Business-Level and Corporate-Level Strategies: Nestle
Business and Corporate level Strategies Nestle
Nestle
Nestle is one of the world’s largest manufacturers of foods, beverages, and health care products. Incorporated in 1866 by Henry Nestle in Switzerland, it is currently present in more than 130 countries of the world. Nestle manufacturers all types of foods and beverage products that meet the 24-hour needs of the general consumers from all age groups. It has more than 500 production units and a large network of business associates around the globe. It is recognized as the top quality brand in the consumer packaged foods industry. With its wide array of products, Nestle is able to target a large customer base from all geographical, social, and demographical segments (Nestle, 2013).
Business-Level Strategies of Nestle
The three core business level strategies of Nestle include: Cost leadership, differentiation, and focus strategy. These strategies are now discussed below in detail:
i. Low Cost Leadership Strategies:
Nestle is a top quality foods and beverage products manufacturer. It purchases the highest quality of raw material from large scale suppliers from the market. Therefore, its costs of production are comparatively higher than those of small scale and low quality product manufacturers. Due to these high costs of production, Nestle is still unable to achieve low cost leadership in its industry. However, its business level strategies are largely focused on achieving this goal through cost-efficient operations, quality assurance, and effective inventory management (Nestle, 2013).
The company’s management is now emphasizing on controlling the unnecessary costs in all the major functional areas; including inventory management, manufacturing, marketing, Research and development, strategic investments, and customer services. The current strategy of the company is to achieve operational efficiency by purchasing the best quality ingredients and raw material from the most reliable suppliers and using them in manufacturing top quality foods and beverages in the most advanced production plants.
ii. Differentiation Strategy:
The second core business level strategy of Nestle is to differentiate its products from their competitor products. The purpose behind adopting this strategy is to build a unique brand image in the minds of potential consumers (Blythe & Megicks, 2010). Currently, Nestle manufactures more than 10,000 products under 8,500 different brand names. Most of these products can be easily differentiated from their competitor products and brands on the basis of their quality, features, ingredients, pricing, packaging, labeling, and other product attributes (Nestle, 2013). Nestle products are not only manufactured under strict quality and health standards, but also marketed and sold with the company’s promise to deliver real ‘value’ for the consumers’ money.
While introducing new products to the market, Nestle ensures that they establish a unique position in the consumers’ choice parameters. The strongest role in making the differentiation strategy successful is played by the quality of the products (Hill & Jones, 2012). Nestle never compromises on the quality of its products in order to achieve economy or scale or low cost leadership in the industry. Rather, it strives to build a differentiated position among its industry rivals on the basis of a product’s quality and associated health and nutrition benefits.
iii. Focus Strategy:
The third most important business level strategy of Nestle is to focus on the differentiation and low cost leadership in specific products, brands, or operational areas. For example, it uses focused low-cost strategy to control the heavy manufacturing and marketing costs of its top selling brands. This strategy is used in order to lessen the financial burden which is put by these top brands on the overall profitability of the company (Hitt, Ireland, & Hoskisson, 2013). Similarly, the focused-differentiation strategy is to give emphasis on making improvements and alterations in the quality, ingredients, flavors, and other attributes for a specific product line instead of differentiating all the products in the currently offered brands. Both these strategies enable the company in generating more attractive revenues in its top quality brands in a more competitive fashion.
The Most Important Business-Level Strategy for Nestle:
The success and competitiveness of Nestle can be attributed to its differentiation strategy which has played the biggest role in making it the top most favorite brand in the presence of a massive competition. Nestle is currently the world’s most liked brand in the consumer packaged foods industry (Nestle, 2013). In addition to their quality and ingredients, Nestle products also have a unique taste, packaging, and additional health and nutritional benefits which attract consumers from all potential consumer segments. This differentiation strategy has also helped Nestle is developing a strong brand image in its industry.
Corporate-Level Strategies of Nestle
The corporate level strategies of Nestle include growth, stability, and retrenchment strategies which it adopts according to changing business needs and different market situations.
i. Growth Strategies:
Nestle is one of the world’s leading foods and beverage manufacturers. It has expanded its business operations in 130 countries with more than 500 production units and strategic relationships with thousands of business associates, partners, and investors (Nestle, 2013). All these achievements are the outcomes of its growth strategies. Nestle has made tremendous growth over the years in all its business units and segments. The current growth strategies of the company can be divided into horizontal growth and vertical growth strategies. Horizontal growth strategies enable it to expand its business operations across new target markets, geographical locations, product categories, and brand extensions.
On the other hand, vertical growth strategies strengthen its business network and operational position by making it more self-sufficient in supply chain, distribution, and business promotion (Hitt, Ireland, & Hoskisson, 2013). In addition, the company also uses related-diversification strategy in order to increase its product portfolio and become more competitive among its industry rivals.
ii. Stability Strategies:
Growth strategies are not the only preferred choice in all types of market conditions — Nestle also has to suspend its growth when there are unfavorable economic conditions, poor industrial growth, or high market saturation. In order to survive and move forward cautiously, Nestle waits for the conditions to turn favorable for its business operations. Under stability strategies, Nestle does not undertake any type of business expansion, brand extension, or operational growth projects.
iii. Retrenchment Strategies:
Nestle uses retrenchment strategies to get rid of the low performance products, brands, or business units which are not contributing to its success, but are taking a significant portion from its marketing budget, R&D efforts, and quality management. Retrenchment strategies have always been the least frequent option for Nestle.
The Most Important Corporate-Level Strategy for Nestle:
Nestle has achieved market leadership in terms of product portfolio, customer base, financial performance, and market share by pursuing growth strategies on continuous basis. Therefore, these strategies can be regarded as the most important choice for Nestle. The business level strategies of the company also support its corporate level strategies in a number of ways. Whenever Nestle decides to expand its operations or product portfolio, it also takes into account the differentiation and cost leadership strategies which can give it competitive advantage in these new projects. Similarly, growth strategies largely complement the cost leadership strategies. For example, the vertical growth strategy also helps the company in controlling its costs of operations by becoming self-sufficient in its lower-end supply chain (Hitt, Ireland, & Hoskisson, 2013).
Analysis of the Competitive Environment for Nestle
Nestle faces a stiff competition in the local and international markets from the world’s leading foods and beverages manufactures. The top industry rivals for Nestle are Unilever, Kraft foods, Procter & Gamble, General Mills, etc. The biggest rivals of the company is Unilever that poses big threats in each and every aspect of its business operations: including customer loyalty, brand image, sales performance, market share, marketing campaigns, social and environmental welfare, supply chain and distribution network, etc. (Kotler, Brown, Burton, Deans, & Armstrong, 2010).
In order to beat this competitor in the most effective and profitable way, Nestle has to use competitive pricing and extensive marketing campaigns for its products. It takes benefit from its core competencies and competitive advantages in order to manufacture the best quality products that can meet 24-hour needs of the general consumers so that they do not have to look for other brands to satisfy their needs (Nestle, 2013). Nestle also faces a hard competition from substitute product manufacturers and new entrants in the foods and beverage manufacturing industry. These manufacturers sell their products at comparatively lower price than Nestle and use heavy advertisements to create their brand identities (Ellwood, 2002). Therefore, they are easily able to snatch the potential consumers of Nestle.
Moreover, the bargaining power of customers has become stronger than food manufacturing companies due to the presence of a large number of brands that offer similar quality products at almost equal prices. The consumers make their purchase decision on the basis of certain specific parameters; like quality, price, features, convenient availability, and previous experience with the brands. Unilever also takes into account these parameters to make its products more attractive for the consumers. Nestle takes an impact of this strong bargaining power of consumers on its corporate and business level strategies. In order to maintain its market share and customer base, Nestle has to consider all these competitive environmental forces while designing and implementing its strategies. On the whole, Nestle is more competitive in its differentiation strategy while Unilever has achieved cost leadership in most of its product categories.
Performance in the Slow-Cycle and Fast Cycle Markets
Nestle and Unilever are equally competitive firms in the foods, beverages, and personal care products manufacturing industry. They possess strong financial position, brand loyalty, and large customer base which can help them survive and compete in all types of market conditions. The cost leadership strategy of Unilever can give it a competitive advantage in both slow cycle and fast cycle markets (Paley, 2006). On the other hand, the differentiation strategy of Nestle cannot give useful results in the slow cycle market situation. Reason being, consumers tend to expend less amount on their favorite products when there are tight market conditions or slow competitive efforts by the key industry participants (Kotler, Brown, Burton, Deans, & Armstrong, 2010).
Unilever can take advantage from its highly efficient manufacturing capabilities in order to maintain its low cost leadership whereas Nestle can survive if it succeeds in persuading its potential consumers to prefer its products which are unique, innovative, and of the best quality. The fast paced environment can pose some additional threats to both these manufacturers by requiring them to react faster and more cautiously to the rapidly changing consumer demands, industry patterns, supply and demand conditions, and strategic investments by other industry participants (Gitman & McDaniel, 2009).
References
Blythe, J., & Megicks, P. (2010). Marketing Planning: Strategy, Environment and Context, 3rd Edition. U.K: Prentice Hall
Ellwood, I. (2002). The essential brand book: over 100 techniques to increase brand value. 2nd Edition. London: Kogan Page
Gitman, L.J. & McDaniel, C.D. (2009). The Future of Business: the Essentials, 4th Edition. Mason, OH: South-Western Cengage Learning
Hill, C.W., & Jones, G.R. (2012). Strategic Management Theory, 10th Edition. Mason, OH: South-Western, Cengage Learning
Hitt, M.A., Ireland, R.D., & Hoskisson, R.E. (2013). Strategic Management: Competitiveness & Globalization – Concepts, 10th Edition. Mason, OH: South-Western Cengage Learning
Kotler, P., Brown, L., Burton, S., Deans, K., & Armstrong, G. (2010). Marketing, 8th Edition. U.S.: Prentice-Hall
Nestle, (2012). About Us. Retrieved on May 26th, 2013, from
Nestle, (2012). Creating Shared Value. Retrieved on May 26th, 2013, from
Nestle, (2012). Compliance. Retrieved on May 26th, 2013, from
Paley, N. (2006). The Manager’s Guide to Competitive Marketing Strategies, 3rd Edition. London: Thorogood Corporation
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