Essay
Nestle – is a Swiss company and the largest world producer of foodstuffs ( coffee, breakfast cereals, snacks etc). It also specializes in the production of pet food, pharmaceuticals and cosmetics as one of the main shareholders of L'Oréal.
Nestle is divided into seven worldwide major strategic business units. These units make the high level strategic decisions on a worldwide basis regarding each business unit. One sector of the merket is controlled be at least one business unit. The strategic business units are the global insturments to define and control the strategic development of the firm. Nestle also has the company divide into five major geographical regions including north America, south America, Africa, Asia and Europe. The strategic business group from the different regions helps the company to plan the global integration strategies from these areas (Nestle).
The company operates a great deal of product lines (mainly from FMCG) but, as for me, it would be better to choose the most well-known and widely used products: chocolate and snacks
1. Chocolates and confectionery.
The most famous and profitable brands are: Aero, KitKat, Wonka, Lion, Smarties.
KitKat- is well known format all over the worlds. It has a light and milky chocolate that was perfectly combined with the tasty waffle. Moreover it has a great deal of original formats that lets it to be a highly recognized product.
Aero- is supposed to be totally new product in the market. Nestle used well known old technology of bubbling chocolate to represent new commodity at the market. Over the years the popularity of the brand has spread and today the Aero brand is enjoyed in many countries including Canada, Australia, South Africa and Japan (Nestle).
It is clear that children and teenagers are one the main consumers of that products. Thus the are also well known among other consumer groups.
The demand for the chocolate market is influenced by the same factors that affect the markets of other consumer goods. The level of demand in the chocolate market is determined by the following 3 factors:
1. Seasonality. The dependence of demand on the time of year characterized by many commodity markets. Chocolate market is no exception. More specifically, the winter demand for chocolate is higher than in summer.
2. Preferences (that is mostly controlled by advertising policy and acts from the rivals side - Greater the number of substitutes and the attractiveness of their price, the smaller will be the demand for the good)
3. Price changes can strongly affect, as there is a great deal of familiar brands with the same prices.
Factors that determine the supply of the products
1. Price of factors of production (the company may closely depend on world prices for cacao beans)
2. Subsidies: once the US government decides to subsidize a product, there will be more profit for Nestle. It will be willing to increase the products output.
3. Thus when the government wants to decrease the crowded market – the tax rate will be increased.
Available substitutes for the product is the variety of sweets available on the US market – candies, cookies, chocolate bars.
The main rivals are: Kraft foods Inc, Mars, Inc, The Hershey Company.
Available complements for the product:
It is hard to determine the compliment product from one of those provided on the market, but usually people buy bars, when they do not have enough time to take a meal or simply to eat the snack for break. When I want to consume something like KitKat or Hershey in most cases I try to buy Cola or Dr. Pepper. That’s why the compliments for this products are supposed to be those goods that we buy to have something like `meal set`.
The elasticity of the demand:
When people are used to buying a product, if the price goes up, they will tend to keep consuming all the time. But once they realize that price tends to increase constantly, they will be spending more resources and time to look for alternatives. And the time shows that consumers would find alternatives or keep searching for them if the are not satisfied.
For instance, every time before going to school I used to buy KitKat, but one day the price increased for 20 cents that won’t change my preferences and I will keep buying my favorite bar.
Thus when the price was increased for $1 or my KitKat is the most expensive snack that is available in the nearest store, I would change my opinion.
That is why the demand for the product is elastic in short run and inelastic in long run.
But as for me its elasticity in short cut is mainly determined by the preferences and passivity of particular consumer.
The firm production is capital-intensive as the main investments should be injected in the machinery, conveyor lines and the rest of required equipment. The production of FMCG requires a large productivity outcome per day and it can be only provided by high productivity lines.
Entering a new market requires some calculations. The company ought to calculate on the prospects and threats it has in the market and profile them for each country it wishes to gain entry (Hartley).
The production line consists of decanter, mixers – sort equipment to prepare chocolate, several conveyor lines, where the chocolate and waffles are put together, packing lines etc.
We do not need a lot of people, who will control the process, but few machine operators and QA officers.
More over the production of the bars is not the most complicated part. We do have to pay special attention to the distribution, sales stimulating actions and advertising.
As for me that costs might take the largest part of price per one bar.
The firm operates in perfect competition market: we have a great deal of producers (they were mentioned above) and a lot of consumers willing to buy our products and benefit from the variety. Moreover the estimated threshold to enter the business is about $4 million, that is not much in comparison with the other sectors.
That proves one more time that Nestle pays an additional attention to the final part of the production – distribution. The similar range companies have debugged distribution channels.
Market growth:
According to the last KMPG report the market will act like:
The rapid growth of the market worldwide will be totally dividing the producers to the winners and losers of the sale wars. So it is clear that each company, that is planning to be a player for next 10 years should be always in touch with modern tendencies of the global market. And According to official government figures, current hot spots include India (annual growth rate
15%), China (9%), Russia (6%) and Mexico (3.8%). They all exhibit a number
of main factors that help them be unique, the amount of population, quick capital moves etc.(KMPG)
The following graph demonstrates stable growth of chocolate market. Chocolate is often described as recession-proof. Some economists call it the ‘lipstick effect’ KMPG. The share of Northern America is about 20% and the main increasing was assisted by developing countries: Russia and China (up to 40% of growth expected).
he experts also define the chief acts to be taken in order to satisfy future demands of the customer:
1. Innovate packaging (People want chocolate that does not melt or can shine in darkness, they always want the company to fresh make and will always want)
2. Focus on health benefits (Totally organic food)
3. Attracting youth. (The rapid growth of population in India and China will expand the market, that is why the acts for popularizing should be undertaking from now).
In conclusion, from an organizational perspective, for a strategy to work, it has to fit with the needs of the market and increase the competitiveness of the business (Hofsteede). Based on the strategy analyzed above, and the approach with which the company is operating in the emerging markets, it is clear that the company’s strategies will ensure continued success and help the company gain a competitive advantage while gain from its first mover advantage in these markets.
Red Bull GmbH is an Austrian company which produces and markets energy drinks. It's also widely known as sponsor of sport competitions and events such as: extreme sports, motorsport, football etc. The company operate on FMCG market. A total of 4,631 billion cans were sold in 2011. It has agencies in more than 165 countries. The extremely dynamic media activities help the company save leader position in its industry. The main product is Red Bull energy drink. It is the most popular energy drink in the world.
The product line presented such key direction:
Energy drinks.
All energy drinks which produced by the company aggregated in one brand - Red Bull. There are a few variants this beverage: Original, Sugarfree, Cola, Total Zero, Red Edition, Blue Edition, Silver Edition, F1 Edition.
Red Bull positions its beverage as multifunctional energy drink which provides various benefits, especially in times of increased performance: helps to improve concentration, helps to increase alertness, contributes to normal mental performance, contributes to the reduction of the tiredness and fatigue. The usage of this product consist of its consumption during mental and physics activities: on the road, at lectures & study sessions, at work, while doing sports, while playing video games, while going out day and night.
Red bull stimulates body and mind. Drink contains such ingredients: caffeine, B-group vitamins, sucrose & glucose, taurine, alpine spring water. (Red bull)
The main consumer of Red Bull energy drink are adults aged 20-35 years who has active lifestyle and it concludes in extreme sports (motocross, mountain biking, windsurfing, snowboarding, kayaking, wakeboarding, freestyle motocross, cliff-diving, surfing, skating, rally, Formula 1 racing, BMX, skateboarding etc.) and parties.
The demand for the drink industry defined by the same factors that have impact on FMCG, they are:
1. Pricing. Red Bull operates on very competitive market, so company have to chose right price policy. The products of the company are supposed to act and be a part of two markets at one time: one of them is the market of beverages such as Cola, Mountain Dew or Dr. Pepper, another one is the sector of energy drinks (Monster). So it is hard to regulate the price being a player of two different sides of one market, thus price can be freely assisted by the promotion, that is highly developed in this company.
2. Promotion. There are a lot of marvelous marketing events held by Red Bull. Creative actions with bright idea is foundation of its global marketing. It sponsors a number of sports. Their good known subsidiaries: Red Bull Racing, Red Bull Racing team, New York Red Bulls, Scuderia Toro Rosso, Red Bull Brasil, FC Red Bull Salzburg, EC Red Bull Salzburg. Participation in such events gives company great clients feedback from target audience. Red Bull made the imagination about active person whose lifestyle closely associated with rush pastime and beverage consumption. That imagination constantly supported by periodic organization of different overwhelming extreme sport actions. The best example of its global promotion is the organization of widely known project Red Bull Stratos. There were more than 8 million concurrent live streams. It is simply great marketing event which has a great influence on consumers demand.
3. Consumer preferences. In food question, the opinion of customer is very depend on medicine conclusion about the quality of product. This factor is very important for consumers. If research by medicine associations approve the harm of beverage the consumption will decline extremely. As Red Bull contains taurine and caffeine it has been the aim of criticism. Medics concerned the possible health risks related to the drink. The beverage wasn't allowed in France, Norway, Denmark for several years. The company spent a lot of resources to approve innocence of its drink to retrieve costumers.
4. Substitutes. There are a lot of different companies(local and international) which produce energy drinks such as Monster Energy. Red Bull have to be innovate and creative not to lose its leader position. Also the company is dependent on the pricing of its competitors. The price must be in the same range which competitors choose
5. Seasonality. Obviously, the consumption of drinks increases at spring and summer period and decreases at autumn and winter times.
The supply of the energy drinks can be determined by such factors:
1. Politics factors. The amount of supply in certain country depend on policy of country which import Red Bull. There can be different import quotes, tariffs, restrictions or incentives which influence on quantity of supply.
2. Price of factors of productions. Changes of price of aluminum used to make cans or increasing of payment for labor can increase or decrease product costs.
3. The quantity of producers. The supply restricted by great amount of local and international producers, so Red Bull have to compete with them for the market share.
Available substitutes. In drink industry there are a lot of competing products, but for the Red Bull the main rival are Coca-Cola, Pepsi, Dr Pepper, Burn, Monster etc.
Available complements goods. Many people like combine Red Bull with another drinks: alcohol and juice. So, as this complements products are simply available on markets, this fact stimulates demand.
The demand for Red Bull products is elastic in short run because there are a lot of substitutes in market of energy drinks. The next reason of that fact that demand is elastic is it isn't staple commodity, so people can live without this product. If company decide to increase price in a long run period there won't happen big changes in demand quantity.
It's too difficult clearly define is the firm's production capital-intensive or labor-intensive. By the one hand the material part of products is dependent on technical capacities of Red Bull. They produce cans, beverages according to modern standards. In the other hand it is too little to limit production only as capital-intensive, because a lot of specialists take part in development and improvement of production. There are many technical and marketing professionals involved in this process. So, I think the firm’s production is divided on 50 to 50 by capital and labor.
The producing technology of energy drinks is important to. Red Bull’s output and global distribution web needs a lot of energy and thus causes an environmental impact. Red Bull is very responsible of its environmental impact and is constantly working for progress.. For example, the producing of cans for drinks plays a vital role for the company. Red Bull has made a conscious decision to use aluminium cans. In our days Red Bull cans weigh 60% less than a ten years ago, which saves a lot of raw material. Once they are collected they are fully recyclable over and over again without any loss in quality.
Another invention of company is its efficient cooling of drinks. Red Bull developed ECO-Coolers which use up to 45% less energy than other conventional refrigerators. The use of ECO-Coolers and refrigerants is an effective way to reduce the use of electricity, that's why Red Bull has made a responsibility to distributing ECO-Coolers in the future, whenever local infrastructure allows. (Red bull)
Red Bull approximately belongs to a market of perfect competition. There are a few factors to approve this opinion:
- Many sellers and buyers. There are enough competitor to Red Bull at market, so that a single seller’s decision doesn’t influence on market price. There are also many buyers, so they can’t set up the price for producers.
- Products are standardized and similar to each other. Commodities are approximately alike to each other without great differences.
- Firms are price takers on the market of energy drinks. They can’t dictate own terms, because this product is widespread and simply available.
- Free entry and exit. There is no very great need in recourses to start business in this industry
The long term prospects for the Red Bull product reflect in company’s desire to develop. It always tries to invent something new and there are a great extent of free recourses to realize it.
Work Cited
Hartley, Samuel. Marketing. New York, NY: McGraw-Hill/Irwin. Nestle Insight. 2013 Business Principles, Accessed march 20th, 2013 from
John A Morris. The chocolate of tomorrow. www.kpmg.com. KPMG LLP. June 2012
http://www.kpmg.com/RU/ru/IssuesAndInsights/ArticlesPublications/Documents/chocolate-of-tomorrow.pdf
Nestle global. www.Nestle.com/
Hofsteede, Geert. Culture's Consequences, Comparing Values, Behaviors, Institutions, and Organizations across Nations. London: SAGE Publications. 2001
Kotler, Peter.and Keller, Kevin. Marketing Management, Upper Saddle River, NJ: Prentice Hall. 2006
Red bull international. Redbull.com
