Business Strategy (slide)

Developing new distribution channelsDo market research about customers’ demand  Develop new promotion and advertising plans to attract new customers packaging size, different pricing p

Lecturer: PhD Pham Quoc Khanh

Student: Nguyen Thi Kieu Anh – Snow

ID number: F05-014 Class: F05A

Nestlé Vietnam Profile

• Nestlé Vietnam Ltd is a subsidiary of Nestlé S.A (Switzerland) – the world largest nutrition and wellness company, founded 140 years ago.

• Foundation: Nestlé Vietnam was found in Dong Nai province in March 1995

• Geographic presence: 5 factories (Bien Hoa Industrial Zone 2, Tri An, Binh

An…), 2 distribution centres

• Products: Nescafe, Milo, Coffee-Mate, Nestea, Maggi….and repacking milk

powders such as Lactogen, Nestlé Gau, Nestlé Infant cereals…(Nestle, 2014)

Nestlé Vietnam’s factory

Nestlé’s vision statement: To be a leading, competitive, Nutrition, Health and Wellness Company delivering

improved shareholder value by being a preferred corporate citizen, preferred employer, preferred supplier selling preferred products (Nestle, 2014)

3.1.1 Five year objectives

The suggested objective: Based on Nestlé vision, I suggest new objectives for Nestlé Vietnam in period

2014-2018

• Objective 1: Belonging to top three leading food and beverage companies in Vietnam with achieving 30%

market share by the end of 2018

• Objective 2: Revenue of Nestlé will increase by 25% in Vietnamese market by the end of 2018

• Objective 3: Increase 20% of productivity by the end of 2018

3.1.2 Stages for 5 years

In order to achieve objective easier, it will be divided into two periods, respective with two stages:

• Achieving 15% market share by the end of 2016

• Revenue of Nestlé will increase by 15% in Vietnamese market by the end of 2016

• Increase 10% of productivity by the end of 2016

Stage 2 (2017 – 2018)

Stage 1 (2014 – 2016)

• Belonging to top three leading food and beverage companies in Vietnam, gain up to 30% market share by the end of 2018

• Nestlé’s revenue will increase from 15% to 25% by the end of 2017

• Nestlé’s productivity will increase from 10% to 20% by the end of 2018

3.1 Analyse possible alternative strategies relating to substantive growth, limited growth or retrenchment

Developing new distribution channels

Do market research about customers’ demand  Develop new promotion and advertising plans to attract new customers (packaging size, different pricing policies…)

- Set up new production line for the best quality

of product and supply enough amount of goods for customers demand

- Provide training Vietnamese farmer to supply enough the amount of materials Nestlé need in production process

Option #2

Product development

Make a research about purchasing behaviour of Vietnamese customers  launch new products suitable for the characteristics of each market

- Diversity of product design (safe to use, maintains freshness, and minimizes waste) to attract customers

- Enhancing values to customers by having a group of staffs who answer customers’ questions and provide information about new product for customers

Hiring professional staffs as well as training staffs annually to accelerate R&D activity  Shorten time to market

3.2 Select an appropriate future strategy for a given organization

1 Exploit strengths and distinctive

Note: The score is directly proportional with the degree of the suitability

- Experience in advertising to attract customer retention

- Has many innovative staff in researching and developing packaging which meet customer requirement about safety, environment

protection

- Abundant staffs can support for hotline services

Fix weaknesses

- Stringent advertising policies

- High product prices when launching new product

- Lack of attractive packaging

- Incompleteness of customer support in term of new product

- Meet customer requirements in environment protection and safety

- Focus on customer satisfaction

Involve an acceptable

level of risk

Risk of high advertising cost can be measured Risk of staff performance which make customer feel disappointed

with Nestlé’s service  can not be measured

- Low production capacity due to produce many kinds

of products on the fixed production lines

- High cost of materials, lack of materials support for continual production

- Reduce time for R&D activities

- Many expert people reduce mistakes in R&D process of product development

3.2.2 Analysis of Feasibility

3.2 Select an appropriate future strategy for a given organization

Note: The score is directly proportional with the degree of the feasibility

Feasibility Evaluation Matrix (0-10)

No. Organizational capacities

Nestlé Vietnam has 100% foreign capital, all investment projects need additional capital takes often more 1 years to get approval from corporation which reduces business opportunities compared with domestic companies.

Technology

Nestlé can full mean of technology to support for this strategy Time to apply new technology take from 6 months to 1 year lead to bring

slowly new product to market, reduce business opportunities

Take less time to implement but more time to improve and continue developing and strength packaging design and hotline service

Financial resources

All index of liquidity ratio, capital structure is controlled and safe

 Nestlé has enough financial resources to implement this strategies

With stable financial situation and support significant from Nestlé Global  Nestlé has ability to implement this strategies

Technology

Nestlé can full mean of technology to support for this strategy Nestlé always approach to modern technology, equipment, new

procedures consistent with global standard of corporation such as automation system PSS 4000 of packaging process

OBJECTIVE 2

Nestlé has limited staff who can support and train staffs in R&D activities

Time resources

Take long time to set up and launch new production line into production and train farmers because they are low knowledge background, approach slowly with new technologies and methods

Limited time for hiring and training staffs because Nestlé need accelerated R&D activity  Support for shortening the time from research to launch new products

3.2 Select an appropriate future strategy for a given organization

3.2.3 Analysis of Stakeholder’s Acceptability

- Option #1 can be implemented with medium risk and less requirement of finance than option #2 which requires a lot of money in investing human resources and R&D activities whilst option #1 still increase shareholder wealth, high quality, reduce product price  Shareholders will put priority to implement option #1 higher than option #2

- Shareholders will accept paying high salary for staffs in accordance with their support In order to implement option #2 need both innovative ideas and professional knowledge in R&D  Option #2 is accepted higher than option #1

is assessed the same as option #2

- Employees also want to buy low product prices but if company face financial damages when revenues lower than expenses, employees

is influenced in term of salary, working conditions… Option #1 is accepted more than option #2

- Option #2 requires staffs implement complex work than option #1  Option #2 is higher score than option #1

3.2 Select an appropriate future strategy for a given organization

Acceptability by stakeholders (Objective 1)

Customers

- Customers do not concern about profitability of company Moreover, two options also brings certain benefits for

customers If company implement option #1, many customers have opportunities to use Nestlé’s products while implement option #2, customers can be enjoyed new products with variety of flavours  Two options have the same score

- Customers of company interest in product quality They do not concern whether company implement which strategies to improve product quality as long as it brings benefits to them about health is also acceptable  Option #1 is assessed the same as option #2

- Customers want to buy low product prices  Option #1 is the same score as option #2 with high score is 9

- Customers do not concern about staff’s salary of company  Option #1 is the same score as option #2 with score 5

Criteria (0-10) Market development Product development

- Option #2 with high product quality due to safety packaging  Shareholders accepted option #2 better than option #1

- Option #1 with sale promotion can reduce product better than option #2  Shareholders can be accepted option #1 better than option

#2

- Shareholders will accept paying high salary for staffs in accordance with their support Option #2 is accepted the same as option #1

Acceptability by stakeholders (Objective 2)

- Employees also want to buy low product prices  Option #1 is accepted more than option #2

- Employees are always expect to get high salary so they are ready to support for company with their best efforts in any strategies which help them achieve high salary  Option #1 is the same score as option #2 with high score 9

Customers

- Customers do not concern about profitability of company  Option #1 is accepted the same as option #2

- Implementing option #2, customers can be enjoyed new products with safety packaging and perfect customer support Option #2 is accepted more than option #1 in product quality

- Customers want to buy low product prices  Option #1 is accepted more than option #2

- Customers do not concern about staff’s salary of company  Option #1 is the same score as option #2 with score 5

Criteria (0-10) Market development Product development

Acceptability by stakeholders (Objective 3)

Shareholders

- Both ways will increase shareholder wealth by promoting productivity  Two options is assessed the same

- Both options also help increasing product quality Option #1 increase product quality by investing in product line, support farmer in material, option #2 increase product quality by supporting R&D staffs  Shareholders accepted 2 options is the same

- Option #2 can reduce product price more than option #1 which requires more cost for installation of new production line, cost for support farmers  Shareholders can be accepted option #2 better than option #1

- Shareholders will accept paying high salary for staffs in accordance with their support Option #2 is accepted the same as option #1

Acceptability by stakeholders (Objective 3)

- Employees also want to buy low product prices  Option #1 is accepted the same as option #2

- Employees are always expect to get high salary so they are ready to support for company with their best efforts in any strategies which help them achieve high salary  Option #1 is the same score as option #2 with high score 9

Customers

- Customers do not concern about profitability of company  Option #1 is accepted the same as option #2 with score 5

- Customers want to buy high quality products and low product prices  Two option is assessed the same

- Customers do not concern about staff’s salary of company  Option #1 is the same score as option #2 with score 5

- Social risk: Difference in customer behavior of local when Nestlé enter into new market

- Economic risk: The inflation rate increase, the fluctuation of government policies and fuel price

lead to increase production cost or cost of transportation  increase product price which impact significantly on customers’ satisfaction Change in customers leading to changed relative power,

Note: The higher risks, the lower score

The lower risks, the higher score

OBJECTIVE 1

Alternative strategies Potential Risks Score

(0-10)

Option #2

Product development

- Business risk: Market research do not measure people’s real purchasing behavior Test marketing

can provide more reliable and accurate measure but that process is expensive, very time-consuming

Moreover, behavior of customers is often impossible to predict They are likely to change their minds

by the time a product is launched

- Political risk: The consciousness of implementing law as well as enforcement of punishing for doing

illegal in Vietnam is not really good, especially in term of fighting against producing, selling counterfeit product, smuggle, violation of intellectual property law  New products which spend more time, effort, money to create can be copied easily by its competitors in short time

- Financial risk: The processes of launching new products involve many types of expense (training

staffs, R&D activities, investing machines, equipments) which can cause finance debts 4

Alternative strategies Potential Risks

(0-10) Option #1

- Physical risk: Flooding, drought and equipment breakdown can delay the process of

Option #2

Product development

- Business risk: Staff performance will decide success of strategy

8

3.2 Select an appropriate future strategy for a given organization

3.2.4 Scores and Ranking

Option #1

Option #2

• Total score of option #1 = (30.92 x 10) + (47.25 x 7) + (30.83 x 5) = 794

• Total score of option #2 = (25.58 x 10) + (26.75 x 7) + (31.67 x 5) = 601

• Total score option #1 = 794

• Total score option #2 = 601

3.2 Select an appropriate future strategy for a given organization

3.2.5 Selection and improvement

The score of option 1 is higher than option 2 Based on this result and all the evaluation above, the conclusion is Nestlé should choose option #1 (market development) as main strategies for the 5 year objectives in Vietnam

However, in order to keep stronger position in Vietnam market Nestlé has to adopt combination of market development and product extension strategy

Product extension means when company using a successful brand name to introduce additional items in a given product category

under the same brand name (such as new flavors, forms, colors, added ingredients, or package sizes) It has score of risk at lower than product development which suitable for using to implement short term plan Thus, Nestlé can take advantages from this strategies by adding extra features to change the product prices of existing products (products which has strong band name in Vietnam market such

as Nescafé, Nestea, Milo…) instead of formulation of an entirely new product which spend many resources of company as product development.

Adjustments to Products - Product Line and Product Mix (2014) Boundless [online] Available at:

https://www.boundless.com/marketing/products/product-line-and-product-mix/adjustments-to-products/[Accessed 4 Jun 2014].

Nestle, 2012 Nestlé’s approach to packaging design aims to make its products easier to enjoy [Online] Available at:

http://www.nestle.com/Media/NewsAndFeatures/packaging_design_easier [Accessed 3 June 2014].

Nestle, 2014 Nestlé Việt Nam - Các hoạt động tại Việt Nam [Online] Available at:

http://www.nestle.com.vn/aboutus/nestle-vietnamese [Accessed 18 May 2014].

Thu, D.M., 2011 Một số giải pháp nhằm nâng cao năng lực cạnh tranh của công ty TNHH Nestlé Research Dong Nai:

Lac Hong University.