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Strategic Choices by Nestle (Chocolate & Confectionery division) Essay

Strategic Management
Assignment two
Strategic Choices made by Nestle (Chocolate & Confectionery Division)

The strategic Choices made by Nestlé’s Chocolate & Confectionaries division are discussed on the basis of the cost leadership strategy, differentiation strategies and Focus strategies used in the Generic strategies and in the corporate level strategic directions used by the Nestle Head office in Switzerland in the strategic tie ups with speciality chocolate makers initiated by the company to gain market majority market share in the Chocolate and Confectionery Industry and to provide innovative and various exotic varieties of Chocolates to the consumers. It is also assumed what kind of corporate parent is Nestle. Business Level Strategies – Generic Strategies

Cost – leadership
The most important segment of strategy is competitive advantage which is developed through a pattern of resource development and scope decisions (Amit, 1986). Nestlé’s chocolate and confectionery unit has been recognized as the lowest cost producer in the chocolate and confectionery industry without compromising quality and customer focus (Cotton, 2010). To achieve optimum cost leadership in the confectionery industry, it is important for Nestle to keep in mind factors such as cultural environment, behaviour and communication issues in the planning stage (Schiff & Schiff, 2009). Nestle invested in the Chocolate and Confectionery industry in 1992 and 2007, they became the world leader in the Chocolate and sugar confectionery industry (Walter, 2008). Nestle also battled against frequent input price rises and challenging ingredient markets like Germany, Italy, and France, maintaining optimum costs in raw material and packaging materials have been achievable despite market being volatile (Market watch, 2005). To cut down costs, its factory in Switzerland has been equipped with automatic chocolate box filler (Food, Engineering & Ingredients, 2000).

Nestlé’s market leadership in Chocolate and Confectionery industry attracts suppliers of high quality raw materials and helps the firm to position itself with large customers like supermarkets chains etc (Colin, 2012). With greater control over the market conditions, Nestle can reduce costs through economies of scale in marketing and establish ideas more effectively. Nestle must decide how well they should market their products under such a big international brand (Gomez et al., 2009). Interaction with customers has become more personalized with the use of web based interactions. Customers can now even buy Chocolates or Confectioneries online which will be delivered at their doorstep, hence achieving cost leadership (Martin, 2012). Nestle Chocolates division is to feed the chocolate industry with innovative chocolates which provides superior tastes and performance with minimal labour focusing on high quality (Rivera, 2005).

Differentiations strategy
Firms head for product differentiation to gain control of the market (Makadok & Ross, 2011). Nutrition has been the core of the business for Nestle (Nestle, 2009). Nestle’s key strategic customer are the people themselves. Commercially, Nestle has targeted different media sources like the newspapers, magazines, the television to be a sourcing platform to advertise their various kinds of chocolate products and confectioneries (Parry, 2006). The market positioning of Nestle’s Chocolate and Confectionery brands to form the basis of strategic differentiation as its vital to identify what the brand does to fit consumer’s lives. The three base needs of a product is to fulfil their emotional, physical or social need (Triplett, 1994). Identifying the key competitors for Nestle Chocolates is almost endless with few names after Hershey, M&M Mar and Jacobs Suchard.

Geographically for instance in the Indian Chocolate industry, though Nestle has got a broad range of products, they face stiff competition from other dominant players such as Indian brand Amul, Cadbury, local small scale made Ooty chocolates (Jenson, 1997). Nestle Chocolate and Confectionery division stands alone compared to its competitors as globally they are backed different kinds of chocolates like the dark chocolate range, the liquor chocolate range, low carb range, the white chocolate range, high calorie range, low calorie range and so much more and supported by recognized various health academies, food technologists, marketing experts who have the knowledge on all sectors of Chocolate and Confectionery business and also quality assurance on brands and the solutions they offer (Rivera, 2005).

Figure.1. Mapping the differentiation in the Indian Chocolate Industry.

Figure 1: Nestlé’s relative market position in the Indian Chocolate & Confectionery Industry: An Indian perspective (Betgeri et al. 2012)

Focus strategies
Focus strategies targets a narrow segments of the nature of activity and tailors its products to the needs of that segment (Johnson, Whittington & Scholes, 2011). Customer focus strategy can be defined as a way to satisfy the needs and expectation of a particular group of segments, which should in turn makes that group to buy the firm’s products or services and organizations like Nestle traditionally follows this principle (Bose, 2012). This enhances communication ability with customers and organizations can create value chain management according to the customer preferences (Verma et al. 1999). In the last few years, the consumer behaviour has changed significantly.

The consumers not only look at a bar as a delicious treat, but also want to make sure that the chocolate they are eating are made of natural ingredients. Nestle had earlier identified this challenge, and have now put nutrients labelling on the wrappers to ensure customers receive all the nutrients information before making the purchase, thus keeping them informed (Hausman, 1999). The firm has responded instantly with the consumer market transforming into a diet conscious consumer market, by introducing various range of low carb instant breakfast range, instant low carb chocolate and nut bars. Nestles distinctive segment value chain is hard to other rivals to copy as Nestle supports the small improvised dairy farmers who are stuck in the low productive cycle, environment degradations by advising technical farming, helped growers secure their dairy products, paying them directly for better dairy products (Porter, 2011).

The strategy clock
In the differentiation zone, Nestle introduced the low carb / calorie products which do help in weight reductions and adding more nutrition value into the human body. This product will be under the differentiation category without price premium to gain market share in the chocolate industry (Triplett, 1994). Once market share has been achieved, it’s fair to move towards price premium (Johnson, Whittington & Scholes, 2011).

Nestlé’s alliance with chocolatier Pierre Marcolini, the buyers will perceive its products to be high with benefits with moderate pricing. This will be a focus strategy (Sudhaman, 2008). In the low price zone, Nestle manufactures fast moving low priced chocolates like Kit Kat, Nestle Quality street, Nestle Munchies, Nestle Milkyway and so many more are considered the fast moving, low priced products which gain the market share on the basis of volume revenue (Parry, 2006).

Strategic Directions / Corporate level strategies

Market penetration
Brand alliances
Brand alliances means cooperative associations between two or more brands to work together to achieve mutually decided objectives (Ferrell & Hartline, 2010). Nestle in its ambition to build its premium chocolate profile, The Nestle head office has directed strategic alliance with Belgian chocolate maker Pierre Marcolini. This will make Nestle draw inspirations from the upscale and innovative chocolate designs (Candy Industry, 2008). The Head office in Switzerland has instigated the tie up with high quality producer Barry Callebaut AG. This will transfer plants in Germany, Italy, France to Barry Callebaut AG (Business News, 2007). These alliances have herald competitors to be more aggressive in the Chocolate and Confectionery market by making strategic tie ups with different chocolate suppliers (Rivera, 2005)

Market development
Market development is offering current products and services to new markets (Johnson, Whittington & Scholes, 2011). Nestlé’s corporate plan is to venture into the emerging markets of India, Brazil, Russia and China to boost its presence in these countries (Country Monitor, 2006). Nestle plans to build manufacturing plants in Brazil for the low income groups (Gilbert, 2005). The brand is is studying the potential of selling more of their products in the remote villages of India, but selling products to market stall owners and also sending vendors backpacking to remote areas to sell their products (Country Monitor, 2006). Conglomerate diversification

Conglomerate or unrelated diversification means taking an organization into unchartered territories or businesses (Sadler, 2003). Nestle has ventured into external businesses like pharmaceutical products such as acquiring ALCON, which manufactures pharmaceutical, surgical equipment and devices and also eye car consumer products (Market watch, 2007).

The roles of Nestle Head office, Switzerland and their relationships with the SBUs Nestle. SA Nestle Head office, looks after the financial aspects of how the company runs, human resource policies, branding, quality management and other competencies as per the market (Parsons, 1996). Thee monthly, quarterly and yearly sales, finance figures from respective SBUs will be reported to the head office. The head office will intimate the strategic plan for each SBU to work on. The head office will provide the trainings and seminars (Wentz, 1991). The SBUs create long term strategies in their respective business and take up independent decisions on local issues like process development, new products, distribution and logistics issue (Parsons, 1996). Hence, Nestle .SA is a Portfolio Company.

Value added activities by parent company (Nestle. SA)
Any corporate parent body will need to show that they create more value than they cost (Johnson, Whittington & Scholes, 2011). In private businesses, the parent company needs to show that they have parental advantage and that they are the best possible parent to guide their business (Sadler, 2003). Nestle has opted for knowledge pool and Brightwave to develop online learning courses for more than 130,000 employees (elearning age, 2003).

Personalised training to new employees at the head office (Nestle, 2012). Nestle head office will intervene into the working of the working of the SBUs and analyse their working performance. They have thoe authority to replace weak players in the SBU (Rivera, 2005). The parent body provides central services like treasury, tax and human resources (Parsons, 1996)

The BCG Matrix
The BCG MATRIX uses the market share and growth criteria into considerations for calculating the attractiveness and balance of business portfolio (Johnson, Whittington & Scholes). The BCG matrix is as below for the Nestle Group (Chocolate & Confectionery Business unit).

Figure 3: Nestlé’s Chocolate and Confectionery products market share position individually (Batgeri et al. 2012) CONCLUSION

The report has stated that Nestle.SA is a portfolio company as its SBUs are independently performing their activities delegated by the head office. The products of the Chocolate and Confectionery division have a strong demand in the world market and its competitors are well versed about their potential. Before the 90s, Nestle was considered the sleeping giant. Due to their exponential demand, Nestle should closely follow the constant fluctuations in the input prices such as raw materials, packaging and costs of transporting also. With the help of the BCG matrix, it is understood their products will be

List of references

1. Amit, R 1996, ‘Cost Leadership Strategy and Experience Curves’, Strategic Management Journal, Vol.7, No. 3, pp.281 – 292 2. Boyd, C 2012, ‘The Nestle Chocolate formula Controversy and a Strange web of Subsequent Business Scandals’, Journal of Business Ethics, Vol. 106, No. 3, pp. 283-293 3. Bantu,G & Micheal Ba & Patrick, T Ebenhoech, SJ 2009, ‘International Branding Effectiveness: The Global Image of Nestle’s Brand name and Employee Perception of Strategies and Brands’, Global Business Issues, Vol. 3, No. 2, pp. 17-24 4. Betgeri, NE, Chandorker, Y & Farooq, F 2012, ‘Nestlé’s relative market position in the Indian Chocolate and Confectionery Industry’, Indian Business Journal, Vol. 4, No. 2, pp. 15-18 5. Cotton, B 2010, ‘Cost leadership’, Chartered Accountants Journal, Vol. 89, No. 3, pp. 60-61 6. Country Monitor 2006, ‘Nestlé’s new strategy’, Vol. 14, No. 30, pp. 5-5 7. Elearning age 2003, ‘Nestle opens up e learning programme’ , Vol. 5, No. 2, pp. 2-2 8. Food Engineering & Ingredients 2000, ‘Nestle automate its chocolate packing’ , Vol. 25, No. 6, pp. 41 9. Ferrell, OC & Hartline, DM 2010, ‘Nestle Asia’, Engage Learning, Vol. 2, No. 5, pp. 4-7 10. Hausman, T 1999, ‘Nestle USA’, Wall Street Journal, Vol. 233, No. 83, pp. 15 11. Johnson, G, Whittington, R & Scholes, K 2011, ‘Exploring Strategy 9th Edition’, Pearson Education Limited, Edinburgh Gate, Essex 12. Market Watch 2007,’Company Spotlight : Nestle’, Vol. 6, No. 6, pp. 30-37 13. Nestle 2006, Nestle, Switzerland, viewed on 15th September 2013, http://www.nestle.com/

14. Nestle 2006, Nestle, Switzerland, viewed on 15th September 2013, 15. http://www.nestle.it/asset-library/Documents/pdf_nostri_report/12_TheworldofNestle.pdf

16. Pitta, D & Franzak, F 2008, ‘Foundations for building share of heart in global brands’, The journal of product and brand management, Vol. 17, No. 2, pp. 64-72 17. Parry, C 2006, ‘Nestle unveils 5m to boost sales of flagging Kit Kat (Cover Story), Marketing Week, Vol. 29, No. 31, pp. 3 18. Porter, M & Kramer, MR 2011, ‘Creating Shared Value’ , Havard Business Review, Vol. 89, No. 1 19. Rivera, C 2005, ‘Nestle: World leader in Food Service Industry’, Caribbean Business,Vol. 33, No, 33, pp. 8 20. Schiff, J & Schiff, AI 2009, ‘Cost leadership for current Challenge’, Strategic Finance, Vol. 91, No, 5, pp. 35-41 21. Sudhaman, A 2008, ‘Nestle to serve high end ice cream’ , Asia’s Media & Marketing Newpaper, Vol. 20, No. 6, pp. 5-7 22. Sadler, P 2003, ‘Strategic Management’ Jon Wiley Toronto, Canada

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