Boosting Nestle Marketing to Australia - Case Study Example

Global Marketing Report Executive Summary This report is prepared to support the marketing practices and theory that propose supplier relationship can deliver a sustainable edge for multinational operations. Strategic alliances between multinational companies and local suppliers are aimed at reducing the exposure to market uncertainties and realizing competitive advantage for multinational companies. Nestle intended expansion of Nestle Boosts marketing activities to Australia is market activity that needs strong relationship with suppliers to gain and retain competitive advantage. This report discusses the rationale of developing a supplier relationship and also the process that nestle can use to build a supplier relationship with Warrnambool Cheese and Butter Factory Company Holdings Ltd (WCB). It then proceeds to discuss the benefits Nestle can gain from developing the supplier relationship. The second part of the report discusses the marketing crisis that affected Mattel in 2007 when they recalled 19 million toys manufactured by Chinese suppliers. It first presents the effects of the product-harm crises on the marketing activities of Mattel’s products. Secondly the part discusses the appropriate response Mattel should have taken to respond to the marketing crisis from a corporate social responsibility point of view. The report finally recommends the building of strong supplier relationship as a good strategy for both Nestle Corporation and Mattel as they can gain competitive advantage and assured product quality respectively in future. Methodology The report use literature review to gather and analyze the information from existing sources that have discusses the various concepts Buyer-Supplier relationship building and management of marketing crisis. Contents Executive Summary 1 Introduction 3 Developing a relationship with a supplier 3 Managing marketing crisis 7 Conclusion 11 References 12 Introduction Buyer-supplier relationships are important to any multi-national that is expanding into a new country. A strong mutual relationship between a supplier and a multinational company can enable a company realize competitive advantage (Arino 2003, pp. 67). Additionally, a product harm crisis can harm the reputation and consequently the performance of multinational company in all its market. A strong buyer-supplier relationship is one of the methods that companies can use to make sure it avoids or recovers from product harm crisis. The purpose of this report is to identify a suitable model for a multinational corporation to build a relationship with suppliers to realize competitive advantage and prevent a possible occurrence of a marketing crisis. Scope of the Study This report deals with how companies manage their global relationships and marketing crisis using the case studies of two Multinational companies: Nestle Corporation and Mattel. The report will propose a model that Nestle can use to develop a long-term buyer-supplier relationship with Warrnambool Cheese and Butter Factory Company Holdings Ltd. It will also identify the effects of product harm crisis on the marketing activities global company in this case Mattel. It also identifies steps Mattel can take to deal with the crisis from a corporate social responsibility perspective. Limitations of the Report: The study will rely on secondary data that has been collected by other authors. Developing a relationship with a supplier Nestle corporation expansion into the Australian market will be affected by a number of factors. Nestle corporations relationship with its suppliers will play a large role in its success on the Australian continent. Nestle plans to market Nestle boost in Australia will be affected by the bargaining power of the suppliers of the raw materials used to manufacture the nutritious chocolate drink (Borys and David 1989, pp.235). One of the raw materials that nestle needs to source from suppliers is raw milk. Nestle will have to find an Australian supplier who can source and deliver the milk to its manufacturing unit, one such company that operates in Australia is the Warrnambool Cheese and Butter Factory Company Holdings Ltd (WCB). Warrnambool Cheese and Butter Factory Company Holdings Ltd (WCB) is a publically listed company that deals with collection of milk from farmers, processing and manufacture of milk products. Additionally, WCB supplies bulk milk for industries mainly in Western Australia. Nestle has limited knowledge of the Australian dairy industry when it comes to collection, logistics and even legal regulations (Agarwal and Ramaswami 1992, pp1-27). A supplier-Buyer relationship between WCB and Nestle Corporation limited will be highly beneficial to Nestle as it seeks to successfully market Nestle Boost in the Australian market. Nestle rationale for pursuing the supplier relationship is best explained by porter’s five forces model that calls for firms to limit the bargaining power of suppliers in order to realize competitive advantage (Harrington 1997, pp 52). By sourcing the milk component of Nestle Boost Nestle is able to shield itself from the power of suppliers when demand for milk is high. A second rationale in for the relationship with WCB would be the capacity it would give Nestle to concentrate on its core business rather than involve with a logistics headache of sourcing the milk component of Nestle boost. According to Wilson (1995) relationship building between a supplier and a buyer assumes five steps. This model is most effective for building relationship as it considers various variables that influence the relationship particularly focusing on trust, reputation, satisfaction, performance and commitment as the most important factors influencing buyer supplier relationships. 1. Partner Selection 2. Defining the intention of the proposed relationship 3. Set Relationship Boundaries 4. Creating Relationship Value 5. Relationship Maintenance. Step 1: Partner Selection Nestle should do a thorough analysis of Australian dairy suppliers to find out which supplier is best suited for supplying Nestle with the milk it needs as an ingredient in nestle boost products. Nestle must select a supplier who can meet the performance criteria to its milk supply. The recognition of Nestle as a global brand will ensure that most of the suppliers it will approach will be willing to develop a buyer-supplier relationship with Nestle co-operation. Nestle must thus go through proposals from various suppliers to be able to select the one who is best suited to become a nestle supplier. In selecting the best supplier will obviously look out for its own strategic interests but it is important to also satisfy the supplier’s business needs. Warrnambool Cheese and Butter Factory Company Holdings Ltd (WCB) is one of the companies that is best suited to become Nestlé’s milk supplier. WCB has the reputation and can be trusted to supply nestle with all the milk requirements for producing Nestle boost. Step 2: Defining Purpose WCB and Nestle must make sure the individual goals of each organization are in line with the shared goals of the association between the two companies. In this relationship WCB goal to supply milk and that of producing and marketing the nutrient drink Nestle boost reflect a common for the relationship between the two firms. At this stage Nestle should sit down with WCB and agree on a set of mutual objectives for the relationship may include; supply of quality products to the consumers of Nestlé’s boost, maintenance of milk quality integrity at every stage of its delivery to nestle processing plants and ensuring milk production remains optimum throughout the season. Step 3: Boundary Definition This part of developing the relationship involves a delimitation of the use of the resources of WCB by Nestle or vice versa. Boundary definition calls for comprise among some of the company when it comes to the use of resources. WCB can allow Nestle to advertise Nestle boost on its delivery trucks to increase the popularity of the product in Western Australia. Nestle can also allow WCB access to its R&D development and expertise to develop innovations for the storage and transportation of milk. Step 4: Creating Relationship Value At this stage of developing the relationship Nestle and WCB should find ways that can enhance the competitive advantage of each company. Nestle can partner with WCB to start a fodder growing and storage program that ensures farmers that deliver milk to WCB keep producing milk throughout the months when production is affected by weather changes. Consequently, this will mean the availability of Nestle Boost is continuous as it does not suffer supply hiccups. It will also ensure that WCB stays in business throughout the year. Step 5: Relationship maintenance For the relationship between WCB and Nestle to benefit the two companies’ strategic interest they must maintain it for a long time into the future. Nestle must continues to satisfy the needs of WCB by paying them good prices for their supplies and also paying them on time. Additionally, Nestle can also consult WCB to vary the production of Nestlé’s boost to be aligned with WCB milk supply constraints. WCB can contribute to this aspect of the relationship by remaining a reliable supplier who delivers the best quality and always on time. Benefits of Nestlé’s Buyer-Seller relationship with WCB 1. The relationship between Nestle and WCB ensures that Nestle is able to continuously produce Nestle Boost in Australia. 2. The relationship will enable Nestle bring down the cost of managing inventory as the supplier relationship can support the less expensive just-in-time inventory system. 3. Nestle does not have to involve itself with the Australian dairy industry thus avoiding regulatory and licensing costs needed to run the milk supply side. 4. Nestle can maintain the Quality associated with Nestle Boost as it is assured of the quality of the milk component supplied by WCB. 5. With a supplier relationship Nestle can be able to keep the price of Nestle boost stable as it will not be affected by fluctuations of the raw materials supply side. 6. The relationship allows Nestle to implement its procurement philosophy that includes abstinence from buying supplies that have been bought using child labour. Managing marketing crisis Mattel is a multinational toy selling company operating in over 150 countries. Mattel is one of the most committed companies to corporate social responsibility; Mattel is ranked among the most responsible corporate citizens in the world. Recently Mattel has hand to deal with hazardous defects in its toys. In 2007 the company had to recall around 1.5 million toys made by a Chinese contractor because of high levels of toxic lead in their batteries (Welford 2007). Later, Mattel recalled an additional 9.3 million toys also made by Chinese suppliers. Both sets of toys involved in the recall contained substances that could pose grave danger to the lives of their infant and child users (Kavilanz 2007). Effects and Implications of the CSR crisis on Mattel The crisis of having to recall defective products will affect Mattel corporate social image severely. Consumers will start associating Mattel’s products with poor quality and hazardous substances. According to Dawar and Pillutla (2000), defective toys crisis at Mattel will have a number of implications on the company performance including but not limited to the one listed below: 1. Reduced Sales volumes 2. Reduced the effectiveness of marketing strategies 3. Effect on Mattel’s other brands 4. Increased sensitivity to Rival products. Reduced Sales Volumes A defective product crisis will lead to the immediate drop in sales revenue for Mattel. Parents are particularly sensitive from products that might harm their children health. Mapping the results of the Snow Brand milk in Japan to the Mattel case, Mattel can expect more than a 50% drop in sales volumes. Advertising and pricing may help a brand like Mattel recover from the product recalls it has had to initiate. Ineffectiveness of Market communication The crisis at Mattel will lead to the loss of the positive impression people identify with their brands. Most of the instruments used to communicate the Mattel’s marketing message are likely to become ineffective starting with brand advertising. Mattel might also decide to withdraw its advertising campaign. This problem is further compounded by the presence of the negative portrayals of Mattel in an irresponsible organization in all channels of mass communication. Increased Appeal of Competitors marketing Mix The customers of Mattel would most likely start responding more positively to competitors marketing strategies (De Matos and Rossi 2007, pp. 114) If for example a parent had promised to buy his son a toy at a Mattel store a few days after the announcement of the recalls he is most likely to buy the Toy from another store. Moreover, competitors will take the opportunity of Mattel’s crisis to try and capture the Mattel’s market share in the Toy segment. Negative effects on Umbrella brands Although, Mattel recalled one specific brand of products from mainly Chinese producers the effects on its performance cannot be limited to this particular product only (Fallows 2007). Other brands under the Mattel’s range of products will also be affected negatively both in terms of sales and marketing communication effectiveness. Response to the Marketing Crisis Mattel response to the Marketing Crisis above shows that Mattel is conscious of its responsibility to its customers that extends beyond compliance with basic quality standards. By ordering a recall of over 10 million Toys Mattel shows its cares for the welfare of the consumers of its products (Barboza 2007). A more irresponsible company would have let the children continue using the Toys regardless of whether they will harm them or not. However, this response is just the beginning and only leaves Mattel’s in a more precarious position. To overcome the various implications of the crisis, Mattel must adopt a number of measures meant at restoring its cooperate image and making sure the Image does not take become battered any further. Accepting Liability Mattel first response should have been an admission that indeed the toys it recalled where indeed hazardous and they had failed in their responsibility to provide safe products to their customers. This will reduce the anger felt by towards Mattel by consumers for their irresponsible behaviour. Denying or trying to apportion blame to the Chinese makers of the toys will only further soil the cooperate image of Mattel. Reaffirming its CSR Commitment ‘Children’s health, safety and well-being are our primary concern’ is one of CSR statement on Mattel’s website by restating publically its commitment to meet this primary goal Mattel can significantly shield themselves from the effects of the CSR crisis (Dellarocas 2003, pp. 1422) by reaffirming that it intends to change its quality checking system to make sure that such products will never reach consumers again (DeCarlo et al 2007, pp 44). This will help to reduce the negative publicity created by the criticism from the media and government authorities. Ordering a Total Recall of All products sourced from the companies responsible Mattel to be sure all customers are protected should make a total recall of all products produced alongside the defective toys. Instead of trying to limit financial losses Mattel should put the interests of it child consumers first (Associated Press 2007). By taking this step Mattel will be able to show the public that it cares and it taking every step to protect consumers to any possibility of being harmed by its products. Compensating Customers for the Recalled products Mattel can limit the harm to its corporate image by providing some kind of compensations for customers affected by the recall (Deringer, 2008). The compensation scheme should include partial refunds on the amount used to purchase the products and discounts on replacement products. This step will help Mattel’s customers recover some of the losses caused by having to return the toys while assuring the public that it is a responsible company. Funding research into the effects of exposure of children to the faulty Toys Mattel should partner with health authorities and researchers to make sure that every child who bought a faulty toy is examined for possible harmful effects. After the examination Mattel should dedicate resources and partner with researchers to select a sample of the children exposed to Toys and investigate the long-term effects of the exposure (Simonsen and Lippincott n.d). Mattel should also commit to cover any medical costs associated with exposure to the harmful substances in the toys. The decision for this approach will be informed by the need to extend it Corporate social responsibility beyond product quality. Mattel can additionally start funding health initiatives that are linked to exposure of the substances involved in the recall of the toys. These include the initiative to combat Leukaemia and breast cancer. This will reaffirm the commitment of Mattel to the health and safety of children. Apologizing publically and personally to the customers Mattel should apologize through a public statement on its website and place full page ads apologizing for the faulty toys (Cutlip, Center, and Brown, 2006, pp.407). Additionally, Mattel should address letters in local languages of the children that were exposed to the toys at the points where the toys will be returned. Developing Stronger Relationships with their Suppliers According to the literature on buyer-seller relationship, Mattel can be able to ensure the future quality of its products by strengthening the relationship with the companies it has contracted to supply it with toys. This will help Mattel ensure the quality of toys and ethical practise throughout the supply chain of the products from sourcing of raw materials. Conclusion Multinational companies like Nestle can flourish in foreign markets by developing mutual relationships with local partners like WCB to deliver value to their customers. The relationship proposed in this work with WCB can enable Nestle boost gain and retain market share in the Australian market. Therefore, Supplier relationships are a highly recommended strategy for Nestle in the management of their supply chain as it has many intrinsic advantages in the effort to achieve a sustainable edge over competitors. Mattel can also use supplier relationships to shield itself from future marketing crisis. By building strong supplier relationships Mattel will be sure that the toys that are delivered to their stores do not have any hazardous defects as the supplier shares Mattel’s Corporate Social Responsibility vision of ensuring the Final product are of the highest quality (Milanovic, Barac and Andjelkovic 2009). 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