Among global food manufacturers, Nestle is one of the largest producers that distributes its products almost in every country of the world. It is a multinational and multi-brand corporation that provides high-quality foods and brings innovation to the industry. The main strategic priority of the company is to increase growth, which would create an immense scale and maximize cost efficiency per unit (Nestle Global, 2020). Apart from the global supply, outsourcing processes to countries with cheaper labor helps Nestle to generate additional resources. Apart from a variety of local subsidiaries, the company manages more than a dozen brands that allow them to target different consumer groups offering both low-cost and premium-class products. These brands cover a large part of the global food sector, offering goods such as bottled water, baby food, or chocolate. The chosen examples of products are Purina One dry cat food, Gerber baby food, and Nescafe 3in1 instant coffee. All these products are strong competitors in their markets, mainly due to the cost-efficiency of production.
Purina One is a global brand that provides high-quality pet food. As the company states, its main advantage lies in innovative formulas that respond to different nutritional needs (Nestle Global, 2020). The strategy is based on generating value for the customers, but the company keeps prices relevantly low compared to other premium cat food. That is why the strategy for Purina One can be defined as a best-cost provider which allows to “upscale product attributes at a lower cost than rivals” (Thompson et al., 2017, p. 122). Two other competitors Whiskas cat food produced by Mars Inc. And Hill’s Science Diet adopts different pricing strategies. The former offers cheap food of relevantly low quality, while the latter is similar to Purina One in terms of nutritional parameters but costs significantly more.
The same strategy is applied to Gerber baby food that offers high value for the optimal price.
Foods produced by Beech-Nut and Heinz provide similar value and target the same type of customers, but do not have such a global scale as Nestle. Nescafe 3in1 is a leader on the market of instant coffee products. It has several serious competitors, such as Starbucks VIA Ready Brew Coffee, mostly in the U.S. and Jacobs Kronung in Europe but none of them is as globally known as Nescafe. Unlike two previous products, this brand uses the overall low-cost provider strategy with broad differentiation of customers.
Nestle Nespresso offers a system of espresso machines and pod coffee capsules with which everyone can make high-quality coffee at home (Nestle Nespresso, 2020). For these products, Nestle chose a focused differentiation strategy targeting high-income households and offering them a premium-class product with excellent service. On the U.S. market, Nespresso systems compete with Keurig coffee makers. Such brands as Lavazza or Illy offer competitive products mostly in Europe, while none of them has such a global scale as Nespresso. According to Hill et al. (2019), competitive advantage can be sustained when it is rare, valuable, non-substitutable, or costly to imitate. In the case of Nespresso, its main advantage is built on the quality of the good and service, which is valuable, and the scale of Nestle production, which is difficult to imitate. Although the technologies are also competitive, they do not give a long-term advantage as they can be easily rendered. Although the competitors cannot easily match the power of Nestle manufacturing, its main challenge for Nespresso product lies in substitute products, namely other ways to brew coffee.
By making critical strategic choices for Nespresso, Mr. Jean-Paul Gillard proved the necessity for the companies to be adaptive to the environment. The key decision was to change the business model from B2b to B2C and target households instead of restaurants and offices. Moreover, the initial retailing alliances proved to be inefficient in providing high-quality service to the customers. Thus, Mr. Jean-Paul Gillard chose to optimize the operation and concentrate the production within one company. Moreover, the implementation of various sales channels helped to reach many customers and make the purchasing convenient for them.
The solutions taken by Mr. Jean-Paul Gillard in the management of Nespresso were able to revive the company and make the brand thrive. The importance of these decisions lies in the fact that he faced multiple problems at a time and was able to solve them all successfully. Key strategic choices, along with tactical improvements, such as the new sales model, helped to increase sales. Although the company uses niche targeting, there might be alternative strategies applied. As the company’s global supply chain provides a significant competitive advantage, Nespresso might adopt the best-cost provider strategy to increase sales and minimize costs per unit. This solution may be relevant, as the product requires significant investments in innovations, design, and research. Thus, the proportion of indirect costs in the product.
Strategic decisions are crucial for the success of the product as they entail the answers to the questions about “who?” “how?” and “what?” in product management. The case of Nespresso demonstrates how the success of the same products depends on the chosen strategy. From an unsuccessful project, it transformed into a thriving brand due to the correct business model and consumer targeting. Moreover, this example reveals the importance of adaptability to the environment which took place in this case. Mr. Jean-Paul Gillard demonstrated courage in facing critical issues and changed primarily flawed strategy into a successful one. However, not all companies have the chance to correct strategic mistakes. In this case, Nestle did not suffer significantly from the problems with its subsidiary, while smaller companies with a narrow set of products depend on the strategic choices even more.
References
- Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2019). Strategic management: Competitiveness and globalization. 13th edition. South-Western College Pub.
- Nestle Global. (2020). Web.
- Nestle Nespresso. (2020). Web.
- Thompson, A. A., Strickland, A. J., Gamble, J., & Thompson, A. A. (2017). Crafting and executing strategy: The quest for competitive advantage: concepts and cases. 21st edition. McGraw-Hill/Irwin.