Nestle 4k4215

AMERICAN INTERNATIONAL UNIVERSITY-BANGLADESH

Title: Pricing, Product development, Product life cycle and advertising of Nestle NAME: ALAM MD JAHANGIR SHITHIL KAMRUL HASAN ALAM MIR SAIFUL KARIM MD REZAUL SAIFUL ISLAM SOHAN

ID NO: 07-08162-1 06-07113-2 08-11774-2 09-12787-1 07-09023-2

Section: L

The report submitted to KHAN, TAHSINA NIMMI Lecturer, American International University-Bangladesh In partial satisfaction of the requirement for PRINCIPLE OF MARKETING Semester: Fall, 2009 Dhaka, Bangladesh

1

Date: December 14, 2009 To Khan, Tahsina Nimmi Lecturer American International University-Bangladesh Dhaka, Bangladesh.

Subject: Letter of transmittal

Dear Madam, Attached please find the group project report on “Pricing, Product development, Product life cycle and advertising of Nestle” that you have assigned us to prepare. We the group have consulted various primary data and accumulated workable secondary data by visiting few installations and interviewing related personnel. We have coiled those data furnished through this report. It will be still a unique scope for us to learn more about the subject by clarifying any observations if you have arising from the paper. We are grateful to you for your continuous guidance in preparing the group project report. Sincerely yours, ALAM MD JAHANGIR SHITHIL KAMRUL HASAN KARIM MD REZAUL ALAM MIR SAIFUL SAIFUL ISLAM SOHAN

07-08162-1 06-07113-2 09-12787-1 08-11774-2 07-09023-2

2

Acknowledgment

Firstly, we would like to thank “ALLAH” for giving us the strength and energy to work on this report and finish it successfully. We have tried our level best to make it to the satisfaction on the reader. Secondly, we would like to thank our honorable course teacher Khan, Tahsina Nimmi for his proper guidance and care to complete the report. She answered all of our questions as well as asked us questions that helped us to extend our search. For this purpose she helped us during class time and after class as well.

3

TABLE OF CONTENTS

CONTENTS:

PAGES

1. INTRODUCTION

5

2. HISTORY OF NESTLE

6-7

3. BRAND NAMEOF NESTLE

8

4. PRICING OF NESTLE

9

5. PRICING POWER OF NESTLE

10

6. PRODUCT DEVELOPMENT OF NESTLE

11

7. PRODUCT LIFE-CYCLE OF NESTLE

12

8. ADVERTISING OF NESTLE

13-14

9. FINDING

15

10. LIMITATON

16

11. RECOMMENDATION

16

12. CONCLUSION

17

4

INTRODUCTION

Nestlé S.A. (French pronunciation: [nɛs'le]) is a multinational packaged foods company founded and headquartered in Vevey, Switzerland, and listed on the SWX Swiss Exchange with a market capitalization of over 87 billion Swiss francs. It originated in a 1905 merger of the Anglo-Swiss Milk Company for milk products established in 1866 by the Page Brothers in Cham, Switzerland, and the Farine Lactée Henri Nestlé Company set up in 1866 by Henri Nestlé to provide an infant food product. The two world wars both affected growth: during the first, dried milk was widely used but the second war caused profits to drop by around 70%. However, sales of the instant coffee Nescafé were boosted by the US military. After the wars, growth was stimulated by acquisitions that expanded the company's product range and brought a number of globally recognized brands into its fold, including Maggi, Thomy and Nescafé. Nestlé is the world's largest foods company, followed by Kraft Foods.

5

HISTORY OF NESTLE The company dates to 1867, when two separate Swiss enterprises were founded that would later form the core of Nestlé. In August of that year, Charles A. and George Page, brothers from Lee County, IL in the United States, established the Anglo-Swiss Condensed Milk Company in Cham. In September, in Vevey, Henri Nestlé developed a milk-based baby food and soon began marketing it. In the succeeding decades both enterprises aggressively expanded their businesses throughout Europe and the United States. (Henri Nestlé retired in 1875, but the company, under new ownership, retained his name as Farine Lactée Henri Nestlé.) In 1877 Anglo-Swiss added milk-based baby foods to its products, and in the following year the Nestlé company added condensed milk, so that the firms became direct and fierce rivals. In 1905, however, the companies merged to become the Nestlé and Anglo-Swiss Condensed Milk Company, retaining that name until 1947, when the name Nestlé Alimentana SA was taken as a result of the acquisition of Fabrique de Produits Maggi SA (founded 1884) and its holding company, Alimentana SA of Kempttal, Switzerland. Maggi was a major manufacturer of soup mixes and related foodstuffs. The company’s current name was adopted in 1977. By the early 1900s, the company was operating factories in the United States, United Kingdom, and Spain. World War I created new demand for dairy products in the form of government contracts; by the end of the war, Nestlé's production had more than doubled. After the war, government contracts dried up and consumers switched back to fresh milk. However, Nestlé's management responded quickly, streamlining operations and reducing debt. The 1920s saw Nestlé's first expansion into new products, with chocolate the company's second most important activity.

Nestlé's logo used until 1970s. Nestlé felt the effects of World War II immediately. Profits dropped from US$20 million in 1938 to US$6 million in 1939. Factories were established in developing countries, particularly Latin America. Ironically, the war helped with the introduction of the company's newest product, Nescafé, which was a staple drink of the US military. Nestlé's production and sales rose in the wartime economy.

6

The end of World War II was the beginning of a dynamic phase for Nestlé. Growth accelerated and companies were acquired. In 1947 came the merger with Maggi seasonings and soups. Crosse & Blackwell followed in 1950, as did Findus (1963), Libby's (1971) and Stouffer's (1973). Diversification came with a shareholding in L'Oréal in 1974. In 1977, Nestlé made its second venture outside the food industry by acquiring Alcon Laboratories Inc. In 1984, Nestlé's improved bottom line allowed the company to launch a new round of acquisitions, notably American food giant Carnation and the British confectionery company Rowntree Mackintosh in 1988, which brought the Willy Wonka Brand to Nestlé.

The Brazilian president, Lula da Silva, inaugurates a factory in Feira de Santana (Bahia), February, 2007. The first half of the 1990s proved to be favorable for Nestlé: trade barriers crumbled and world markets developed into more or less integrated trading areas. There were two major acquisitions in North America, both in 2002: in June, Nestlé merged its U.S. ice cream business into Dreyer's, and in August a US$2.6 billion acquisition was announced of Chef America, the creator of Hot Pockets. In the same time frame, Nestlé came close to purchasing the iconic American company Hershey's, though the deal fell through. Another recent purchase includes the Jenny Craig weight loss program for US$600 million. In December 2005 Nestlé bought the Greek company Delta Ice Cream for €240 million. In January 2006 it took full ownership of Dreyer's, thus becoming the world's biggest ice cream maker with a 17.5% market share. In November 2006, Nestle purchased the Medical Nutrition division of Novartis Pharmaceutical for $2.5B, also acquiring in 2007 the milk flavoring product known as Ovaltine. In April 2007 Nestlé bought baby food manufacturer Gerber for $5.5 billion. In December 2007 Nestle entered in a strategic partnership with a Belgian chocolate maker Pierre Marcolini.

7

BRAND NAME OF NESTLE

Nescafe

Gervais Extreme

L'Oreal

Maggi

Nestlé Rowntree

Maxibon

Nestlé Purina / Friskies

Galderma

Nestea

Buitoni

Cereal Partners

Herta

Dreyer's Ice Cream

Gerber

Nestlé Waters

Nespresso

Baerenmarke

Alcon Laboratories

Nesquik

Jenny Craig

Baci

Nestlé Professional

Nestlé Baby Food

Willy Wonka

PRICING OF NESTLE

8

Nestle has seen a strong start to 2008, partly thanks to its strategy of increasing product prices quickly in line with commodity price increases. The food manufacturer said in an update on its organic growth outlook for the year that "sharp upward movements and increased volatility" in the commodity markets in the past year forced it to advance price increases for finished goods so as to partially absorb the higher input costs. "Combined with the pricing effects in place at the end of last year, this s for a strong pricing element in organic growth for the first two months of 2008." Consequently, Nestle is predicting that growth for the whole of the year will approach that of 2007. Last year it reported sales of CHF 107.6bn (c €5.8bn), up 9.2 per cent on the previous year, and organic growth of 7.4 per cent. This exceeds its long-term trend target of 5 to 6 percent. Nestle spokesperson Francois-Xavier Perroud told FoodNavigator.com that although the company reacts quickly to fluctuations in costs, there is a time lag between commodity prices rising and the knock-on effect on finished products because the products are already in the shops with their price tags on them. However since the manufacturer actually makes its sales to the trade weeks before the goods are sold to consumers, it can see the benefit of the higher prices a while before they are effectively ed on to consumers by retailers. Moreover, product price increases the same across Nestle's geographical markets and product lines. The effect of commodity prices varies from country to country and from product to product, so finished product prices are not decided centrally but by market. Where Nestle responds to commodity price increases, it also responds to fluctuations in the other direction and may lower prices again accordingly. Nestle chairman and CEO Peter Brabeck-Letmathe said: "We expect our raw material cost pressures to abate somewhat in the course of the year, and foresee foresee price increases to trend lower in the second half of the year."

9

PRICING POWER OF NESTLE The company is well positioned to cash in on the growing spends on processed foods. Foods major Nestle has again demonstrated how powerful a portfolio of brands it has with gross margins expanding 240 basis points to 52.2 per cent in the September 2009 quarter. Of course the fact that prices of key inputs, except sugar, remained more or less stable during the quarter helped bring down costs. But the company was also able to improve its product mix and thereby earn better realisations, reflected in its top line, which grew 17.6 per cent to Rs 1,302 crore. Sales were driven by an 18 per cent growth in the home market, the 17th consecutive quarter of high-double-digit revenue growth. However, increase in staff costs and higher spends on advertising and marketing meant that operating profit margins, at 20.3 per cent, expanded by just 160 basis points. A lower tax rate of just 27 per cent helped push up profit after tax by 38.7 per cent to Rs 182.8 crore. With Indian consumers increasingly able and willing to spend on branded and processed foods, Nestle should continue to command pricing power given that there is limited competition for many of its products. Also, the company has been trying to increase penetration, especially in non-urban markets, by launching its brands at lower price points. That, together with the growth of organised retail in bigger cities, should help Nestle sustain double-digit volume growth. In the current year to December 2009, the company is expected to grow revenues by just under 17 per cent to around Rs 5,100 crore, while net profits are estimated to grow 32-34 per cent over those reported in 2008. Next year, though, profits are estimated to grow 18-20 per cent. The stock has had a great run and at Rs 2,663, trades at around 30 times estimated calendar 2010 earnings. Nestle has almost always commanded a big to peers in the FMCG space and that trend should continue

10

PRODUCT DEVELOPMENT OF NESTLE

Nestle is thought to be reviewing its packaging design roster for the first time since 2003.The global food corporation is understood to be looking at rationalizing a crossdivisional roster, which has grown from a strict list to a sprawling catalogue of consultancies, based on the personal preferences of Nestle marketers. Although, to date, there has been no formal communication between Nestle and consultancies, groups were first ed earlier this year to fill in requests for information and to give details of how much they’d billed Nestle for the past year. The company is now thought to be setting out how much it is spending on design and evaluating its consultancies. It is understood to be putting together a design roster team to create a shortlist based on credentials including size of business, potential client conflicts and key challenges. Among the groups currently working with Nestle are Coley Porter Bell, Brand opus, Dragon Brands and Blue Marlin. According to one industry source, impactful design and new product development across its portfolio of brands has been hindered by the number of divisions design work has to be approved by. Nestle has been the focus of recent reports suggesting that it faces a raft of challenges in creating innovations to maintain profits and keep its brands afloat. It did, however, report a 6 per cent rise in profits last month, despite criticism of its record in product innovation. The company’s most recent attempt at new product development – Boosted Smoothies, a t venture with Boost Juice Bars – has floundered in the UK because the product has struggled to get supermarket listings. Other innovations have included chilled ready-to-go latte drink Nesfrappe..

11

PRODUCT LIFE CYCLE OF NESTLE

Business theory suggests that products follow a life-cycle, going throughphases of development as follows: • the conception of an idea/product • research and development • introduction to the market. A period of growth then follows as consumers become increasingly aware of the product and, if successful, it becomes profitable. Eventually, the growth of sales will level off this is the mature phase and is usually the result of increased competition. The theory predicts that sales will gradually decline as the market becomes saturated and consumer tastes change. However, it would be wrong to assume that after the uphill struggles of the development and growth phases, life becomes easier on the level. It is a considerable challenge to the marketers to prolong the profitable mature phase for as long as possible. At Nestlé, we apply a product life cycle approach involving its partners from farm to consumer in order to minimize the environmental impact of our products and activities. Our aim at all stages of the cycle is to use natural resources efficiently, to favor the use of sustainably-managed renewable resources and to target zero waste. In this way, we intend for its brands to stand for environmental sustainability. Nestlé's initiatives aim to improve the environmental performance of the products along their entire life cycle. These include sourcing sustainable raw materials, reducing energy consumption and minimising air emissions by moving to different fuel types. Nestlé invests an average of CHF 40 million a year to reduce its air emissions. Another significant step in the value chain is transport. Nestlé has initiated a pilot with Schenker, an international logistics company, to evaluate the effect of different types of transport, distances driven and fuel type used. Through internal research and development at Nestlé there have also been significant advances in the environmental impact of refrigerants and packaging. Without compromising product quality there was a reduction of 392 000 tonnes of packaging material between 1991 and 2008. 12

ADVERTISING OF NESTLE

Evidence shows that Nestlé d and still s its formula as a risk-free substitute (or even a preferable alternative) to its products, resulting in increased use.

Advertising for children: Nestlé sponsors the Healthy Thai Kids programmed, reaching 5000 primary schools with nutrition education. Above the children learn the importance of a balanced diet and discover, in an interactive way, how food is digested. Responsible advertising to children has always been part of Nestlé' Consumer communication principle. They are aimed at encouraging moderation, healthy dietary habits and physical activity without undermining the authority of parents or creating unrealistic expectations of popularity or success. They also ensure that we do not create difficulty in distinguishing real from imaginary.

THE MEDIA BUSINESS: ADVERTISING -- ADDENDA; Nestle Unit Selects Dailey:

The chocolate and confections division of the Nestle Food Company in Glendale, Calif., the American unit of Nestle S.A. of Switzerland, has named Dailey & Associates in Los Angeles, a unit of the Interpublic Group of Companies, to handle advertising for its Nestle Crunch and Nestle Buncha Crunch candy brands.

13

Exclusive Advertising Contract with Nestle:

Immedia has signed an exclusive advertising contract with Nestle on its Impulse Live radio station and is expanding its sales team through an outsourcing agreement with Unique Communications Group. Immedia, the provider of live tailored radio stations for retailers, is pleased to announce it has signed an exclusive advertising contract with Nestle on its Impulse Live radio station. Following a series of successful advertising campaigns such as Smarties Bar, KitKat and Polo on Impulse Live, Nestle will now become the station's exclusive chocolate and sugar confectionery r for 2005. New advertising campaign for Nestle 'Treasures' chocolate snacks: Trying to spark its sluggish Treasures, Nestle is aiming at on-the-go consumers who pluck their indulgences from convenience stores and checkout aisles with five-piece packs of the bite-sized chocolates. The new packs aim to reverse low consumer awareness blamed in part by confection buyers on the bagged candy's opaque packaging. The count-good pack, suggested by c-store operators, has a window clearly disclosing five individually wrapped treats.

14

FINDINGS While doing this report we noticed some things in nestle regarding their job design. These are mentioned below1. Nestle has different brand name for different products. Sometimes it becomes confusing whether it is nestle brand or not. 2. Nestle marketing strategies are different for different region. 3. Despite of being global crisis, nestle performance is much better. 4. There is a time lag between commodity prices rising and the knock-on effect on finished products because the products are already in the shops with their price tags on them.

15

LIMITATION As far as report writing is concerned, we are bound to make mistakes, as well as face various other problems. Thus, few of the problems faced while preparing this report and some of the weaknesses of this report are given below

Nestle is a multinational company that’s why we were unable to have any physical survey. .  Getting relevant papers, documents and information were strictly prohibited.  In web sites there are lacks of information.  It was a very short time that’s why we could not go through our report.

RECOMMENDATON 1. Nestle should expand its business. 2. Nestle should more conscious on its product-life cycle. 3. Nestle should more attentive on its advertising activities. 4.

Nestle should improve its product day by day.

5. Nestle should minimize its product price.

16

CONCLUSION Nestle has seen a strong start to 2008, partly thanks to its strategy of increasing product prices quickly in line with commodity price increases. Through internal research and development at Nestlé there have also been significant advances in the environmental impact of refrigerants and packaging. Without compromising product quality there was a reduction of 392 000 tonnes of packaging material between 1991 and 2008. Evidence shows that Nestlé d and still s its formula as a risk-free substitute (or even a preferable alternative) to its products, resulting in increased use.

17