Nestle Jiankang Jiang Product in the Chinese Market - Case Study Example

Marketing Report Name: Tutor: Course: Date: Executive Summary The aim of this report is to identify a new Nestle product brand, Nestle Jiankang Jiang (NJJ), for the Chinese market. To analyze the internal and external environment of the company and industry performance in China, SWOT analysis was used. The results of SWOT analysis showed that the company has steady profitability and income stream, although it faces tough competition from Mars Inc. and Danone Groupe. The rise in income and shift to health-conscious food is a great opportunity for Nestle to venture into China. For the new product, Nestle will establish the Nestle Jiankang Jiang (NJJ) product and introduce to 55+ Chinese consumers living and working in the cities. This customer segment is conscious on their health and lifestyle. However, NJJ not only provides excellent taste and health combinations but also medicinal value that is treasured in the Chinese society. The Strength-Opportunity (S-O) strategy was chosen to boost the development and marketing of NJJ because it capitalizes on the great capital base of the firm to meet the increasing desire of the ageing population for health and medicinal food properties. The strategy takes advantage of the growing middle class income levels in Chinese towns, and a growing trend towards healthy foods preferred from foreign brands. This report establishes the internal and external environment of Nestle S.A. and the target country, China. It then explores the marketing mix, customer value and marketing strategies of the new product Nestle Jiankang Jiang (NJJ). Table of contents Table of contents 3 List of Figures 4 1.1 Internal Environmental Analysis 6 Table 1: SWOT analysis of Nestle S.A 6 1.2 Market description of China 7 Figure 1: Household income and urbanization in China 8 Table 2: Demand for Health and Nutritionals in China ($ millions) 9 Figure 2: Demand for consumer goods in China 10 Figure 3: Market share of healthy food brands in China 10 Table 3: Major distributors of health food products in China in 2010 11 1.3 Recommendations for the New Product 11 Table 4: Target market for new product 12 List of Figures Table of contents 3 List of Figures 4 1.1 Internal Environmental Analysis 6 Table 1: SWOT analysis of Nestle S.A 6 1.2 Market description of China 7 Figure 1: Household income and urbanization in China 8 Table 2: Demand for Health and Nutritionals in China ($ millions) 9 Figure 2: Demand for consumer goods in China 10 Figure 3: Market share of healthy food brands in China 10 Table 3: Major distributors of health food products in China in 2010 11 1.3 Recommendations for the New Product 11 Table 4: Target market for new product 12 List of Tables Table of contents 3 List of Figures 4 1.1 Internal Environmental Analysis 6 Table 1: SWOT analysis of Nestle S.A 6 1.2 Market description of China 7 Figure 1: Household income and urbanization in China 8 Table 2: Demand for Health and Nutritionals in China ($ millions) 9 Figure 2: Demand for consumer goods in China 10 Figure 3: Market share of healthy food brands in China 10 Table 3: Major distributors of health food products in China in 2010 11 1.3 Recommendations for the New Product 11 Table 4: Target market for new product 12 1.0 Introduction Nestlé S.A. is a beverage and food multinational company with its headquarters in Vevey, Switzerland. In 2014, the world’s largest food company was ranked by Fortune Global 500 at number 72 globally in terms of revenues (Nestle, 2014). Nestle SA belongs to the Nestle Group of companies engaging in the production and development of beverage and food. The business is spread across three geographic zones; Oceania and Africa, Asia and Europe, and Americas. Globally, it comprises units such as Other Food and Beverages (Others), Nestle Nutrition and Nestle Waters. The segment on ‘Others’ comprises Nestle Health Science, Nespresso, Nestle Professional, and the Joint Ventures in both Pharmaceutical activities and Food and Beverages (Nestle, 2014). Nestlé products are categorized into seven product groups namely; Confectionery and PetCare, Prepared dishes and cooking aids, Powdered and Liquid, Nutrition and HealthCare Beverages, Milk products and Ice Cream and Water (Nestle, 2014). A number of diversified brands are also managed by the group and includes food service, drinks, coffee, bottled water, and baby foods among others. This report will focus on health foods industry and Nestlé SA performance in China. China has high population and consumer power with accelerated investments since 2000. Nestle has two research and development centers and 31 factories in China (Decorvet, 2012). 1.1 Internal Environmental Analysis To analyze, the internal environment of Nestlé S.A., SWOT (Strengths, Weaknesses, Opportunities and Threats) tool will be used as shown in the table below. Table 1: SWOT analysis of Nestle S.A Strengths: Positive and gradual improvement in net income ($14.46 billion) in 2014 up from $8.78 billion in 2010 (Statista, 2015). In terms of sales, Nestle is the number 1 food and drinks company globally and also the world leaders in Coffee (Nescafe) (Hoovers, 2015) Diversified to more than 86 countries and employs more than 339,000 people in 2014 (Statista, 2015) Excellent brand reputation as a food giant of billion dollar brands like Purina, Kitkat and Nescafe. Boasts of 29 brands and 8,000 products in its product line. Developed Nestle Skin Health brand in 2014 (Nestle, 2014). Wide geographical presence and well developed distribution channels. Now available in over 100 countries with extensive distribution channels (Statista, 2015). Great research and development capabilities after investing $2 billion in 2011 (Nestle, 2014). Company spent $5 billion in 2014 to acquire stake in L’Oreal and rights to drugs that builds the Nestle dermatology business (Nestle, 2014) Weaknesses: Strong competitors like Wyeth, Mondelez, Mars Incorporated, PepsiCo and Unilever have huge claim on the market share (Jurevicius, 2013) Inconsistent and lack of continuous improvement in quality of food products (Jurevicius, 2013) Weak implementation and formulation of social responsibility initiatives. The company is still be criticized on the implementation of the many announced programs (Nestle, 2014) Product recalls has been on the increase which affects the quality measure of the company (Jurevicius, 2013) Opportunities: Presence of large consumer base from the emerging markets such as China and Brazil (Harrison, 2012) Demand for healthy food is on the increase especially the ageing and the young population (Jurevicius, 2013). New ventures with Colgate-Palmolive and Coca-Cola drives the synergy to accelerated growth (Gretler, 2015) Acquisition has been a successful penetration strategy such as ventures with L’Oreal and Valeants Pharmaceutical Inc (Harrison, 2012). Threats: Food contamination damages the reputation of the company and heavy fines and penalties lead to financial losses as in the case on melamine contaminated milk of 2008 in China (Harrison, 2012). Decline in demand due to high sugar foods such as chocolate and chocolate drinks as people shift for low sugar, low cholesterol and salt foods (Management Report, 2000) Growth of private labels in stores and supermarkets ruins that Nestle brand portfolio The average growth in the global population and economy creates a rise in demand for raw food resulting in reduced margins and high material costs (Jurevicius, 2013) 1.2 Market description of China Political and legal Pressures: Political turmoil in Asia reduces the demand even for competitors like Unilever that makes Ben & Jerry ice cream (Woke, 2013). No significant improvement is forecasted for 2015 as the market conditions remain static. In 2011, China approved 813 new health food products with the health food market hitting $68.7 billion in 2015 (Gretler, 2015). In reinforcing food safety, the company is supporting government efforts through zero tolerance, high awareness, no preferential treatment and stricter legal framework (Jaffery, 2013). Economic conditions: Stagnant revenues hits China in 2014 making the 2015 sales forecasts on an all time low in five years. Deflationary pressure in Europe and North America’s frozen food business is struggling especially on convenience meals. Revenue from China is 6.64 billion francs (Euromonitor, 2015). Local Chinese companies are willing to enter into a joint venture or be acquired by multinationals. (Source: Cheung & Chiu, 2013) Figure 1: Household income and urbanization in China China has an annual 20 percent growth in health food market business. China’s spending per capita on health food is $31 (0.07 percent) annually compared to 2 percent in the European Union and United States (Statista, 2015). Demand and supply forces: Older generation has fixed tastes and demand for healthy and low fat and sugar products are on the increase. Annual increase in sales is expected at 12 percent per year (Jaffery, 2013). In food consumption, China is still in the early stages close to Mexico and South Africa. When population increase due to better healthcare and rising income, consumers tend to buy more branded products and consume less of raw food products. Slow down in products such as confectionary and coffee affected the revenues in the Greater China. Demand for organic food remains high in China and still attracts investors (Management Report, 2000). Table 2: Demand for Health and Nutritionals in China ($ millions) (Source: Market Indicator report, 2011) Chinese Health Food Market: China has fast-ageing population and the desire for health food is strong (Euromonitor, 2011). Chinese prefer own brand portfolios (Market Indicator Report, 2011). They also find coffee to bitter for their taste. Chinese like healthy food and take more of vegetables and seafood. Metropolises in China and large cities are best selling areas for light food (Nestle, 2014). People pay more attention to health and their incomes have risen. Chinese consumers prefer Nestle for good science and good quality. In 2014, Health food imports to China have reached $82 million in 2014 making China the highest health food importer in the world for 8-straight years (Decorvet, 2012). They also have more confidence on foreign brands as the growing middle class increase their purchasing power. (Source: Daneshkhu & Massoudi, 2014) Figure 2: Demand for consumer goods in China Market size: By 2016, Chinese citizens of more than 55 years of age will be more than 335 million (Decorvet, 2012). China has a population of about 1.3 billion people. Chinese consumers prefer foreign brand as they perceive them with good reputation, image and high perceived value. From the table below, Danone Group is leading with 12% market share followed by Mars Inc. Nestle S.A. has less than 3% market share in the health food segment. (Source: Market Indicator report, 2011) Figure 3: Market share of healthy food brands in China Distribution channels: Tmall stores, convenience stores and online shops are preferred distribution channels (see table 2 below) due to heavy investment on social media and digital communications. Consumers make orders online so that firms can import heath food ingredients from their home nations and deliver to Chinese customer for shipment through express mail services (Jaffery, 2013). Table 3: Major distributors of health food products in China in 2010 (Source: Market Indicator report, 2011) Market leaders and market concentration: There are many competitors in the Chinese food segment of which Nestle S.A does not have competitive advantage. Danone Groupe (10%) is a market leader in the health food sector followed by Huangzhou and Hunan Taizinai at 8%. Nestle is low at less than 2% though it has been showing improvement. The market for health food products is concentrated in urban areas especially Chinese cities with high population density and purchasing power (Harrison, 2012). 1.3 Recommendations for the New Product New Product: Nestle Jiankang Jiang (NJJ) means ‘Nestle healthy ginger’ in Chinese. The new product is a sugar-free healthy plant protein containing wheat, soya bean, ginger, calcium and other trace minerals. It is packaged in 250gm, 500gm and 1kg packs with shelf-life of 3 years. The packets bear Chinese descriptions but will have English translations. This is a unique combination of energy and protein giving product with ginger to enhance the health properties of the ageing population. Nestle developed this product keeping in consideration the health consciousness of the Chinese population especially to salt, sugar and cholesterol. Ginger has been used often in traditional Chinese medicine. The pricing strategy is based on profit margins and psychological pricing in the wholesale market. The 250gm pack will go for $39, 500gm $75 and 1kg pack at $147. The pricing strategy also has free offers of one 250gm pack if one buys five 1kg packets. This product will be promoted through the Chinese TV (CCTV), Weibo (Chinese equivalent for Twitter and Face book) and Shanghai Daily. Since it targets the mass market, the product will also exploit billboards in major Chinese towns of Beijing, Xian, Shanghai, Guangdong, and Guangzhou. NJJ will be distributed through supermarkets and hypermarkets while online stores will be developed after one year. The company will have own shelves inside the stores and hypermarkets manned by its marketing employees. The product will explore e-commerce because most Chinese cities have developed electronic commerce and trade. The distribution channel will be shortened to reduce transportation and warehouse costs by delivering directly from the manufacturer to the stores. Target market Table 4: Target market for new product Market segmentation variable Description Segment Nestle Jiankang Jiang (NJJ) targets older female and male Chinese citizens of over 55 years. Age Chinese citizens of more than 55 years of age. There are more than 335 million people of 55+ years in China (Decorvet, 2012) Occupation They could be running their own businesses or are employed by the government and the private sector. Income Their household earnings are in the range $1,200-2,500 per month Education These older citizens have college education and some rarely speak English. However, the product will bear Chinese writings and descriptions. These consumers live with their children who are in college or universities. Purchasing power They buy twice in a week and prefer doing their shopping in stores and supermarkets. They are definite in their tastes and only buy what they had planned to purchase. Psychographic factors Older citizens in China are becoming health conscious with many declining foods and drinks with high concentration of salts, sugar and cholesterol (Euromonitor, 2011). This target market prefers morning exercises or gym before they engage in their daily activities. They also like mountain climbing and swimming in the nearby pools or in the open beaches. Customer value proposition: For excellent nutrition and healthcare, Nestle Jiankang Jian (NJJ) product has rich natural ingredients for the healthy people. This unique product is new to the market and is developed to meet medicinal, health and better taste for ageing population. The product provides value for money and can be enjoyed by the whole family. It is a unique product because it provides medicinal properties, health combinations and great taste. Justification: China has fast-ageing population and the desire for health food is strong (Euromonitor, 2011). With the rapidly ageing consumer market in China, Nestle Jiankang Jiang will meet their medicinal and health requirements. Strength-Opportunity (S-O) strategy is ideal for this product because the company has adequate capital resources for research development and establishment of new product line. As the Chinese population becomes conscious on their health and lifestyle, it is critical to engender a product that meets this need. Moreover, the protein powder product will appeal to the health-conscious Chinese urban population. This will be a first mover product that will take advantage of early communication, branding and customized for the Chinese market (Jaffery, 2013). This brand culture is developed in China to fit the Chinese market. 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