To pose Nestlé product against the competitors, the company will be using differentiation strategy which will not only differentiate their own from others but also give an edge over others. Nestlé core products will be very beneficial especially in terms of quality, health, and hygiene and most important consumer satisfaction. Nestlé augmented products will include consumer satisfaction, warranty to retailers in terms of expire, delivery and after sales services.
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The companies all over the world get some competitive edge based on some features which other companies don’t have. For example, as the Dell has the competitive edge over other computer manufacturer companies, because they use built-to-order Strategy while no other company in computer industry use this strategy. Similarly in Pakistan nestle has their competitive edge based on the strategies like product differentiation and customer oriented.
Nestlé is using the product differentiation strategy by providing the superior quality products. Their main focus is to keep the customers loyal. They bought shelve space in different departmental stores to attract the customers. They tried to reach each group of people in which they have succeeded. Besides, customer satisfaction is the focal point for the company. They provide hygienic products to their customers. Products are also verified by health and safety measures and international quality standards.
Porter Five Forces
3.1.1 Threat of New Entrants:
There is big number of food companies in the world; meanwhile the competitive between food companies are happened. Some companies have carved out role in which they support to dairy supply. These food companies are fearful of being squeezed out by the big players. Another threat for many food companies is other food services companies entering the market.15 Competing in a new industry requires resources to invest. Production of packed products requires huge investment of financial, human, technical, and marketing resources.
Bargaining Power of Suppliers:
The suppliers of food might not pose a big threat, because of the number of suppliers. Raw milk is standard commodity and is available in the open market from a large number of milkmen. If anyone refuses to sell its product then company can buy it from others who are already willing to sell to company. On the other hand, the importance of volume to supplier also considered as a threat. Suppliers also have less leverage to bargain over price because the company is purchasing the large volume of their milk and suppliers don’t have much option to sell milk to others.
Bargaining Power of Buyers
The buyers will not post much of a threat to the food industry. Large clients have their own bargaining power with food companies. Large corporate clients like airlines and retailers pay millions of dollars a year. There are large numbers of distributors, who are buying and distributing the product, so their bargaining power is low and company have leverage to dictate implement its terms and conditions to distributors.
Availability of Substitute
There are few of substitutes in the food industry. Most of the food companies have similar suites of services. Companies focusing on their role usually have a competitive advantage, but this advantage depends on whether there are any barriers that preventing other firms from entering.15
The food industry is highly competitive in nowadays. As a result, food industry has become more like a commodity, an area in which the food company with the low cost structure, greater efficiency and better customer service will beat out competitors. In long run, larger companies prefer to take over or merge with other companies rather than spend the money to market and advertise to people.15
Source of Cost Efficiency
3.2.1 Economy of scale
Economy of scale determines cost efficiency based on time, and processing of the operations and labour cost. Nestlé used new high-technology system machines to process all the products, like high-speed bottling system, packaging machine for increasing the output of the products so, it could save time of the operation in process, and save labour cost. The company do not need to hire more labour to operate the process, which is one of the key to save cost.
Nestlé has been serving Pakistani consumers since 1988, when parent company, the Switzerland-based Nestlé SA, first acquired a share in Milkpak Ltd. Today Nestlé is fully integrated in Pakistani life, and is recognized as the producer of safe, nutritious and tasty food, and leaders in developing and uplifting the communities in which they operate. Nestlé Pakistan ensures that their products are made available to consumers wherever in the country they might be. Convenience is at the heart of the Nestlé philosophy, and there aim is to bring products to people’s doorsteps.
3.3.1 Tangible resources
Nestlé Milkpak produces in over 81 countries and achieves 98% of its turnover outside Europe. Nestlé Milkpak is the world’s largest milk company, which does 98% of its business. It has an annual turnover of 70 billion Swiss francs, 522 new factories in 81 countries, 200 operating companies, 1 basic research outer and 20 technological development groups, has more than 231,000 employees and more than 8000 products around the globe. There are three companies co-ordinate the activities of some 200 operating companies around the globe.
There are three different functions, Nestlé Milkpak, holds the financial shares in the allied companies. It also checks the profitability of these companies and to ensure the profitability of the group as whole. Second, Nestlé Milkpak, has two areas of activities that are research and technological development, and technical assistance. Beside this, it provides know-how in engineering, marketing, production, organization, management and personnel training on a continuous basis. The third company is Nestlé World Trade Corporation that oversees the import and export of merchandise worldwide.
3.4 BCG Matrix
Relative Market Growth
The stars are the high relative market share and high market growth. Nestlé beverages are the stars in their business, because with the high quality and new designs which comes every now and then makes them more popular among the customers, because customer with upper class wants the quality and nestle offers the best quality food items. Besides, Nestlé major products such as Nestlé milk pack and Nestlé water will lies in the category of star products, due to the needs of human in their life.
3.4.2 Question Marks
The product which have high anticipated growth rate but low market share would be considered as question marks. The product which the company launch first time in Pakistan is Nestlé Ice-cream would come under the question marks due to the unknown result whether successful or failed in the growth of business in future.
3.4.3 Cash Cows
The cash cows are Nestlé cereal and other baby food products. There is less competitive brand on these specific of products and Nestle was considered as a branded and reliable brand, so most of the consumers prefer to buy from Nestle.
The pharmaceutical products are Nestlé Dog; because it has low-share business with low growth market especially when talk about Pakistani market. The company has to think on what it can do by improving the low share and growth market.
3.5 Product Life Cycle
Nestlé Cereal & Baby Food Nestlé
Food items pharmaceutical product
(e.g. Milk pack
Nestlé Milkpak Industry
The product life cycle has been used to analyse the products development refer by the BCG matrix. Product life cycle has 4 stages consist of introduction, growth, maturity and decline. Nestlé Ice-cream has been stated on the introduction stage because it is launched the first time in Pakistan. Next, the growth stage would be the food items like milk pack, water and etc, due to human need as Nestlé has provided.
On the other hand, Nestlé cereal and baby food were stated in the maturity stage, due to less competitors. Lastly, Nestlé pharmaceutical product is on the decline stage, because of the low share in business and low demand. In the product life cycle, it shows that Nestlé Milkpak industry is now on the maturity stage, the company has been recognized by consumers.
3.6 SWOT Analysis (TOW Matrix)
Worldwide fame of Nestlé.
Efficient milk collection system.
Keeping high quality standards.
Integrated distribution and warehousing facilities.
Large market share of innovative.
Having Good reputation in the market by strong brand name i.e. Nestlé.
Unable to compete in price sensitive segment of UHT milk market.
Under-utilization of the capacity.
Unable to fulfil the demand of local powder milk market.
Population growth rate.
High urbanization rate.
High literacy rate.
Flexible government policies for food industry.
Have significant growth opportunities.
May merge with other global businesses to eliminate competitors.
Having Capable of expanding into other markets of the world.
Increase production of quality milk to cater the unsatisfied demand.
They should go in the product line of powdered milk.
They should increase their exports.
They should cater the wide range of unsatisfied demand by improving their distribution networks.
As per the increase demand of the milk they should fulfill the demand as Nestlé have the ability to expand.
They should make a strong distribution system to cater to avail the full benefit of the growing market.
They should adopt affective marketing strategies for the promotion of their product.
High inflation rate.
Low purchasing power.
Decrease in GDP growth rate.
Increasing interest rates.
Recessionary period in business cycle.
Competition with the new entrants.
Invest more on the dairy product line as there is still a large chunk of the market which require modernization.
Introduce new technology for quality assurance and better productivity.
The co-ordination between different departments should be improved it will lessen the bureaucratic cost and increase the efficiency of the company.
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