8/16/2020 Nestle Market Analysis and Marketing Strategy | by David Kabii | Medium

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Nov 22, 2018 · 11 min read

Nestle Market Analysis and Marketing Strategy

Nestle is one of the largest companies in the world in the drinks, food and snacks
industry. The Swiss company, though renown worldwide for its chocolate, has
successfully transformed itself into a truly global force in the food industry with
expansion to other areas of the industry such as baby foods, beverages and frozen foods.
Currently, the company which owns more than 2,000 brands employs around 340,000
employees and operates in more than 180 countries worldwide. The company started
out in 1905 from a merger as a milk company specializing in infant formula products
and condensed milk products and has since grown to be one of the largest international
food companies and the clear global leader in the sector in terms of revenues and
profitability.
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Nestle is one of the largest companies in the fast-moving consumer goods (FMCG) sector
and is the market leader in several of the sector’s markets, especially with revenues in
consideration. The FMCG sector is currently dominated by companies in the snacks,
food and beverages industry (Consultancy.uk, 2015). These companies include Nestle,
Tyson Foods, Coca-Cola and Kraft Heinz.

The company has seven verticals namely liquid and powdered beverages, confectionary
and cookies, ready prepared and cooked foods, dairy products, chocolate, drinking
water and pet care. Even though the FMCG sector in large, there are a lot of players in
the sector of all sizes and the competition is stiff since there are many international
players in the market. In order for the company succeed in such a highly competitive
sector, it must adopt effective marketing practices (Pride, Ferrell, Lukas, Schembri, &
Niininen, 2015). Among the stiffest competitors facing Nestle are Procter & Gamble,
Kraft Heinz, Coca-Cola, Unilever, Kellogg’s, Danone and PepsiCo.

BCG analysis

Given that Nestle is a company with both multiple products and it operates in multiple
categories, BCG analysis is essential in order to better understand the company’s markets
and better manage its business portfolio and to come up with an effective marketing
strategy and plan (Pruschkowski, 2018). To gain a better understanding of Nestle, its
BCG analysis should be done both by taking into consideration both its verticals and
products.

In the liquid and powdered beverages, confectionary and cookies, chocolate, ready
prepared and cooked foods and dairy products verticals, Nestle is a star, enjoying large
market share and great opportunity for growth. In the pet care vertical, it is a question
mark since Nestle has a small market share of a high growth market while the water
vertical is a dog due to low market share of a highly saturated market that features both
international and local players in each of their target markets.

Nestle has a wide range of products in its various verticals in different stages of the
product pipeline (Immonen & Saaksvuori, 2008). In the liquid and powdered beverages
sector, Nestle has two main products in the powdered beverages market, Nescafe and
Nespresso, with Nescafe being a cash cow and Nespresso being a star. In the ready
prepared and cooked foods, the Maggi brand, especially Maggi noodles, is a cash cow
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while in the bullions and dried food, the Maggi brand is a star, with its major
competition being the Knorr brand from Unilever. In the chocolate vertical, KitKat and
Munch are the main products from Nestle falling in the star category given that although
the competition is stiff, the market segment has huge potential for growth and the
company is in a position to increase both market share and revenue.

In the pet care vertical, the most known brand from Nestle is Purina, which also falls in
the question mark category like the pet care vertical since there is high growth in the
segment although it doesn’t enjoy dominant market share. In the water vertical, the
company has many brands including Poland Spring, Perrier and Vittel, all of which can
be considered to be in the dog category of the BCG matrix with low prospects for growth
and attaining dominant market share.

PESTLE analysis

Given the understanding of the company’s product portfolio and the understanding of
how it various products are positioned and performing in their markets, the next step is
to carry out PESTLE analysis. The knowledge and insight from BCG analysis is used in
determining how various external factors that can affect a business are to be handled in
order to minimize business risks, leverage emerging opportunities and gain better
insight in the business’ environment in a cost effective manner (Campbell, 2015). These
are namely political, economical, social, technological, social and environmental factors.

There are many political factors that Nestle must take into account in its different
markets. These include taxation, laws and regulation and compliance with various laws
and regulations from different regions, governments and regulatory bodies and various
import and export duties among other factors. Additionally, it must also account for
global changes in the political landscape and regulations as well as regional political
stability in its market.

Economic factors are important in determining the viability of both current and new
markets, given that most of their target market is the middle and upper classes with
enough disposable income to buy branded products. Additionally, economic factors play
a huge role in price determination for their various products, which is critical in
determining revenues, profitability and competitiveness of the products. Given the large
scale of the company’s operations, changes in the prices of various inputs and expenses
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and market conditions like fuel cost and inflation also have a huge impact on the
company’s bottom line and must be accounted for when strategizing and planning.

Social factors have a large bearing on the opportunities and threats that face businesses
and this is especially more so in the FMCG sector and the food industry in particular.
These factors include the local culture, values and norms, fashion and lifestyle among
other social demographic patterns and trends. Social factors are important in
determining emerging markets, detecting the change in customer preferences, cultural
differences in various markets as well as current and future consumer behavior and
psychology. This knowledge is essential in determining how a business reacts to the ever
changing business environment in order to maximize their returns while minimizing
their risk.

Technological factors

Technological factors play an important role in changing business environment, creating

disruptions that can pose both challenges and present new opportunities for businesses.
Various advances in technology can affect any part of the business including production
(new product developments like using 10% less sugar without changing the sweetness
of products), logistics (determining more optimal ways of delivering products to the end
consumers) and marketing (rise of social media and other online channels) to name but
a few. By being aware of technological changes in the industry, Nestle is better
positioned to leverage new technology in a cost effective manner to meet business
objectives and delivery quality products to diverse consumer markets.

Legal factors have a very important bearing on the operations of any business since it
determines at the very least of a business can carry out its operations in a given
jurisdiction. Such factors include licensing, obtaining various required permits, auditing
and compliance with various standards. Additionally, business in food industry not only
have to comply with rules and regulations that affect other business but also comply
with regulations set by other governmental and controlling bodies like food and health
safety laws and regulations. All these factors play an important role in determining how
favorable or unfavorable the operating conditions directly attributable to the actions and
policies of external stakeholders with authority are for the industry in general and a
business in particular are.

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Environmental factors can also be favorable on detrimental to a business’ operations.

Some of the factors like extreme weather conditions can have impact on several areas of
business operations e.g. by making inputs or transportation costs more expensive,
environmental regulations affecting business operations for example in packaging or
affecting sales as customer preferences change with the weather. Additionally,
consumers the world over are increasing more environmentally conscious and using
their purchasing power to reward and punish businesses based on the environmental
practices. Nestle must also take into account the diversity in the physical environment
they operate in and the different rules and regulations of different regions.

Of all these factors, social factors are the ones most likely to affect Nestle. The company
has a wide presence in many countries and regions, which means they have already
been exposed to different political, legal and environmental factors of the regions they
already serve. The company has shown its innovativeness in dealing with different
economic factors in various regions e.g. by offering small packing in lower middle
income countries and combining both prestigious brands that can command high price
with brands that compete on price depending on market conditions. Although the
company fairs well in dealing with social factors e.g. using local ingredients and taking
local tastes into account, this is an area they could improve and likely to pose the most
challenges due to the ever changing preferences and demographics of any society.

Nestle liquid and powdered beverages vertical analysis

Given the wide range of verticals and products that Nestle offers, it is important to
approach the products and their vertical separately even when developing a holistic
marketing for their product portfolio (Aerk, 2009). The focus shall be on the largest
contributor to Nestle in terms of revenue generation, the liquid and powdered beverages
vertical, as shown below for revenues for the year 2017 (Statista, 2018). Special
emphasis will be on powdered beverage products like Nescafe and Milo, the main
offering from Nestle against its competitors and a focus on Milo, its flagship brand in the
powder cocoa/ chocolate segment.

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Competitor review

Understanding the competition facing a business is critical not only for marketing
purposes but also affects the strategic management of a business (Fleisher &
Bensoussan, 2015). In the liquid and powdered beverages vertical and especially in
powdered beverages, its main competitor is Kraft Heinz. While Nestle dominates some of
the sectors of the powdered beverages with brands like Nescafe (instant coffee
segment), Kraft Heinz is the market leader in others with brands like Cadbury drinking
chocolate (powdered cocoa/ chocolate segment). The company is facing stiff
competition from Kraft Heinz especially in the cocoa/ chocolate and coffee market
segment. While at first glance Coca-Cola may appear as a direct competitor to Nestle in
the vertical compared to other companies, it offers alternative products in the vertical
but its target market is cold beverages while Nestle product in the powdered beverages
market segment are in the hot beverages category, where Kraft Heinz offers directly
competing products. There is also more competition across the various verticals between
the two companies and their various product offerings.

Nestle powdered beverages SWOT analysis

To determine the most effective marketing strategies and plans to deploy in face of
competition in the beverages vertical, it is essential to carry out SWOT analysis. The aim
of SWOT analysis is to identify the strengths, weaknesses, opportunities and threats

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(SWOT) that a business faces. In relation to its competitors, SWOT analysis reveals the
following information.

Strengths

Nestle is a world renowned brands that has a plethora of product brands that are also
well known, a strong research and development programme, deep penetration of the
products in the market and a highly efficient and wide distribution network. This is
essential in ensuring that the cash cows and star product owned by Nestle continue to
perform well while the company’s brand name serves it well with product brands in the
dog and question mark category to grow.

Weaknesses

The company has two major weaknesses namely being involved in several controversies
and a brand structure that is undifferentiated. Some of the controversies, consumer and
legal issues that have tainted the brand’s image in the past include Maggi lead
controversy, claims of child labor in Ghana and Turkey and the use of forced labor and
chocolate price fixing. Due to the undifferentiated nature of the many product brands it
offers, managing the brands is difficult, sometimes even resulting in some of the brands
competing.

Opportunities

There are several opportunities that can help Nestle increase the market share, revenue
and in general their business operations. These are creating a better brand image,
increasing the reach and efficiency of its distribution system, a global increase
disposable income trend and agglomerating brands. The company should also pursue
ways of expanding its markets, forming strategic alliances with other stakeholders and
also consider buyouts and mergers.

Threats

Nestle faces the same challenges as any other business in the FCMG sector namely
threats posed by substitute products, new entrants into its markets and the rising costs
on inputs as other business expenses. The business faces constant pressure from
entrenched and new businesses alike in all its verticals and especially the liquid and
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powdered beverages vertical. Rising costs of inputs and fuel prices have a direct impact
of the company’s profitability.

Currently, Nestle is second in the powdered cocoa/ chocolate segment to Kraft Heinz’s
Cadbury brand, with its main brand in the segment being Milo. The company should
market the Milo brand more and ensure that their complex distribution system is
improved to serve emerging markets and rural areas where, where often it fails.
Additionally, it should increase marketing efforts for the brand to increase the brand’s
image and recognition. It should also consider smaller packages especially in lower
middle income economies, something the Cadbury brand has successfully leveraged and
which it has achieved with Nescafe.

Market segments and target market analysis

Nestle, being a global company, essentially has a heterogeneous consumer market since
people in different regions and with varying demographics have difference needs, tastes
and preferences. This is also true for the powdered beverages segment since different
people will have differences in their choice of powdered beverages. Despite these
difference, in the various market segment form homogenous groups that can help in
making marketing efforts more coherent. Given these facts, the mixed marketing
approach is the best one for Milo, with its efficacy already proven in the food industry.

The primary target market for the Milo brand in particular and most of the products
offered in the powdered drinks category are the upper and middle upper classes. This
enables brands like Milo to leverage the prestige associated with their brand to sell their
products at a premium compared with the competition. The secondary target market for
Milo is the lower middle class that is likely to shift to more premium brands as
disposable income rises. From this information, we can derive the shown perceptual
map.

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From the perceptual map, it can be seen that while Milo charges a slightly higher price
than Cadbury does for its drinking chocolate and other cocoa/ chocolate powdered
beverages products, Cadbury is the clear winner in terms of market share.

There are several things that Milo can do in order to increase their market share. These
include market expansion, agglomeration of brands, improved efficiency and reach of
their distribution systems and expanding to new markets. While the premium model is
may seem counterintuitive, it is actually perfect for marketing Milo.

However, the company should do more to increase the brand’s appeal as a premium
product and smaller packaging should also be considered to increase volume of sales.
This will make the brand affordable to those currently with little disposable income but
likely to have more as time passes like students, newly employee people and young
people with families as well as young families. By getting such customers early, the
company is more likely to cultivate brand loyalty early in a commoditized market.

References

Aerk, D. A. (2009). Brand portfolio strategy: Creating relevance, differentiation, energy,

leverage, and clarity.

Campbell, P. (2015). Pestle analysis in a day. CreateSpace Independent Publishing

Platform.

Consultancy.uk. (2015, August 17). 50 largest consumer goods / FMCG firms of the
globe. Retrieved from https://www.consultancy.uk/news/2453/50-largest-consumer-
goods-fmcg-firms-of-the-globe

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Fleisher, C. S., & Bensoussan, B. E. (2015). Business and competitive analysis: Effective
application of new and classic methods.

Immonen, A., & Saaksvuori, A. (2008). Product lifecycle management.

Pride, W. M., Ferrell, O. C., Lukas, B. A., Schembri, S., & Niininen, O. (2015). Marketing
principles.

Pruschkowski, M. (2018). The BCG matrix and its support of management decision
making.

Statista. (2018). Nestlé: sales worldwide by product category, 2017 | Statistic. Retrieved
from https://www.statista.com/statistics/413559/global-sales-of-nestle-by-product-
category/

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