Nestle competes with some of the giants such as Unilever, Kraft Foods, Cadbury Schweppes, Hershey Foods, GROUPE DANONE apart from several medium sized and local players in its each segment. There is no doubt that the degree of rivalry is fierce and each one of its major rivals act persistently to increase their market share through various marketing strategies and promotional means across most markets. This is precisely here that Nestle has to deploy its marketing strategies prudently. BCG matrix and Ansoff Growth matrix are effective tools to decide about promoting or divesting existing product lines of Nestle in the different markets worldwide. In certain markets, some of the products enjoy leadership quality while some of the products either enjoy second slot or lower rank among all players. Some products have universal appeal across the globe. Applying available resources for growth and expansion thus, needs careful analysis of all products in the different markets. Currently, North America and European markets including Spain are not growing due to ongoing economic crisis. It is not surprising that Nestle too has stuck up with negligible or low growth in these markets. However, markets at some of the emerging economies in Asia such as China and India, Brazil in Latin America, Nigeria in Africa offer Nestle tremendous possibilities of growth for many of its flagship products. The disposable income of people in these countries are rising fast and the company needs to focus more in such markets and introduce new products by selecting affordable pricing, and positioning the product for niche marketing. Small packaging is important in such markets due to consumers’ inability to spend more in a single buying decision. Product suitability, pricing, packaging, and promotion are equally important in all markets to lure the consumers. While health and pharmaceutical sector is promising, Nestlé’s experience and capabilities are limited to take on rivals such as GlaxoSmithKline, Roche, Pfizer, Park & Davis, Novartis, Bayer and many such companies. While promoting over-the-counter products in healthcare sector is a good decision, the company needs to launch healthCare nutritional products such as Nutren Balance in emerging economies such as China and India with educative publicity campaign. This is precisely for the reasons that the disposable income of people has increased manifold in these countries in the last couple of years; obesity and diabetes have become nagging issues across the large proportion of adult population due to faulty food habits. The product helps regulate metabolism, reduces hunger and lowers cholesterol (The World of Nestle, 2011). The product is capable of generating a huge sale for Nestle in emerging economies. References American Marketing Association (2007). AMA Definition of Marketing. marketingpower.com. [Online] Available from http://www.marketingpower.com/Community/ARC/Pages/Additional/Definition/default.aspx [Accessed 30 July 2014] Bonn, I. (2001). 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