MGT211 term paper--Management Planning of Nescafé

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Management planning of Nescafé

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MGT211 term paper--Management Planning of Nescafé

  1. 1. Management Planning of NESCAFÉ
  2. 2. Management Planning of NESCAFÉ November 30, 2012 MGT211 Management Planning of NESCAFÉ Term Paper Section 03 11/30/2012 SUBMITTED BY SSl. Name I.D.No.1. Samiya Yesmin 113040432. Protiti Khan 113040183. Sawda Nusrat Haque 113050074. Moinul Hossain 112040455. Tausif Nazran 11121019 Page 2
  3. 3. Management Planning of NESCAFÉ November 30, 2012 LETTER OF TRANSMITTALDate: December 1, 2012Afsana AkhtarAssistant ProfessorBRAC Business SchoolSubject: Submission of Term PaperDear Miss:We are pleased to submit our report on “Planning of Nestlé, regarding the brand Nescafe” foryour review. This report was done with the help of Ishtiaque Ahmed, Senior Brand Officer,Nestlé Bangladesh Limited. He helped us with his excellent guidance and the informationthat we required to complete this report.It was a pleasant experience for us to work on this project. We would like to thank you forgiving us such a wonderful opportunity.Sincerely Yours,________________________Protiti KhanSamiya YesminSawda Nusrat HaqueMoinul HossainTausif Nazran Page 3
  4. 4. Management Planning of NESCAFÉ November 30, 2012 ACKNOWLEDGEMENTFirst of all, we would like to convey our special thanks to Miss Afsana Akhtar, our facultyadvisor for her valuable guidance, which helped us to complete this report successfully. Weare highly grateful to her. Next, we would like to acknowledge the help of Mr. Ishtiaque Ahmed, Senior BrandOfficer, Nestle Bangladesh Limited, Mr. Mahfuzul Islam, Senior Brand Officer, NestleBangladesh Limited, and Mr Ahmed Shafquat Noor, Financial Planning Analyst, NestleBangladesh Limited, for sharing their insights into the topic and providing us the support andinformation we needed. We greatly appreciate their help. Page 4
  5. 5. Management Planning of NESCAFÉ November 30, 2012 CONTENTS 1. Introduction ............................................................................................................... 7 1.1. Origin of the report .............................................................................................. 7 1.2. Objectives ............................................................................................................ 7 1.3. Methodology ....................................................................................................... 7 1.4. Scope ................................................................................................................... 8 1.5. LIMITATION ..................................................................................................... 8 2. Overview of the Corporation ..................................................................................... 9 2.1. HISTORY of the Organization............................................................................ 9 3. Company Profile: Nestlé Bangladesh Limited (NBL) ............................................ 11 4. Corporate Culture .................................................................................................... 12 5. NESCAFÉ ............................................................................................................... 13 5.1. Marketing Mix of NESCAFÉ............................................................................ 13 6. SWOT Analysis of NESCAFÉ................................................................................ 17 7. Profile of the Coffee Consumers: Local Scenario ................................................... 18 7.1. Demography: ..................................................................................................... 18 7.2. Psychography: ................................................................................................... 18 7.3. Geographical Segmentation: ............................................................................. 18 8. NESCAFÉ Market Cluster ...................................................................................... 20 9. Strategies for Cluster Markets ................................................................................. 21 9.1. Developed Leader Market ................................................................................. 21 9.2. Developed Challenger Market........................................................................... 22 9.3. Developing Leader Market ................................................................................ 23 9.4. Developing Challenger Market ......................................................................... 23 10. Management of Stakeholders .................................................................................. 24 11. Industry Analysis: Porter‟s Five Forces Model ....................................................... 26 12. Industry Players ....................................................... Error! Bookmark not defined. 12.1. Nestlé: ................................................................ Error! Bookmark not defined. 12.2. Kraft Foods Inc:................................................. Error! Bookmark not defined. 12.3. Sara Lee: ............................................................ Error! Bookmark not defined. 12.4. Proctor & Gamble: ............................................ Error! Bookmark not defined. 13. Conclusion ............................................................................................................... 28 14. Recommendation ..................................................... Error! Bookmark not defined.Bibliography ............................................................................ Error! Bookmark not defined. Page 5
  6. 6. Management Planning of NESCAFÉ November 30, 2012 ABSTRACTNESCAFÉ is one of the strategic brands to the world‟s leading food company Nestlé. InBangladesh the brand has a well established position as it holds 95% of the market share incoffee market in Bangladesh. But the overall coffee market in Bangladesh is very smallcompared to the large tea market of 60000 tons. Worldwide NESCAFÉ is the largest profitmaking category with different ranges of coffee starting from instant coffee to coffeespecialties. In this report the suggested plan of action section of NESCAFÉ, and a lot ofpromotional ideas were pitched which greatly involved the NESCAFÉ target group. Hence we decided to study the working of Nestlé Bangladesh Limited to observe andlearn how all the management factors, related to our course “Principles of Management”, arepractically being used. Investing heavily in promotion requires a lot of budget whichnormally comes from the revenue of products. NESCAFÉ needs invest a lot into promotionbut at the same time can afford to make its products more expensive. Striking the perfectbalance here is the main challenge facing NESCAFÉ in Bangladesh. Page 6
  7. 7. Management Planning of NESCAFÉ November 30, 2012 1. I NTRODUCTION 1.1. ORIGIN OF THE REPORT Nestlé Bangladesh Limited is a leading food company with lots of global strategicbrands operating in Bangladesh. NESCAFÉ is one of the strategic brands of NestléBangladesh Limited. Worldwide NESCAFÉ is the largest profit making category withdifferent ranges of coffee starting from instant coffee to coffee specialties. Hence we decided to study the working of Nestlé Bangladesh Limited to observe andlearn how all the management factors, related to our course “Principles of Management”, arepractically being used. Analyzing and learning from this huge and successful multinationalcorporation, Nestlé, has been a major revelation 1.2. OBJECTIVES - To learn about management proceeding. - To learn how the planning procedure takes place. - To observe how management theories come into practical use. - To learn why and how the decisions are made. - To learn strategic management from a realistic point. 1.3. METHODOLOGY We have used both primary and secondary sources to collect data for this study. Ourprimary information was from interviewing Mr. Ishtiaque Ahmed, and Mr. Mahfuzul Islam .And we collected secondary information from the reports given to us by Nestlé and also fromthe reports regarding Nestlé provided over the internet Page 7
  8. 8. Management Planning of NESCAFÉ November 30, 2012 1.4. SCOPE The key focus of the report is the company‟s strategic brand NESCAFÉ. It covers thefollowing aspects:  Analyzing only coffee business aspects of the hot beverage market (not tea)  NESCAFÉ‟s marketing strategy in context of Bangladesh  Future growth potential of the product in Bangladesh  For understanding the right strategy of NESCAFÉ, global strategy of NESCAFÉ has also been discussed. 1.5. LIMITATION  NESCAFÉ has room for extensive and advance study. The report does not cover any in-depth controlling or marketing or consumer behavior models.  In some cases, conclusions have been drawn based on logical assumptions to protect the confidentiality of the company.  The study has been done solely in the context of Bangladesh, hence the strategies identified and the action plans suggested might not be applicable for other countries. Page 8
  9. 9. Management Planning of NESCAFÉ November 30, 2012 2. O VERVIEW OF THE C ORPORATION Nestlé S.A. is a Swiss multinational nutritional and health-related consumer goodscompany headquartered in Vevey, Switzerland. It is the largest food company in the worldmeasured by revenues. It ranks No. 1 in Consumer Food Product category of Fortunes"Worlds Most Admired Companies". Nestlés products include baby food, bottled water,breakfast cereals, coffee, confectionery, dairy products, ice cream, pet foods and snacks. 29of Nestlés brands have annual sales of over 1 billion Swiss francs (about $ 1.1 billion),including Nespresso, Nescafé, KitKat, Smarties, Nesquik, Stouffers, Vittel, and Maggi.Nestlé has around 450 factories, operates in 86 countries, and employs around 328,000people. It is truly a Multinational Corporation with home country sales accounting for only2% of the worldwide total. With the motto “Good Food, Good Life”, Nestlé has always been dedicated toproviding the best food to people throughout their lives, with their unique experience ofanticipating consumers‟ needs and creating solution. The companys strategy is guided byseveral fundamental principles, which only reflects its concern for people. The businessobjective is to manufacture and market the companys products in such a way as to createvalue that can be sustained over the long term for shareholders, employees, consumers, andbusiness partners. All these sound human values and principles on which the company is builton have resulted in Nestlé doing business for about a period of one and a half century withevidently remarkable success. 2.1. HISTORY OF THE ORGANIZATION In the mid-1860s Henri Nestlé, a trained pharmacist, began developing an alternativesource of infant nutrition for infants who had been unable to be breast fed. The Anglo-SwissCondensed Milk Company was founded in 1866-87 by Americans Charles and George Page.In 1875 Henri sold the company to Jules Monnerat and retired. Thirty years later, Nestlé andAnglo-Swiss Milk Company merged, not before producing fierce competition between them. By the early 1900s, the company was operating factories in the United States, UnitedKingdom, Germany, and Spain. The First World War created demand for dairy products in Page 9
  10. 10. Management Planning of NESCAFÉ November 30, 2012the form of government contracts, and, by the end of the war, Nestlés production had morethan doubled. Nestlé found itself in crisis after the end of World War I in 1918. Wartimecontracts finished and civilian consumers who had adapted to condensed and powdered milkduring the war switched back to fresh milk. However, new products appeared steadily:malted milk, a powdered beverage called MILO in 1934, and, in 1938, NESCAFÉ. It becamean instant success and was followed in the early 1940s by NESTEA. Nestlé felt the effects of the Second World War immediately. Profits dropped fromUS$20 million in 1938, to US$6 million in 1939. Factories were established in developingcountries, particularly in Latin America. Ironically, the war helped with the introduction ofthe companys newest product, Nescafé ("Nestlés Coffee"), which became a staple drink ofthe US military. Nestlés production and sales rose in the wartime economy. In 1947, Nestlé merged with Alimentana S.A., the manufacturer of MAGGIseasonings and soups. The acquisition of Crosse & Blackwell, the British manufacturer ofpreserves and canned foods, followed in 1950, as did the purchase of Findus frozen foods(1963), Libbys fruit juices (1971) and Stouffers frozen foods (1973). In 1974, the Company became a major shareholder in LOréal, one of the worldsleading makers of cosmetics. After this diversification endeavour, its overall financialcondition deteriorated drastically. To address this, Nestlé made its second venture outside thefood industry by acquiring Alcon Laboratories Inc., a U.S. manufacturer of pharmaceuticaland ophthalmic products in 1977. In the same year the group took its current name, NestléS.A. Between 1980 and 1984, Nestlé managed to put an end to a serious controversy overits marketing of infant formula in the Third World. In 1984, Nestlés improved profit figureallowed the Company to launch a new round of acquisitions, including the IPO of Americanfood giant Carnation; San Pellegrino (1997), UK‟s Spillers Petfoods (1998), along withFindus brand (1999) Ralston Purina (2002) and since then pet care business has been jointworld leader and known as Nestlé Purina Pet Care. In 2007, Nestlé acquired Gerber, knownfor its infant products, and Novartis Medical Nutrition. Then in 2010, Nestlé acquired Kraftfrozen pizza business in the U.S. and Canada which included Delissio. In 150 years, Nestlé has come across a long way. Page 10
  11. 11. Management Planning of NESCAFÉ November 30, 20123. C OMPANY P ROFILE : N ESTLÉ B ANGLADESH L IMITED (NBL) Nestlé Bangladesh Limited (NBL) stared its commercial operation in Bangladesh at 1994.Its total authorized capital is 1.5 billion taka and total paid up capital is 1.1 billion. The onlyfactory of the company in Bangladesh is situated at Sreepur, 55 km north of Dhaka. Thefactory produces instant noodles and cereals and repacks milks, soups, beverages and infantnutrition products. Popular Nestlé brands started entering this part of the sub-continent during the Britishrule and the trend continued during the pre-independence days of Bangladesh. Afterindependence in 1971, Nestlé World Trade Corporation, the trading wing of Nestlé S.A., sentregular dispatches of Nestlé brands to Bangladesh through an array of indentures and agents,and some of the brands such as NESPRAY, CERELAC, LACTOGEN, BLUE CROSS etc.became household names. In the early eighties Transcom Ltd. was appointed as the sole agent of Nestlé products inBangladesh. In 1992 Nestlé S.A. and Transcom Ltd. together acquired the entire share capitalof the company Vita Rich Foods Ltd. Nestlé S. A. took 60 percent while Transcom Ltd.acquired 40 percent. With this acquisition, the name of the company was also changed toNestlé Bangladesh Limited. In 1998 Nestlé S.A. took over the remaining 40 percent sharefrom Transcom Limited when Nestlé Bangladesh became a fully owned subsidiary of NestléS.A. It has invested more than USD 28.3 million in Bangladesh and achieved above 600crores in sales in 16 years. Today, NBL is a strongly positioned organization. It is continuingto grow through its policy of constant innovation and renovation, concentrating on its corecompetencies and its commitment to high quality, with the aim of providing the best qualityfood to the people of Bangladesh. It currently employs around 462 people directly and hasmore than 1000 people employed by suppliers and distributors in connection with Nestlé. Page 11
  12. 12. Management Planning of NESCAFÉ November 30, 2012 4. C ORPORATE C ULTURE Corporate culture is the specific collection of values and norms that are shared by peopleand groups in an organization and that control the way they interact with each other andwith stakeholders outside the organization. Unlike corporate business policies, ethicalguidelines; corporate culture does not have any well defined written document. It is more of amatter of feeling. Hence this part of the report requires a lot of subjective opinion. During myshort stint so far at Nestlé, whatever expression of its culture I experienced, however much Ifelt its culture; I am encapsulating all that in a short passage for the convenience of thereader. Nestlé Bangladesh Ltd. has an innate ethical culture. Due to the practices of all thesubsidiaries all the world over, NBL encourages ethical conduct even in personal interactionsamong employees which have no business implication. The management style and thedecision making process is participatory. There are more than 3 scheduled meetings everymonth which require participation of people across functions and arrive at importantdecisions. One unique thing in NBL is that it does not follow senior to junior workdelegation. If someone does not know how to do something, he/ she can not only take helpfrom the superiors, but also can delegate the work to him. There are occasions whenemployees are assigned with crucial and sensitive projects but at the same time, are givenenough freedom to work in his/her way. This gives the employees sense of leadership and italso empowers the novice for future tougher assignments. In NBL, punishment is not anecessary element as the congenial atmosphere motivates everyone to do what is right.Rewards come in the forms of monetary incentives as well as formal/informal appreciation. There is one negative aspect about NBL‟s culture. As a whole, it does not respondquickly to changes. However, the relatively younger employees are initiating this culture inthe organization. Finally, NBL is more oriented to growth compared to profit. Theorganization is in its growth stage. Profit orientation is not commensurate with its long termfocus. 4.1.1. Corporate Vision: Nestlé Bangladesh‟s vision is to build Nestlé as the respected and trustworthy leadingFood, Beverage, Nutrition, Health and Wellness Company in Bangladesh ensuring long term Page 12
  13. 13. Management Planning of NESCAFÉ November 30, 2012sustainable and profitable growth. The company is very much focused to ensure that thevision is implemented in every aspect. The company‟s vision and the roadmap to reach it areas follows. 4.1.2. Corporate Mission: Be in every way, the leading company in the local food industry. Ensure high quality standards in everything the company undertakes. Provide consumers with superior quality products. Expand total coverage and provide brand wise distribution targets Provide employees a challenging and satisfying work environment. Be a good corporate citizen and contribute positively to the society in which NBL operates. 5. NESCAFÉ In Bangladesh, NESCAFÉ began its formal journey in 2000. It has two variants- NESCAFÉ Classic and NESCAFÉ 3in1. NESCAFÉ, being the market leader, holds almost 94% market share in the coffee category; other players in the market are Mac Coffee, Maxwell House and Ban Coffee. Currently NESCAFÉ has a business of around 300 tons annually. “Stimulating experience in your everyday lives” is at the core of this brand‟s essence. The brand has the following positioning statement: “NESCAFÉ is a contemporary, up-beat brand of distinctive quality that offers a rewarding coffee experience every time, everywhere.” 5.1. MARKETING MIX OF NESCAFÉ 5.1.1. PRODUCT: NESCAFÉ comes in different sizes. These pack sizes are designed to serve thedemand of different consumer segments and to ensure highest reach of NESCAFÉ in thecountry. Presently, five different Stock Keeping Units (SKU) are available: Page 13
  14. 14. Management Planning of NESCAFÉ November 30, 2012 Pack Size Target Users NESCAFÉ 200 gm jar Out of home pack mostly serving the bulk users, i.e. fast foods, restaurants etc. NESCAFÉ 100 gm jar In- home pack, mainly for the relatively frequent coffee drinkers. NESCAFÉ 50 gm jar In-home pack, meeting the daily usage need of households in an affordable way. NESCAFÉ 14 gm 3 in 1 Containing right mix of coffee, creamer and sugar to have right taste of coffee just by adding hot water, convenient pack size of 14 gm allowing the consumers to carry it with them and have coffee anytime, anywhere. NESCAFÉ 1.8 gm Bondhu Pack For 2 persons, affordable pack with broader consumer base, wide distribution in retail outlets. Table 3: NESCAFÉ Stock Keeping Units 5.1.2. PLACE/DISTRIBUTION: NESCAFÉ each pack size variety requires different distribution strategy. In order toensure NESCAFÉ along with other brands is distributed among maximum number of retailoutlets, Nestlé has engaged 77 distributors throughout the country with specified areademarcation. Three major channels for retail business are Counter Store, Small Store andModern Trade. „Tea Bunk‟ is a very significant & key channel not only for out of homeconsumption but also for the entire category to grow as this channel is very instrumental fortrail generation. But this channel is yet to be exploited. As a whole, different SKUs ofNESCAFÉ have been distributed to more than 52,000 outlets nationwide. 5.1.3. PRICING: Nestlé‟s pricing strategy is different for different pack size to meet the demand ofvarious channels. NESCAFÉ 200 gm Jar: NESCAFÉ 200 gm jar is the highest priced. The unit retail price is 460 Taka. Sincethe product is positioned to meet the requirement of bulk users, it basically has the lowestprice per gm. Page 14
  15. 15. Management Planning of NESCAFÉ November 30, 2012 NESCAFÉ 100 gm Jar: Price of this SKU is 260 Taka. Previously there was no SKU between 200 gm and 50gm jar. 100 gm is targeted to heavy users of 50 gm jar who can save Taka 10 buying 100 gmat once. NESCAFÉ 50 gm Jar: The price for NESCAFÉ 50 gm jar is 135 Taka per unit. These are mainly forhousehold units with high frequency usage per day. The high frequency home users arewilling to buy this pack that makes 50 cups of NESCAFÉ to save some extra money. This jarhas a higher unit price but a lower cost per gm compared to the 1.8 gm pack. NESCAFÉ 3 in 1: The retail price of NESCAFÉ 3 in 1 is Taka 8 per unit. It has a higher per cup pricethan any other NESCAFÉ pack. Yet, those who are willing to incur extra costs to avoid thehassle of preparing coffee prefer it. NESCAFÉ 1.8 gm Bondhu Pack: This is a modified version of the previous .9 gm sachet. A pair of two .9 gm sachetscomes at a price of Taka 5. These are meant mainly for the low frequency users. Despitehigher cost per gm compared to 200, 100, 50 gm jars, it is more affordable for those whodrink infrequently. These people usually buy 4 to 5 sachet at a time. 5.1.4. PROMOTION: Investment in promotional activities is very important to ensure a sustainable growthof NESCAFÉ and achieve the company‟s long-term vision. Following are the brief of thedifferent promotional activities the company undertook so far. TV Commercial: NESCAFÉ has had a memorable presence in TV because of its “cholo shobai”campaign. This was the pioneer of theme music videos. The target group easily connected tothe tune, videography and it became an instant hit. The video still evokes emotion in viewers‟hearts. Prior to that, NESCAFÉ had different TVCs. The first one was “anytime, anywhere” Page 15
  16. 16. Management Planning of NESCAFÉ November 30, 2012campaign for NESCAFÉ 3in1. Then came the “Jaago” campaign. The third campaign usedthe tagline “get, set, go”. Print Media: NESCAFÉ has been advertising in Prothom Alo, The Daily Star, Star Weekendmagazine etc to generate awareness among the consumers. In- Store Communication: Trade posters, Shelf talkers, Bunting, Danglers are the main elements used for in-storecommunication. Nestlé appoints merchandisers for installing these materials. These are alsocalled Point of Sales Materials (POSM). Outdoor Activities: NESCAFÉ is currently using shop signage as outdoor promotion. These help shoppersremember the brand while they are making purchases. Sampling: Sampling is a very useful tool to ensure trial of coffee. Wet sampling is basicallyproviding samples to consumers in ready to drink form. It is done through vending machinesand also through different agencies. NESCAFÉ has yearly budget for free sampling and isactively utilizing it with a view to familiarizing people with coffee taste. Consumer Promotions: Till now NESCAFÉ has adopted two ways of consumer promotion. 1. Through sponsoring different events related to the target consumers, i.e. NESCAFÉ Unplugged, NESCAFÉ Campus Carnival and NESCAFÉ Battle of the Giants. 2. Through providing specific incentives with the pack, i.e. NESCAFÉ mug, NESCAFÉ branded spoons, T-shirts, Caps etc. Besides, the company has also tried out some cross brand promotional activities likepromoting NESCAFÉ and Coffeemate together in the NESCAFÉ dream couples contest. Page 16
  17. 17. Management Planning of NESCAFÉ November 30, 2012 6. SWOT A NALYSIS OF NESCAFÉ 6.1.1. STRENGTHS:• Strong brand image as a youth, vibrant, international brand, specially set by the „Cholo Shobai‟ campaign• Strong acceptability among youth• Expert in Coffee business• Unique activations – Sampling, Root-level activities• 6.1.2. WEAKNESSES:• Erratic supply• High price perception/cup• High skewness of business in Dhk & Ctg• Some misconception about coffee & health• Non-aggressiveness in OOH channels, specially „Tea Bunk‟• 6.1.3. OPPORTUNITIES:• Large young non-user base• Lower SEC groups with low price packs• Involving brand activities to strengthen brand image• Expand numerical coverage with small packs• Expand OOH channel and synergize with Retail• 6.1.4. THREATS:• Aggressive Local competitors, especially in OOH• Inadequate supply from our side opens the gates for local players• Complete dependency on Transfer Price• High Price Page 17
  18. 18. Management Planning of NESCAFÉ November 30, 2012 7. P ROFILE OF THE C OFFEE C ONSUMERS : L OCAL S CENARIO 7.1. DEMOGRAPHY: Urban and semi urban college and university students belonging to the age group of16 to 24 years; Office executives and self-employed individuals from the age group 25 to 25;Monthly household income >= BDT 10,000. 7.2. PSYCHOGRAPHY: Young, College & University students • Prefer to be cool. Values straight-talk, broad mindedness. Trying to break-out of traditional sense. Aspire to become a trend-setter and want to enjoy live by achievements. Highly influenced by word-of-mouth. • Spend a lot of time OOH. Friends get a larger share of time. Movies, chatting, fashion, music etc. are integral to everyday lifestyle. Sub-urban youth reads magazines to keep themselves updated. Likes to be associated with trendy products. Creating Image for them is important. Seek for differentiation and appreciation in everything they do. • Does not know how a perfect coffee cup should taste like though does not accept the frequent change in taste. • Use techno savvy gadgets, i.e. Cellular phones, Personal computers, Music device. • Heavy use of social networking websites, i.e. facebook, myspace, twitter. Office executives & Self-employed Individuals • Seek for social acceptance, recognition and class. Value Self: Self-time, Self-Target. Influenced by word of mouth. Shops in nearby stores or shopping malls. Drinks coffee mainly because of taste, refreshment and class. 7.3. GEOGRAPHICAL SEGMENTATION: Page 18
  19. 19. Management Planning of NESCAFÉ November 30, 2012 Now that we have identified the consumers‟ profile, we can have a look at thecorresponding statistics to have an idea of what potential this market holds. The Statistical Yearbook reveals the following population demographics inBangladesh: Table 4: Urban and Semi Urban Population: Dhaka Chittagong Khulna Rajshahi Bogra SylhetNo of 46.3 28.7 17.4 35.9 9.7 9.5population(mio)% of 31.6% 19.6% 11.9% 24.6% 6.6% 6.5%National Table 5: Population Number by Age Group: 15-24 yrs 25-34 yrs 35-44 yrsNo of population (mio) 25.5 20.84 16.06% of population 17.4% 14.2% 11% Key observations:  Majority of our consumers live in Dhaka, Chittagong and Rajshahi  More than 30% of our population falls below the age group of < 35 years giving a big target base for coffee business development. Now that the population in urban and semi urban areas and the population belongingto NESCAFÉ‟s age bracket are defined, there is scope of digging down more with respects tohousehold income and finding out what is the actual size of the market. Afterwards, class‟scoffee consumption can also be tracked and demonstrated in order to identify the portion ofmarket which is still untapped. Page 19
  20. 20. Management Planning of NESCAFÉ November 30, 2012 8. NESCAFÉ M ARKET C LUSTER In order to understand the coffee markets better and to focus with specific strategies insimilar market Nestlé has divided all Nestlé markets into 4 clusters based on two parameters: 1. The per capita consumption of each market 2. Total share of soluble market of NESCAFÉ These clusters are markets, which are similar to with respect to coffee consumptionhabits of their consumers. Nestlé believes that this is a far more meaningful and consumerdriven approach than clustering the market by geographical location or size of business. Oncethe clusters are developed Nestlé attempts to develop similar strategies in markets belongingto any particular cluster, exchanging ideas to facilitate the faster development of Nestlé‟ssoluble coffee business. The 4 clusters of Nestlé are shown below: Developing Leadership Developed Leadership More 50% Market share The 4 Clusters Developing Challenger Developed Challenger Less Less 360 Cups of coffee More Figure 11: NESCAFÉ Market Clusters Page 20
  21. 21. Management Planning of NESCAFÉ November 30, 2012 The above chart shows that based on the per capita coffee consumption and solublecoffee market share in each market Nestlé have developed 4 clusters. All Nestlé marketsbasically falls within any of these 4 cultures. The markets with more than 50% of the marketshare and less than 360 cups of per capita consumption per annum falls in the DevelopingLeadership Cluster. On the other markets with more than 50% of the market share and morethan 360 cups of per capita consumption per annum falls in the Developed Leader Cluster.Markets with less than 50% of market share and less than 360 cups of per capita consumptionper annum falls in the developing challenger cluster. Finally markets with less than 50%market share and more than 360 cups of per capita consumption fall within the developedchallenger cluster. 9. S TRATEGIES FOR C LUSTER M ARKETS Each of the clusters mentioned above as similar markets in nature with similar type ofconsumer behavior. Nestlé has developed specific strategies for each of the cluster. Thesestrategies have been discussed below: 9.1. DEVELOPED LEADER MARKET The Scenario:  In this cluster soluble sets the standard for coffee and there is already a substantial level of consumption on which to build.  NESCAFÉ is the leading coffee brand often dominating by a substantial margin.  A worrying development is that R&G is developing a strong image due to OOH activity- we need to ask ourselves whether we are still setting the standard or not. Strategies:  Get incremental cups from existing users by covering all important need states with relevant NESCAFÉ products.  Ensure full product portfolio in these markets.  In the battle for Share of throat vs. other beverages, we mustn‟t lose sight of the need to keep ahead of our strong soluble competitors. Page 21
  22. 22. Management Planning of NESCAFÉ November 30, 2012 We must have clear 60/40 winners in terms of product performance, and we need to continue our commitment to apply our most sophisticated technologies here. The challenge for these markets is to bring these new advances in quality to the consumers in a relevant and competitive way. 9.2. DEVELOPED CHALLENGER MARKET The Scenario: Many of these markets have a long-entrenched coffee culture and high per capita consumption. R&G dominates the coffee market but is usually flat/declining. The stronger R&G brands have taken ownership of coffee values, making it hard for NESCAFÉ to find a meaningful position. In-home drip filter machines that make good quality cups of coffee are common, making it that much harder for NESCAFÉ to penetrate R&G households. Although NESCAFÉ is usually the leading brand in soluble coffee, it is not yet a major brand within the total coffee category. Soluble suffers from a negative perception in these markets (not the real thing) – NESCAFÉ is often not even on the radar screen of the consumer. The challenge is to find breakthrough product and positioning solution to improve NESCAFÉ credibility/ acceptance. The OOH sector is well-developed and also largely dominated by R&G. Strategies: Nestlé has the opportunity of growing soluble‟s share by increasing focus on youth . This plays to the fact that though R&G is the acceptable world of coffee in general, young people can still choose soluble as their habits are not yet set. Also, young people are rarely attracted to the same old brand that their parents consume. The threat from other beverages- e.g. Soft drinks, is common across developed markets (they have been luring away tomorrows NESCAFÉ consumers, while our own recruitment efforts have been often patchy. Page 22
  23. 23. Management Planning of NESCAFÉ November 30, 2012 A key development is that several markets have launched innovative, tailor-made products to attract youth. Strong OOH activities help to get consumers in touch with NESCAFÉ. But Nestlé must ensure that this branded OOH contact is really positive experience. 9.3. DEVELOPING LEADER MARKET The Scenario: Soluble dominates the coffee market; R&G is only starting to show up in OOH. NESCAFÉ is usually the dominating coffee brand and we play the role of market developer, helped by improving per capita income. There is considerable opportunity to build that coffee category in these markets as the coffee habit is yet to be properly established. In addition NESCAFÉ is equal to coffee here and we can be more more aggressive and commandeer the category. As a result this is the high growth cluster today. The key challenge is to change consumption habits from other beverages usually hot tea to coffee. Strategies: Establish NESCAFÉ as the standard for coffee (provide strong support commandeer the category and establish NESCAFÉ as a rational, dominating beverage brand. Target main consumer need states (priority to morning cup) Adopt the 3A approach (focus on improving appeal, availability and affordability) 9.4. DEVELOPING CHALLENGER MARKET The Scenario: This is the smallest cluster today in terms of both volume and values, but these markets will become important contributors to the business in the future. Coffee consumption is under developed and tea is often the most consumed beverage. These are markets that are currently characterized by an R&G habit, but more from custom rather than from strong branded R&G activity. Page 23
  24. 24. Management Planning of NESCAFÉ November 30, 2012  In most of these markets “the jury is still out on who will set the standard in the long run. Strategies:  Establish soluble coffee as a desirable beverage (target most important need states and/or exploit weakness in R&G).  Adopt the 3A strategy approach (focus on improving appeal, availability and affordability).  Consumer education is key (how to prepare, sampling). The main objective of this part of the report is to point out the gaps in NESCAFÉ‟s communication and promotional approach and to come up with strategies to fill those gaps. From all our prior discussions, we can say this much that NESCAFÉ in Bangladesh is in continuous effort of making this brand a happening one. But it has overlooked some very vital opportunities it could tap in the present world. Following are some ways by which NESCAFÉ Bangladesh can get closer to its target group hence build its brand strongly. Since NESCAFÉ 3 in 1 is the recruitment SKU, most of the plans evolve around it. 10. M ANAGEMENT OF S TAKEHOLDERS Nestlé has well defined business principles for the proper management of itsstakeholders. The ten principles of Nestlé‟s business operations are- Consumers Nutrition, Health and Wellness: Nestlé‟s core aim is to enhance the quality ofconsumers‟ lives every day, everywhere by offering tastier and healthier food and beveragechoices and encouraging a healthy lifestyle. This is expressed via the corporate propositionGood Food, Good Life. Quality assurance and product safety: Everywhere in the world, the Nestlé namerepresents a promise to the consumer that the product is safe and of high standard. Page 24
  25. 25. Management Planning of NESCAFÉ November 30, 2012 Consumer communication: Nestlé is committed to responsible, reliable consumercommunication that empowers consumers to exercise their right to informed choice andpromotes healthier diets. Nestlé respects consumer privacy. Human rights and labor practices Human rights in business activities: Nestlé fully supports the United Nation GlobalCompact‟s (UNGC) guiding principles on human rights and labor and aims to provide anexample of good human rights and labor practices throughout its business activities. Our people Leadership and personal responsibility: Nestlé‟s success is based on its people.They treat each other with respect and dignity and expect everyone to promote a sense ofpersonal responsibility. It recruits competent and motivated people who respect its values,provides equal opportunities for their development and advancement protect their privacy anddo not tolerate any form of harassment or discrimination. Safety and health at work: Nestlé is committed to preventing accidents, injuries andillness related to work, and to protect employees, contractors and others involved along thevalue chain. Suppliers and customers Supplier and customer relations: Nestlé requires its suppliers, agents,subcontractors and their employees to demonstrate honesty, integrity and fairness, and toadhere to our non-negotiable standards. In the same way, Nestlé is committed to its owncustomers. Agriculture and rural development: Nestlé contributes to improvements inagricultural production, the social and economic status of farmers, rural communities and inproduction systems to make them more environmentally sustainable. The environment Environmental sustainability: Nestlé commits itself to environmentally sustainablebusiness practices. At all stages of the product life cycle it strives to use natural resourcesefficiently, favor the use of sustainably-managed renewable resources, and target zero waste. Page 25
  26. 26. Management Planning of NESCAFÉ November 30, 2012 Water: Nestlé is committed to the sustainable use of water and continuousimprovement in water management. Nestlé recognizes that the world faces a growing waterchallenge and that responsible management of the world‟s resources by all water users is anabsolute necessity. There are no specific guiding business principles for media and extortionists. Media ismainly handled by communication agencies employed by Nestlé. It also has contract withcreative agencies that develop the creative materials for communication with consumers. Asto the extortionists, the company hasn‟t yet faced anything like that. The company operatesthrough 77 distributors. If distributors face any such problem, they solve it on their ownaccord. 11. I NDUSTRY A NALYSIS : P ORTER ’ S F IVE F ORCES M ODEL To understand the industry and market better, it‟s strong and weak sides; it isrecommended and very helpful to use Porter‟s Five Forces Model Framework. It is essentialto examine coffee industry using this Framework to be able to see the future perspectives ofthe industry. 11.1.1. CURRENT COMPETITORS: Nestlé is the only multinational food company which has its wholly owned subsidiaryhere in Bangladesh. Local companies like AMCL, Bombay Sweets have been present in theindustry with their own food products. Other local conglomerates like ACI, Square, Partex,AKIJ group, Meghna group and Abul Khair have business in the food & beverage industry aswell. Due to their lower compliance expenses compared to Nestlé, and the opportunity ofdrawing cash from sister concerns, they have a lot of cash surplus and have started to playaggressively in the market. There is also a rise in the trend of distributorship and franchising.Shajib Group for example markets Kraft Food‟s extremely popular „Tang‟, Pakistani juicebrand „Sheizan‟. Capitalizing on this experience, it has launched a lot of its own brands. Wealso have Cadbury products available in the market though they do not have any operationshere. Unilever Bangladesh has tea and soup brands which are strong competitors of Nestlé Page 26
  27. 27. Management Planning of NESCAFÉ November 30, 2012products. New Zealand Dairy has several milk brands. In the franchising arena, Transcomgroup is the forerunner. It has brought renowned KFC, Pizza Hut to Bangladesh. MGH grouphas brought Nandos and Barista which are very renowned as well. Apart from that, TranscomDistribution markets Complan, Sneakers and some other food brands. 11.2. THREATS OF NEW ENTRANTS OR BARRIERS TO ENTRY: This industry constantly faces the threat of new entrants. We have already seen in theprevious discussion that this industry is riddled with competition. Still we are seeing newplayers in the market every other market. Two new players are Ejab group and AHZ AgroIndustries. Apart from new entrants, some other old companies like Nabisco, Cocola arerevamping and relaunching their products. All these, if put together, convey the message thatthere are low barriers to entry in this industry. However, in the wake of rising global foodprice inflation and rising costs of transport, companies are convinced that their peace time isover. Rising costs – increasing transport and raw material costs, mainly relating to risingbean, oil and packaging prices, are placing significant pressure on margins in the companysbeverage operations. 11.2.1. BARGAINING POWER OF SUPPLIERS: Suppliers can be of two types- raw material suppliers, services and indirect materialsuppliers. The number of suppliers in Bangladesh is very limited. For example, only 4companies supply shipping cartons. Given the competition scenario, we can see that thenumber of clients are way bigger than number of suppliers. So the suppliers have a lot ofoptions to go to. Hence, they enjoy high bargaining power. 11.2.2. . BARGAINING POWER OF CUSTOMERS: The plethora of food companies gives also the consumers an array of options tochoose from. Their bargaining power is actually a balance of two opposite phenomenon. Interms of price, the consumer will always have cheaper options to switch to. When it comes toquality, they are loyal to one particular company or brand. So quality conscious people willconsume a particular product no matter what the price is mostly because they trust it and arehabituated to it. They will have no option but exercise a low bargaining power. Page 27
  28. 28. Management Planning of NESCAFÉ November 30, 2012 11.2.3. . SUBSTITUTE PRODUCTS: Food & Beverage industry, holistically thinking, does not have any substitute productsince everything edible falls into this industry. However, from a different point of view,substitute products are those non-branded, home-made, hand cooked items that make up thelion‟s share of our food. The 20 largest food company in the world accounts for less than 9%of the world market. Obviously, the substitute products are predominant. 12. C ONCLUSION AND RECOMMENDATIONS Nestlé must ensure availability of its product to the hand reach of the customers. Thesmaller sachets in the SKU portfolio would play a vital role to increase the distribution of thebrand and to make sure that the brand is available for consumption by the consumerswhenever and wherever possible. NESCAFÉ vending machines can also play a key role inmaking NESCAFÉ available to the target consumers. The product needs to be familiar to theconsumers by establishing role of the brand in their daily lives. Sampling of the brand canwork very well in ensuring familiarity of the brand among the target consumers. Interactiveactivities supported by sampling or trial of the product can work very well in ensuringfamiliarity of the product. Lastly the biggest challenge of the brand would be addressingaffordability. Being an imported product, duty structure always creates pressure on the brandas far as affordability is concerned. Nestlé must continuously look for opportunity to increasethe efficiency of the brand, save cost and thus reduce the price of the products to make itmore affordable WORKS CITED - Islam, M. M. (2011). Profile of the Coffee Consumers: A Case of Nescafé. - Munch Report, www.Neevai.com - Interviews of Nestlé employees - www.wikipedia.com/Nestlé - www.wikipedia.com/Nescafé - www.necafé.com Page 28

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