G4 – Nescafe Italy

M987Z226

刁鳳嬌

M987Z218Nguyen T.Hong Duy

M987Z247Nguyen Mac To My

OutlineCompany background: Nestle ItalyThe Italian consumer – key trendsCoffee consumption: Italy compared

with other countriesCoffee industry in Italy: structure and

evolution Nestle in Italy Marketing strategy options

Company background

Nestle SA is one of the world’s leading industrial groups, starting point with infant food product.

It also is the world’s leading producer of instant coffee and is the major buyer of raw coffee.

Launched in 1938, was adopted by all the armed forces.

Nestle Italy

Nestle Italy is a Milan-based company operating in over 10 different industries.

In Italy, Nestle coffee were sold under the brand Nescafe Classic, Gran Aroma and Nescafe Relax.

The main marketing were on above the line advertising and sales promotion.

Key trends

Increased % of Senior citizen Increased number of Women in the

workforceIncreased International mobility Changes in the ethnic composition of

the populationRising level of education&culture

among the population

ConsumptionBar Locations31% of bars are located in Piemonte,

Liguria, Valle D'Aosta, and Lombardia, while 25.2% are located in Trentino, Friuli, Veneto, and Emilia Romagna.

22.5% of bars are concentrated in Toscana, Marche, Umbria and Lazia, whereas only 21.3% of bars are located in the largest region encompassing Abruzzi-Molige, Campania, Puglia, Basilicata, Calabria, and Sicilia.

Drink DistributionBars average sales of 230.3 cups a day: (59.8% are sold as espressos, 13.5% are sold as cappuccinos, 12.3% are sold as correttos, 9.9% are sold as macchiattos, 4.5% are ecaffeinated coffees)

Coffee ImportsThe most countries represented in Italy's Imports:Brazil 30.41% Indonesia 11.96%, Ivory Coast 11.69%, Zaire 7.91 %, Cameroon 7.57%, Colombia 3.89%, Paraguay 3.16%, Haiti 2.93%, Kenya 2.83%, Ethiopia 2.36%, Tanzania 2.32%, Guatemala 2.08%,

Coffee industry in ItalySTRUCTURE AND EVOLUTION:Coffee is the biggest commodity market in the

world with:• strong competition on price and quantity

among producers of raw coffee, • the different commercial and technological

needs among the world manufacturers.The fluctuation in prices frequently depend on

the need for foreign exchange on the part of producing raw coffee countries.

Coffee industry in Italy

3 main type of coffee-processing technology:

• Roasted• Decaffeinated• Instant3 group of customers (3

segments):• Families• Coffee-houses• Hotels and restaurant

Coffee industry in Italy In the “family” segment (with 68.6%), coffee companies

focus on:• Intensive advertising to enhance the brand image• A growing orientation towards modern distribution

channels• Strong promotion at points of sale• Segmentation of the market according to the quality,

price and specific use of coffee. In the “coffee-house” and “hotel and restaurant” (CHR):

there is the competition between a limited number of companies (31.4%)

Although two main segments are different, companies which offer a good product in the CHR segment will probably do the same in the family one.

Industries structure

1988, comprising about 750 companies with 7,200 workers.

The first 4 companies held about 42% market share of total with sales volume expected to grow at 2% per year.

With low entry barriers, large companies which buy raw coffee form the foreign countries gain advantages from economies of scale.

However, depending on foreign raw coffee also makes companies face to difficult problems and makes it even more important to realize economies of scale in purchases.

Marketing strategy of leading companiesProduct: (coffee bean-ground coffee)• Some companies buy instant or decaffeinated coffee from

other firms in order to offer a complete product line under their own brand name.

• Most recent innovations in the coffee market have focused on the packaging and blends offered. They frequently used pliable bag because of the its raw material’s low cost

• Outlet also is the key success factor for brand image and product’s display.

• The high-quality coffee obtained through the espresso method and the image of “coffee-house” coffee, a brand can contribute to its image in the family segment; because they believe coffee made in a coffee-house is better than the coffee made at home, so consumers are often willing to by the brands found in coffee-houses.

Marketing strategy (cont.) Price:• By observing the cost

structure of firms operating in the market, it becomes apparent that raw materials (coffee beans)-70%, packaging-13%, ad and promotion-2%, and others-15%. Besides, they also make the price of a cup coffee down by changing the cost of components.

• Price is used as a competitive tool.

Promotion and place:• In family segment, market

leaders benefit from economies of scale not lonely in distribution, but also in communication to maintain their leadership.

• Forms of promotion: billboards, brochures, displays which show some originality in presenting the product.

• Discount program: “buy 2 get 1 free” or “2 vacuum-packed bags of ground coffee sold as 1”

Main CompetitorsLavazza SpA of TurinSegafredo-Zanetti SpA of BolognaCrippa & Berger SpA of MilanProcter & Gamble ItaliaIlly Caffe` of TriesteConsorzio Sao CaféCafé do Brasil

Nestcafe in ItalyInstant coffee was introduced into Italy in 1962Nestcafe different formulation: Degree of roasting, the type of solubilization, the raw materials usedItalian market: specific and deep-rooted coffee cultureNestle objective: perceived as real coffeeMarketing decision: aiming at overcoming the inevitable suspicions of a coffee that was simultaneously “good, convenient and easy to use” effort to affirm the goodness and quality of Nestcafe with Italian coffees

First advertising messages FAILED

Aimed at an emotional response, underscored the goodness of the coffee: “Nestcafe, the best of them all”

But this message was “miss something” and not substitute for “real” coffee Nestcafe was seen as a “back up” product for emergency cases and best suited to singles or older people

Comparing Nestcafe directly to Italian espresso did not convince consumers in terms of product quality or goodness

Second advertising compaign FAILEDMore personal involvement on the part of

consumers, presented “testimonials” by real people

“multi-subject” campaign showed “typical” people in the workforce

Nescafe was coffee suited to and made for anyone who “wants something more out of life” and “gives something more to it”, “you deserve a better coffee, Nescafe”

Nescafe was still an unattractive to those who wanted “gratification” and a “recharge” from their coffee

“The train” advertisingThe advertising presented an exotic train

journey aimed at stimulating emotinal involvement, while the “rational” product benefits were communicated through suggestive images of locations where coffee is grown

The adverts underscored the value of a good coffee, suggesting the positive associations with Nescafe’s origins without comparing it directly to typical Italian coffee

Nescafe gained in perceived prestige and reliability

Sales after years

400

500580

640

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100

200

300

400

500

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1972 1982 1986 1988

Sales

Nescafe first successNescafe was preferred by older people( 80% of

55 years old and above) because of its less “aggresive” image and for its ease of preparation during moments of relaxation

In family market, Nescafe was considered “emergency provisions” by many Italian families, especially when on holiday

In a splendid niche with higher price against normal coffee

Figures

Wholesalers = 85% retail priceVar. manufacturing costs = 37.5% retail priceGross operating profit = 47.5%Sales & distribution costs = 15.3%Operating profit = 32.3%

Netle’ Italy management desire

Wide distribution of the brandIncreasing salesIncreasing the quality of coffee to support this

desire

Motivational study about Nescafe2/3 prefer during meals or in the afternoon; 1/3 remaining

use as a “milk modifier” in the morningThe different brands of Nescafe’ are easily distinguished43% of consumers consider it “lighter” than Espresso or

“mocha” coffee, 20% “as much as”, 37% “don’t know”

Nescafe brand awareness was high(83%)Total market share was 1.4%Market penetration was 14%Sales was concentrated in some big cities and in

the North of Italy

Marketing stratety options

Optimal optionPositioning for younger and more “cosmopolitan” as

“the international coffee beverage”

(+) Main target for next 5 years(+) Younger people pprecitate Nescafe the

chance to emphasize as milk modifier and “new, less-caffeine-alternative coffee”

(+) The major Nestle’ food products should become standardized by the 1990s, at least in European market.

(+) Significant benefits for Nestle’(+) Growing “transnational consumers” segment

that travelling, living all over the world, achieving “universal” consumption habits

Question 1: Which of the four options outlines in the case would you adopt and why? Is there yet another, even better alternative?

• It’s Option 3. Because…The younger people’s appreciation of Nescafe was an opportunity to emphasize the product both as a milk modifier and as a ‘new less-caffeine-alternative coffee’

Q2: What would be the target segments, proposed positioning and promotion, pricing and distribution strategies – For overview of marketing strategies of leading

companies, the “family” segment is the target segment with nearly 70%.

– They create a good image in CHR to contribute its image in the “family” segment. Besides, they develop their product with different size of packages (200-250-400-500 gram bags) for family to easily choose the suitable one.

– The promotion programs are also frequently made for retail customers.

Q3: What would be the advertising copy strategy and the budget to invest on the “relaunch” of Nescafe?

Copy strategy is the thinking behind the creation of your advertising and it has 3 key elements: consumer benefit, reason to believe and brand character.

Nescafe should keep the train advertising success with the perception of prestige and reliability. Furthermore it should express the benefit of consumer when using Nescafe aiming at the new positioning strategy of younger people.

The budget to invest is base on: (1) percentage of sales or profits ; (2) Unit of sales; (3) Objective and task

Thank you for listening!

Q & A