Nestle – International Strategy

In 1990s Nestlé faced significant challenges in its market growth. Despite of the stagnant
population in western countries the balance of power was increasing from large scale
manufacturers like Nestlé, toward supermarkets and discounted chain stores. In result, Nestlé
decided to lessen its focus on developed markets like North America and its home based
market in Switzerland to emerging market like India

and China. The driving force behind the decision of expanding its market share in emerging
market is simple, as the population grows and government decisions favoring market
economies brings attractive business opportunities for public living at intermediate income.

Although many of the counties are still living under poverty line, even living on $1 per day
shows optimistic signs for the future markets. For example: as the current economic
forecasts continues, there will be 9 billion people living on this planet as compare to today’s
population of $7 billion today, and coincidently the increase in population is all in developing
countries.

Nestlé uses the strategy which correlates the ratio of increase in income to use of branded
food products, which means as a person earns more and has less time for making food in
his/her home, they will automatically substitute for branded products.

In general the company’s strategy has been to enter emerging markets early before its
competitors and build a substantial customer base by selling products which suit the local
population such as infant formula, milk, and noodles. Nestlé narrows down its market share
to many small niche markets, as opposed to general or one for all strategies. Nestlé keeps the
goal of commanding the niche markets by gaining at least 85% of market share in every food
product it launches. For example, by pursuing

such a strategy, Nestlé has taken as much as 85 percent of the market for instant coffee in
Mexico, 66 percent of the market for powdered milk in the Philippines, and 70 percent of the
market for soups in Chile. As the income level rises in each niche market, Nestlé introduces
an upscale version of the same brand to increase its profit level. Although Nestlé has become
a global brand, it uses local identity to gain exposure in local markets. The company owns
8500 brands but only 750 of them are known internationally.

Customization is the key to Nestlé’s global brand identity rather than universalism, which
means Nestlé, uses global brand identity but, from the internal point of view, it uses local
ingredients and other technologies that resonate with the local environment and brand name
that is known globally. The customization of Nestlé’s products causes many hindrances in
carrying out its distribution of products from local farmers to factories. For example, in
Nigeria the infrastructure placed is crumbling, trucks are old and political conditions are not
suitable to carry out the processes successfully, so Nestlé adopted a new strategy to deliver its
products to
local warehouses which are convenient to local farmers for milk production. Although this
might seem as an expensive solution, the local farmers have tripled their milk production and
the supply of milk, which Nestlé has calculated as beneficent for the long term growth.

The execution of the strategy matches the planning of the strategy which is to plan globally
and implement locally. Nestlé gives autonomy to its local branches based in different
countries to make pricing decisions, and distribution decisions. Nestlé has expanded its
growth by diversifying its product base to tomato ketchup and wheat base products such as
noodle and tofu. Nestlé has expanded into 5 countries and expects to supply all food products
throughout the regions namely, Turkey, Egypt, Syria, Dubai and Saudi Arabia.

Nestlé is also buying local companies in China and adapting its own portfolio for the Chinese
market. Since many Chinese find coffee too bitter for their liking, Nestlé is working on a new
“formula” to offer Smoovlatte, a coffee drink that tastes like melted ice cream. The company
wants to be seen as a company that makes healthy food. As Janet Voûte, Nestlé’s global head
of public affairs, said “it is a core business strategy” (The Economist).
Nestlé has used its brand name as strength to generate sales and to expand its market share,
which includes it customization of products to fit its target market’s profile. Although Nestlé
has not always started from scratch, the company has used acquisition as a penetration
strategy to expand and penetrate new international markets, which eliminates any local
barriers to its competition. A few weaknesses which are related to the company’s quality
measure resulting in product recalls. The company has decentralized its strategy units into 7
subunits in charge for different product lines, for instance, one – for coffee and beverages;
another one focuses on ice cream and milk products. Nestlé brings its management level
employees all around the world for 2-3 week training in its headquarters in Switzerland to
familiarize them with their global culture, strategy and given them access to the company’s
top management.

Segmentation, targeting, positioning in the Marketing strategy of Nestle –

The world’s leading FMCG Company is using different strategies in different markets. It
uses demographic, geographic & behavioural segmentation strategies to cater to the changing
needs of the most competitive industry.

Differentiated targeting strategy is what helping the company in targeting the homogeneous
set of customers (i.e. customers with similar needs) with their bundle of products.
It uses a mix of value-based & product based positioning strategies depending upon the kind
of product they are branding & the market in which it is selling the products.

Indian strategies

The Marketing mix of Nestle discusses the 4P’s of one of the strongest FMCG companies of
the world. The Nestle marketing mix shows Nestle has a strong product line which boosts its
marketing mix. Below are the products, price, placement and promotions of Nestle.

Products in the Marketing mix of Nestle

There are 4 different strategic business units within Nestle which are used to manage various
food products.

Beverages – One of the most known coffee brands Nescafe, belongs to the house of Nestle
and is one of the cash cows for Nestle. However, it is not the biggest cash cow. Nestle has a
worldwide distribution and has many different variants. Looking at India, Nestle has
also launched Nestea.

Milk and Milk products – Nestle every day, Nestle slim and Nestle Milk maid are some of
the milk and milk based products from the house of Nestle.

Prepared dishes and cooking aides – Nestle has a third category of products which comes
into prepared dishes and cooking aides. The major cash cow of Nestle lies in this segment,
which is Maggi Noodles. Probably one of the most widely sold ready to cook noodle brands
is Maggi. Maggi has a fantastic taste and quality. Thus, it was not a surprise, that Nestle
expanded the Maggi brand to create an umbrella of different products like Maggi pasta,
Maggi sauce, Maggi cubes etc. The maggi range contributes vastly to the bottom line of
Nestle.

Chocolates – Nestle has some popular chocolate products, most popular being Nestle Kitkat,
Munch, Milky bar, Eclairs and Polo. The newly introduced Alpino is targeting the gifting
segment in response to various chocolates like Dairy milk and Bournville by Cadbury.
The chocolates segment of Nestle is a star, where the competition is high and the expense is
high but at the same time the market size is huge as well.
As we can see, two major brands of Nestle are a very high contributor to its Brand equity –
Nescafe and Maggi. These are two brands sold across India in small as well as big shops and
super markets. There have been many competitors for these products, like Bru for
Nescafe and Top ramen and Sunfeast Yippie against maggi.

The appreciable factor in Nestle is that quality maintenance of products is upto mark and
there are hardly any complaints about Nestles products in the market. This is a major
achievement for a company which relies majorly on food products.

Price in the Marketing mix of Nestle

The price is dependent on the market of each individual products. For example, Nescafe and
Maggi being the clear leaders are priced with higher margins for the company as compared to
competition. This is because the product quality is good enough and a bit of skimming
price will not cause the customer to switch brands.

The strength of pricing for Nestle comes from its packaging or consumption based pricing.
For Nescafe as well as Maggi, Nestle offers a lot of sizes and package options. In
supermarkets, you can even find a 16 packet maggi whereas in small retail shops, you can
find 5 rs maggi.

Thus, with the variety available, customer can make his own choice based on his
consumption. In other products like Kitkat and Munch, due to tough competition from other
companies, Nestle offers competitive pricing. You will find that nestle will be similar priced
to many of Cadbury’s Products in the chocolate segment.

Place in the Marketing mix of Nestle

Nestle follows the FMCG strategy of distribution which involves breaking the bulk. The
typical distribution strategy of Nestle is as follows.

Manufacturing >> C & F agent >> Distributors >> Retailers >> Consumer
Manufacturing >> Bulk buyers >> Consumer
These are the two different forms of distribution which Nestle has. It is typical of any FMCG
company. However, the Nestle channel is known to be strong with a good marketing
and sales network for channel distribution.

On top of it, Nestle regularly introduces trade discounts and various tactics to keep the
channel motivated. The major challenge is in the distribution of Maggi which is the most in-
demand product along with Nescafe. Due to these two products, Nestle is able to drive
other products in the market as well. Thus, on purchase of one weak product, the distributor
might get a discount on the stronger product or vice versa.

The challenge for Nestle is in the chocolate segment where it faces stiff competition from
Cadbury and hence selling the chocolates becomes difficult. Kitkat might have its own brand
positioning, but it is not better than Dairy milk. Thus, converting retailers to sell Nestle
instead of Cadbury is the toughest task for Nestle. This is converted mainly through
promotions.

Promotions in the Marketing mix of Nestle.

One of the most widely known tunes is the Nescafe tune. It was one of the best advertising
campaigns and was launched at least 2 decades back. However, that campaign brought
Nescafe strongly in the market.

On the other hand, Nestle’s brand was pushed by the excellent product quality of Maggi and
the witty and innovative campaigns of Maggi. Where Nescafe focuses on value and the good
things in life, Maggi focuses on moments you had with your Maggi. The recent campaign
was completely focused on your maggi story, where people had to come out with various
innovative ways that they had their maggi.

Promotions for other products too is done smartly. Kitkat focuses on “Take a break” and has
done some good marketing for the same. Kitkats website too is very innoative and shows
nothing but asks the visitor to take a break and have a Kitkat. The major push expected of a
FMCG company is in sales promotions at the ground level. This is where Nestle really rocks.
Nestle focuses on its strength which is Maggi, Nescafe and Kitkat which are the
most promoted brands in the market on ground level.
Besides this, Nestle regularly uses TVC’s and ATL marketing. It is also present online
through some smart creative. Overall, Nestle is a brand which has strong products as well as
strong marketing, and hence the brand has a very high brand recall value.

Here is the SWOT analysis of Nestle

Strengths in the SWOT analysis of Nestle

1. World Renowned brand: It is fortune 500 Company and is world’s largest

food company measured by revenues (2014). Nestle does individual branding of their
different food brands which help them in creating awareness about their various food
brands. This also helps them because if a brand like Maggi is affected, it does not affect
the sale of Coffee.
2. Extensive distribution system: With its diversified product portfolio Nestle has been
successful in penetrating Urban as well as rural markets. Locally adapted distribution
methods & decentralization in supply chain, including street markets, mobile street
vendors, door-to-door distributors & Medical outlets has helped the company in
making its products visible in the market. If you just look at the
3. Broad Product portfolio: Nestle has more than 8000 brands / products under its name
which ranges from beverages like Coffee & Mineral water, Breakfast cereals, Soups &
sauces etc. Under each product categories Nestle have deep assortments to satisfy
different needs & wants of the consumers.
4. Large workforce: Nestle have engaged 340000 odd global workforce who are
continuously working to make its products available in every nook & corner of the
world.
5. R & D centers: Nestle have the world’s largest food & nutrition research organization,
with about 5000 people involved in R & D, as well as corporate venture funds and
research partnerships with business partners and universities. It has 21 research centers
globally.
6. Brand equity – As of 2016, it is the 37th highest rank brand in the world which says a
lot about its brand equity.
Weaknesses in the SWOT analysis of Nestle

1. Maggi Controversy – In India, Maggi was recently banned because it was found to
contain additives which were harmful. This affected the brand name of Nestle as well
as Maggi big time. However, it has been relaunched recently and Nestle is trying to
convince people about the quality of Maggi.
2. Brand structure: It has many brands under the same umbrella group so managing
such large number of individual brands can create conflict of interest.
3. Legal & consumer issues: Although Nestle is global food giant but it got into
controversies over the years like Nestle baby formula boycott. Child labor by suppliers,
Chocolate price fixing etc. which resulted in negative word of mouth.

Opportunities in the SWOT analysis of Nestle

1. Healthy breakfast – Maggi oats or other such healthy breakfast alternatives have a big
time future as most breakfast alternatives are heavy and people are becoming more
health conscious. Nestle needs to do more market penetration with regards to its
Cereals.
 2. Expanding market: By entering into other markets & penetrating more & more in the
rural markets through its robust supply chain and transition of spots of unorganized
business to organized one will lead to further expansion of the company’s business.
3. Increasing Income levels: Due to stable political scenario, improved literacy rate &
controlled inflation, disposable income of the people is increasing there by resulting
into upsurge in demand & changing their lifestyle.
4. Strategic Alliances: Nestle is already engaged in partnerships with a number of major
companies, such as Coca-Cola, and several others, opening doors of opportunities for
the company. It is one of the main shareholders ofL’Oreal, the world’s
largest cosmetics So partnering with other food giants will help the company in further
growth.
5. Focusing more on R & D to handle ethical issues: Recent outcry of Maggi Noodles
in India for lead presence like issue will create hindrances in the future growth of the
company. So in order to handle these health issues Nestle must invest in R & D further
to come up with more hygienic food products.

Threats in the Marketing strategy of Nestle

1. Competition in the market: With increasing number of local & national players it’s
becoming very hard for the companies to differentiate themselves from others. There is
also threat from counterfeit products destroying its brand image in the market.
2. Price of commodities: Increasing price of commodities will result in further increase
in the price. Further increase in price will result in decrease in sales, margins & brand
switching.
3. Buyers power: With highly diversified consumer goods market where there are lots of
brands claiming different sorts of benefits, it’s very difficult for consumers to stick to a
particular brand & hence results into brand switching where consumer got power to
select a brand based on several factors like availability, reference group
recommendation, preference & price.

Competitive advantage in the Marketing strategy of Nestle –

Being present in 190+ countries is helping the company in cross-cultural exposure and in
understanding the needs.
With such a broad brand portfolio company is leading in most of the markets worldwide. The
broad product portfolio is helping the company in maintaining a high share of wallet of
customers.

Nestle have strong research & development network in FMCG and wellness industry with
5000+ Scientists and researchers across the world.

BCG Matrix in the Marketing strategy of Nestle –

Nestle have 7 business verticals offering health, nutrition and wellness products.

Its dairy products, powdered & liquid beverages, bakeries& cookies and confectionary
business verticals are stars due to nestle having a strong hold in these businesses with large
product length.

It’s pet care, Water business vertical is a question mark in the BCG matrix due to the
presence of a large number of local & national players in the segment.

Distribution strategy in the Marketing strategy of Nestle –

With it’s diversified and broad product portfolio, Nestle has been able to make its product
available to the end consumer through its extensive network of distribution. Developing
nations have been the biggest opportunity for a company like Nestle as there is challenges &
opportunity in penetrating the market. Nestle uses multi-channel strategy to distribute its
products.

Brand equity in the Marketing strategy of Nestle –

Nestle is Fortune 500 company and it does individual branding of their brands which help it
in creating high visibility & awareness.

Negative branding also worked in favour of the company when some of the countries
banned Maggi Noodles due to the presence of lead content which later on resolved and the
banned was uplifted
Competitive analysis in the Marketing strategy of Nestle –

The health, Nutrition & wellness market is highly competitive and is overcrowded with local
& international players. Also, nestle is facing competition from pharmaceuticals companies.

Market analysis in the Marketing strategy of Nestle –

With a large number of players fighting in the same market, penetration to the untapped
market is what driving the industry to further growth. Nestle have few product categories
which are not that popular and are facing tough competition from the rivals.

Customer analysis in the Marketing strategy of Nestle –

With such a wide range of products in different categories, Nestle serves different pocket size
too. Being a global company it caters to the changing needs of the population of a particular
nation aptly & competitively