Analysis, Pages 9 (2134 words)
The main purpose of this assignment is to express the internal and external analysis of Nestle SA how to get competitive advantage by using resources and capabilities. VRIN analysis is to describe the core competencies of Nestle. And the current strategies are mainly used to run the whole organization process. PESTEL analysis and Five Forces model are to identify the strengths and weaknesses of Nestle in Food and Beverage industry. The result is that the core competencies of Nestle have the sustainable competitive advantage for long term.
Nestle is one of the world largest company in food and beverage industry which is established in 1866, Switzerland. Its mission is “Good Food, Good Life”. So Nestle produces the basic needs for human being. It provides customers’ needs and creates solution for its customers and consumers. And Nestle is one of the leading researcher in the field of nutritional sciences.
It offers many nutrition, health and wellness products.
The product categories are powdered and liquid beverages, water, milk products, ice-cream nutrition and health science, prepared dishes and cooking aids, confectionary and pet care. Moreover, some of its most famous product and brand are Kit Kat, Nescafe, Nespresso and Maggi.
The United State is the major market for Nestle SA. And it mergers with milk company that is founded by Anglo-Swiss, in 1905.Besides it is one of shareholder of L’Or?al which is the world largest cosmetic company. It values on the tastiest and healthiest product as well as high standardize quality food and beverage to their consumers.
So, it creates the own research and development center all around world and make the relationship with scientific organization of nutritional science. And it currently uses effective strategy to gain the sustainable financial performance, market share and competitive advantage.
- Competencies Valuable Rare Imitate Non-Substitutable Competitive Consequences
- Largest number of branches Yes Yes Yes No Sustainable competitive advantage
- Research and Development Centers Yes Yes Yes No Sustainable competitive advantage
- Collaboration research with collage, universities and technology companies Yes yes No No Temporary
- Partnership with scientific organization Yes Yes No No Temporary competitive advantage
- Value for Shareholder Yes No No No Competitive parity
- Efficient cost management Yes No No No Competitive parity
- Heavy investment Yes Yes No No Temporary competitive advantage
- E-commerce Yes No No No Competitive parity
- Shared value approach Yes Yes No No Temporary competitive advantage
- Wide range of product portfolio Yes Yes Yes Yes Sustainable competitive advantage
There are three main types of core competencies in VRIN analysis. They are sustainable, temporary and parity competitive advantage. In Nestle SA, the company can possess sustainable competitive advantage when VRIN analysis is three or more factors complete. And if two factors complete in VRIN analysis, the company can get temporary competitive advantage. But the company has one factor complete in analysis, it will be parity competitive advantage. So the following are the sustainable competitive advantages of Nestle according to VRIN analysis. They are (1) geographic presence, research and development capability, wide range of product and brand portfolio
They have interdependently strong relationship among geographic presence, research and development, great product and brand, and great people and strong value. Nestle SA has the largest number of branch offices all around the world. As the result, it comes to get the economy of scale among the competitors. Moreover, it also possesses the global recognition as the geographic presence. And it establishes its own research and development centers cross the world. It can earn healthier, tastier products and high standardize products from doing those centers. Besides Nestle SA use the balanced approach to its stakeholder to get a long-term positive impact and trust on the organization. And it also provides the share value approach to solve the social issue such as recycle packing for its stakeholders and society. These are Nestles’ critical success factors.
Current Strategies of Nestle SA
Nestle SA use many strategic plan to reach its target in the current situation. They are currently use growth strategy which includes market penetration, product development, market development and diversification strategy. These strategies support the whole organization process.
Nestle SA want to be profitable growth in the food and beverage market. It hopes to obtain premium opportunities with high quality nutrition. And it adds value to its product and brand to be differentiation, innovation and being relevant to its consumers. So Nestle try to continually improving the taste of food and beverage, convenience product and service and nutritional qualities of its product to consumers. And it conducts resources and capital of the organization with definite discipline and clear priorities. In recent year, Nestle possess higher profit margin by using growth strategy. In 2018, Nestle reach 22% of sale came from higher standard quality products and 8.2% of sale came from direct-to-consumer business models. And it also particularly emphasis on capital expenditure, external growth and investment in research and development centers. Besides Nestle make the market development as horizontal growth strategies and it also make product development as vertical growth strategies. Market penetration and diversification are a part of growth strategy. Otherwise, organic growth strategy is a performing of market penetration, market development and product development strategy.
Market Penetration Strategy
Market penetration is also known as lowest risk strategy. Nestle need to improve sale rate of existing product in existing market to possess more market share as geographic presence. So, it uses the e-commerce to gain more customer attractiveness through medium such as social media, email due to the technology come to advance. Moreover, it provides new advertising, promotion and discount for existing product in existing market. The product is familiar with its consumers in market penetration strategy. In 2018, Nestle is more investing in its high growth categories such as coffee, pet care, nutrition and water. Besides, its research and development centers provide the process to maintain the quality of product.
Product Development Strategy
Product development strategy has more risk higher than market penetration strategy. Nestle opens the research and development center to produce new better products and need to analyze the insight of it customer before the production. Moreover, it needs to find out the internal capabilities and core competencies for new innovation product to success in existing market. Nestle has stronger momentum in research and development and can earn analytical data and quality assurance from these centers. Research and development capabilities support nutrition health and wellness strategy to create new innovated product and premium service to consumers. In 2019, Nestle introduce a new range of coffee product and it also opened coffee factory for its Bonjorno brand in Egypt. Besides Nestle makes an agreement with KUSMI TEA to expand the new product in Europe.
Market Development Strategy
Market development strategy is also higher risk than market penetration strategy. In this strategy, the existing product distribute in new market. Nestle can face complexity in market development. So, it needs to solve this complexity by doing not only product promoting but also consideration new channels and ways. Firstly, Nestle provide the new market research to introduce its existing products as geographic presence. And it learns about the consumer preference in its target new market. It also communicates its potential customers by using marketing communication strategy. Advertising is the indirect marketing communication to inform the customers about the product by using TV, radio, print media and website when the technology come to advance. And Nestle also use the direct marketing communication with emails, fax, mobile phone and third party. And it selects the best product channel to promote in new market.
Nestle is using related and unrelated diversification strategies. But it mainly focuses on related diversification. For example, Nestle is also using other expansion method. These are merger and acquisition. Although Nestle want to go fully organic growth. M&A has been performing to certain high growth potential and build on leadership positions. Nestle acquired perpetual global license from Starbuck to obtain its consumer and food service products. Besides, the company agreed to acquire Atrium innovations. Nestle gained many advantage about health science. In 2019, Nestle make the acquisition with Diamond Springs water and a beverage delivery service to attain their opportunities and to upgrade its delivery system.
The current strategies of Nestle SA will be evaluated whether they are compatible with the organization’s internal and external environment, and respective industrial condition. Suitability, one of the SAFe criteria is used to help the evaluation.
PESTEL analysis and porter’s five forces is utilized to address the key opportunities and threats of food and beverage industry.
- Taxation, import-export policy and government permission of Nestl?’s own base country and respective countries.
- Rate of countries’ government stability that Nestle enter into.
- Production barriers of respective countries.
- For example, threaten for Nestle occurring the brexit situation in UK in past.
Fluctuation rate of foreign exchange.
- For instance, Nestle lost CHF 54 million because of foreign exchange rate.
- Rapidly changing of customer’s attitudes and wants on product
- For example, less sugar and lower calorie foods as well as simple and healthier ingredients.
Helping to connect with customers directly and indirectly. (such as with social media, digital surveys, email marketing) Selling Nestl?’s products on online platform.
- Stringent regulation and specifications related to its products in local and international market.
- Abide by laws and regulations of US (FDA) and USDA.
- For example, Nestle paid two kinds of fines because of its low-acid dog and cat foods in recent times that cause and increase its operating costs.
- Having more awareness about environmental issues.
- Such as environmental friendly operations, recycling and peckaging.
The current strategies will be suitable when the environment changes because Nestle apply good business models and method to adapt these changes. According to PESTEL analysis, we can realize possible factors and risks in external environment. The consumers are getting more interested about Food and Beverage as a social factor. This factor can be the opportunities for Nestle to possess the customer awareness in its environment. It focuses on high-growth region with the selected product to expand new market by using market development strategy. Therefore, Nestl?’s market development strategy is strong enough to match with social factors.
According to social factors, foods and beverages will be high growth in the future. However, company need to give more organic products and perform CSR. Moreover, market penetration, product development and diversification strategy can also be useful to fulfill the satisfaction of customers because Nestle is providing hygiene products and supporting packaging and recycling as an environmental factor. In an implementation stage of these growth strategies, Nestle open the largest numbers of branch office around the world so that it requires a lot of employees to perform in the organization as a social factor. And it also uses advanced technology in e- commerce.
Poter five forces
- Nestl?’s main competitors are P&G, Kraft and Unilever.
- Its competitor also holds massive market share
- Competitors’ marketing and advertisement method are also strong
- Its competitive rivalry firm is high.
Threat of substitute
- Most of the similar product already exist and available in this industry.
- And most of the products are kind of common and daily use.
- The threat of substitute is high.
Threat of new entrants
- Large market share of the industry is owned by existing company.
- Only a few entrance succeeds and survived.
- The existing company can perform at low cost leadership strategy.
- And Nestle has been held largest market share.
Threat of new entrants is low.
- Bargaining power of Buyers
- Bargaining power of buyers is high because there are many competitions in the industry.
- Customers can easy choice any brand.
- The switching cost is low.
- The bargaining power of buyers is high for Nestle.
- Bargaining power of suppliers
Nestle has good and long term relationship with its suppliers for factories in almost countries. So, bargaining power of suppliers is low.
The market penetration strategy of Nestle is not enough to be efficient with the strong competition. However, Nestle’s market development, product and diversification strategy can help the organization to minimize the threats of new potential entrances and competitive rivalry. That is why if the existing company possess strong position, other new entrances are not easy to come in this industry. Nestl?’s growth strategy can defend new business and avoid the risk of competition from existing companies. Nestle is providing customize, innovative and high standard quality product by using these strategies. Although having customer’s power is strong, Nestle can maintain its loyal customer relationship by adapting consumer’s evolving wants such as to sells on online platforms to produce natural and hygiene product, value-added products. Having low power of suppliers is one of the advantages for Nestle and it make insurance to get good qualified raw material in long-term.
Cite this essay
Nestle VRIN & PESTLE Analysis. (2019, Dec 06). Retrieved from https://studymoose.com/nestle-vrin-pestle-analysis-essay