G4 Nescafe Italy

M987Z226

M987Z218 Nguyen T.Hong Duy M987Z247 Nguyen Mac To My

Outline
Company background: Nestle Italy The Italian consumer key trends Coffee consumption: Italy compared with other countries Coffee industry in Italy: structure and evolution Nestle in Italy Marketing strategy options

Company background
Nestle SA is one of the worlds leading industrial groups, starting point with infant food product. It also is the worlds leading producer of instant coffee and is the major buyer of raw coffee. Launched in 1938, was adopted by all the armed forces.

Nestle Italy
Nestle Italy is a Milan-based company operating in over 10 different industries. In Italy, Nestle coffee were sold under the brand Nescafe Classic, Gran Aroma and Nescafe Relax. The main marketing were on above the line advertising and sales promotion.

Key trends
Increased % of Senior citizen Increased number of Women in the workforce Increased International mobility Changes in the ethnic composition of the population Rising level of education&culture among the population

Consumption
Bar Locations 31% of bars are located in Piemonte, Liguria, Valle D'Aosta, and Lombardia, while 25.2% are located in Trentino, Friuli, Veneto, and Emilia Romagna. 22.5% of bars are concentrated in Toscana, Marche, Umbria and Lazia, whereas only 21.3% of bars are located in the largest region encompassing Abruzzi-Molige, Campania, Puglia, Basilicata, Calabria, and Sicilia.

Drink Distribution
Bars average sales of 230.3 cups a day: (59.8% are sold as espressos, 13.5% are sold as cappuccinos, 12.3% are sold as correttos, 9.9% are sold as macchiattos, 4.5% are ecaffeinated coffees)

Coffee Imports
The most countries represented in Italy's Imports: Brazil 30.41% Indonesia 11.96%, Ivory Coast 11.69%, Zaire 7.91 %, Cameroon 7.57%, Colombia 3.89%, Paraguay 3.16%, Haiti 2.93%, Kenya 2.83%, Ethiopia 2.36%, Tanzania 2.32%, Guatemala 2.08%,

Coffee industry in Italy

STRUCTURE AND EVOLUTION: Coffee is the biggest commodity market in the world with: strong competition on price and quantity among producers of raw coffee, the different commercial and technological needs among the world manufacturers. The fluctuation in prices frequently depend on the need for foreign exchange on the part of producing raw coffee countries.

Coffee industry in Italy

3 main type of coffeeprocessing technology: Roasted Decaffeinated Instant 3 group of customers (3 segments): Families Coffee-houses Hotels and restaurant

Coffee industry in Italy

In the family segment (with 68.6%), coffee companies focus on: Intensive advertising to enhance the brand image A growing orientation towards modern distribution channels Strong promotion at points of sale Segmentation of the market according to the quality, price and specific use of coffee. In the coffee-house and hotel and restaurant (CHR): there is the competition between a limited number of companies (31.4%) Although two main segments are different, companies which offer a good product in the CHR segment will probably do the same in the family one.

Industries structure
1988, comprising about 750 companies with 7,200 workers. The first 4 companies held about 42% market share of total with sales volume expected to grow at 2% per year. With low entry barriers, large companies which buy raw coffee form the foreign countries gain advantages from economies of scale. However, depending on foreign raw coffee also makes companies face to difficult problems and makes it even more important to realize economies of scale in purchases.

Marketing strategy of leading companies

Product: (coffee bean-ground coffee) Some companies buy instant or decaffeinated coffee from other firms in order to offer a complete product line under their own brand name. Most recent innovations in the coffee market have focused on the packaging and blends offered. They frequently used pliable bag because of the its raw materials low cost Outlet also is the key success factor for brand image and products display. The high-quality coffee obtained through the espresso method and the image of coffee-house coffee, a brand can contribute to its image in the family segment; because they believe coffee made in a coffee-house is better than the coffee made at home, so consumers are often willing to by the brands found in coffee-houses.

Marketing strategy (cont.)

Price: By observing the cost structure of firms operating in the market, it becomes apparent that raw materials (coffee beans)-70%, packaging-13%, ad and promotion-2%, and others15%. Besides, they also make the price of a cup coffee down by changing the cost of components. Price is used as a competitive tool. Promotion and place: In family segment, market leaders benefit from economies of scale not lonely in distribution, but also in communication to maintain their leadership. Forms of promotion: billboards, brochures, displays which show some originality in presenting the product. Discount program: buy 2 get 1 free or 2 vacuum-packed bags of ground coffee sold as 1

Main Competitors
Lavazza SpA of Turin Segafredo-Zanetti SpA of Bologna Crippa & Berger SpA of Milan Procter & Gamble Italia Illy Caffe` of Trieste Consorzio Sao Caf Caf do Brasil

Nestcafe in Italy
Instant coffee was introduced into Italy in 1962 Nestcafe different formulation: Degree of roasting, the type of solubilization, the raw materials used Italian market: specific and deep-rooted coffee culture Nestle objective: perceived as real coffee Marketing decision: aiming at overcoming the inevitable suspicions of a coffee that was simultaneously good, convenient and easy to use effort to affirm the goodness and quality of Nestcafe with Italian coffees

First advertising messages FAILED

Aimed at an emotional response, underscored the goodness of the coffee: Nestcafe, the best of them all But this message was miss something and not substitute for real coffee Nestcafe was seen as a back up product for emergency cases and best suited to singles or older people Comparing Nestcafe directly to Italian espresso did not convince consumers in terms of product quality or goodness

Second advertising compaign FAILED

More personal involvement on the part of consumers, presented testimonials by real people multi-subject campaign showed typical people in the workforce Nescafe was coffee suited to and made for anyone who wants something more out of life and gives something more to it, you deserve a better coffee, Nescafe Nescafe was still an unattractive to those who wanted gratification and a recharge from their coffee

The train advertising

The advertising presented an exotic train journey aimed at stimulating emotinal involvement, while the rational product benefits were communicated through suggestive images of locations where coffee is grown The adverts underscored the value of a good coffee, suggesting the positive associations with Nescafes origins without comparing it directly to typical Italian coffee Nescafe gained in perceived prestige and reliability

Sales after years

Sales 700 600 500 400 300 200 100 0 1972 1982 1986 1988 400 500 580 640

Nescafe first success

Nescafe was preferred by older people( 80% of 55 years old and above) because of its less aggresive image and for its ease of preparation during moments of relaxation In family market, Nescafe was considered emergency provisions by many Italian families, especially when on holiday In a splendid niche with higher price against normal coffee

Figures
Wholesalers = 85% retail price Var. manufacturing costs = 37.5% retail price Gross operating profit = 47.5% Sales & distribution costs = 15.3% Operating profit = 32.3%

Netle Italy management desire

Wide distribution of the brand Increasing sales Increasing the quality of coffee to support this desire

Motivational study about Nescafe

2/3 prefer during meals or in the afternoon; 1/3 remaining use as a milk modifier in the morning The different brands of Nescafe are easily distinguished 43% of consumers consider it lighter than Espresso or mocha coffee, 20% as much as, 37% dont know

Nescafe brand awareness was high(83%) Total market share was 1.4% Market penetration was 14% Sales was concentrated in some big cities and in the North of Italy

Marketing stratety options

Focus older segment
(-)would not lead to significant increase in sales (+)the segment more attractive in the longer term Penetrating the CHR segment of the market

Broaden as a milk modifier (-)cannibalization effect & inevitable internal conflict;

(-)sales would barely pay back the initial investment needed for entry and distribution of the product.
(-)significant switch from espresso to Nescafe in coffee shop was very unlikely

(+)leadership with Nesquik & Orzoro

Optimal option
Positioning for younger and more cosmopolitan as the international coffee beverage (+) Main target for next 5 years (+) Younger people pprecitate Nescafe the chance to emphasize as milk modifier and new, less-caffeinealternative coffee (+) The major Nestle food products should become standardized by the 1990s, at least in European market. (+) Significant benefits for Nestle (+) Growing transnational consumers segment that travelling, living all over the world, achieving universal consumption habits

Question 1: Which of the four options outlines in the case would you adopt and why? Is there yet another, even better alternative?
Its Option 3. Because The younger peoples appreciation of Nescafe was an opportunity to emphasize the product both as a milk modifier and as a new less-caffeinealternative coffee

Q2: What would be the target segments, proposed positioning and promotion, pricing and distribution strategies
For overview of marketing strategies of leading companies, the family segment is the target segment with nearly 70%. They create a good image in CHR to contribute its image in the family segment. Besides, they develop their product with different size of packages (200-250-400500 gram bags) for family to easily choose the suitable one. The promotion programs are also frequently made for retail customers.

Q3: What would be the advertising copy strategy and the budget to invest on the relaunch of Nescafe?
Copy strategy is the thinking behind the creation of your advertising and it has 3 key elements: consumer benefit, reason to believe and brand character. Nescafe should keep the train advertising success with the perception of prestige and reliability. Furthermore it should express the benefit of consumer when using Nescafe aiming at the new positioning strategy of younger people. The budget to invest is base on: (1) percentage of sales or profits ; (2) Unit of sales; (3) Objective and task

Thank you for listening!

Q&A