AMERICAN INTERNATIONAL UNIVERSITY-BANGLADESH

Title: Pricing, Product development, Product life cycle and advertising

of Nestle

NAME: ID NO:
ALAM MD JAHANGIR 07-08162-1
SHITHIL KAMRUL HASAN 06-07113-2
ALAM MIR SAIFUL 08-11774-2
KARIM MD REZAUL 09-12787-1
SAIFUL ISLAM SOHAN 07-09023-2

Section: L

The report submitted to KHAN, TAHSINA NIMMI Lecturer, American International

University-Bangladesh
In partial satisfaction of the requirement for
PRINCIPLE OF MARKETING

Semester: Fall, 2009

Dhaka, Bangladesh

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Date: December 14, 2009

To
Khan, Tahsina Nimmi
Lecturer
American International University-Bangladesh
Dhaka, Bangladesh.

Subject: Letter of transmittal

Dear Madam,

Attached please find the group project report on “Pricing, Product development,
Product life cycle and advertising of Nestle” that you have assigned us to prepare. We
the group members have consulted various primary data and accumulated workable
secondary data by visiting few installations and interviewing related personnel. We have
coiled those data furnished through this report. It will be still a unique scope for us to
learn more about the subject by clarifying any observations if you have arising from the
paper.

We are grateful to you for your continuous guidance in preparing the group project
report.

Sincerely yours,

ALAM MD JAHANGIR 07-08162-1

SHITHIL KAMRUL HASAN 06-07113-2
KARIM MD REZAUL 09-12787-1
ALAM MIR SAIFUL 08-11774-2
SAIFUL ISLAM SOHAN 07-09023-2

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 Acknowledgment

Firstly, we would like to thank “ALLAH” for giving us the strength and energy to work
on this report and finish it successfully. We have tried our level best to make it to the
satisfaction on the reader.

Secondly, we would like to thank our honorable course teacher Khan, Tahsina Nimmi
for his proper guidance and care to complete the report. She answered all of our questions
as well as asked us questions that helped us to extend our search. For this purpose she
helped us during class time and after class as well.

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 TABLE OF CONTENTS

CONTENTS: PAGES

1. INTRODUCTION 5
2. HISTORY OF NESTLE 6-7
3. BRAND NAMEOF NESTLE 8
4. PRICING OF NESTLE 9
5. PRICING POWER OF NESTLE 10
6. PRODUCT DEVELOPMENT OF NESTLE 11
7. PRODUCT LIFE-CYCLE OF NESTLE 12
8. ADVERTISING OF NESTLE 13-14
9. FINDING 15
10. LIMITATON 16
11. RECOMMENDATION 16
12. CONCLUSION 17

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 INTRODUCTION

Nestlé S.A. (French pronunciation: [nɛs'le]) is a multinational packaged foods company

founded and headquartered in Vevey, Switzerland, and listed on the SWX Swiss
Exchange with a market capitalization of over 87 billion Swiss francs. It originated in a
1905 merger of the Anglo-Swiss Milk Company for milk products established in 1866 by
the Page Brothers in Cham, Switzerland, and the Farine Lactée Henri Nestlé Company
set up in 1866 by Henri Nestlé to provide an infant food product. The two world wars
both affected growth: during the first, dried milk was widely used but the second war
caused profits to drop by around 70%. However, sales of the instant coffee Nescafé were
boosted by the US military. After the wars, growth was stimulated by acquisitions that
expanded the company's product range and brought a number of globally recognized
brands into its fold, including Maggi, Thomy and Nescafé. Nestlé is the world's largest
foods company, followed by Kraft Foods.

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 HISTORY OF NESTLE

The company dates to 1867, when two separate Swiss enterprises were founded that
would later form the core of Nestlé. In August of that year, Charles A. and George Page,
brothers from Lee County, IL in the United States, established the Anglo-Swiss
Condensed Milk Company in Cham. In September, in Vevey, Henri Nestlé developed a
milk-based baby food and soon began marketing it. In the succeeding decades both
enterprises aggressively expanded their businesses throughout Europe and the United
States. (Henri Nestlé retired in 1875, but the company, under new ownership, retained his
name as Farine Lactée Henri Nestlé.) In 1877 Anglo-Swiss added milk-based baby foods
to its products, and in the following year the Nestlé company added condensed milk, so
that the firms became direct and fierce rivals.

In 1905, however, the companies merged to become the Nestlé and Anglo-Swiss
Condensed Milk Company, retaining that name until 1947, when the name Nestlé
Alimentana SA was taken as a result of the acquisition of Fabrique de Produits Maggi SA
(founded 1884) and its holding company, Alimentana SA of Kempttal, Switzerland.
Maggi was a major manufacturer of soup mixes and related foodstuffs. The company’s
current name was adopted in 1977. By the early 1900s, the company was operating
factories in the United States, United Kingdom, Germany and Spain. World War I created
new demand for dairy products in the form of government contracts; by the end of the
war, Nestlé's production had more than doubled.

After the war, government contracts dried up and consumers switched back to fresh milk.
However, Nestlé's management responded quickly, streamlining operations and reducing
debt. The 1920s saw Nestlé's first expansion into new products, with chocolate the
company's second most important activity.

Nestlé's logo used until 1970s.

Nestlé felt the effects of World War II immediately. Profits dropped from US$20 million
in 1938 to US$6 million in 1939. Factories were established in developing countries,
particularly Latin America. Ironically, the war helped with the introduction of the
company's newest product, Nescafé, which was a staple drink of the US military. Nestlé's
production and sales rose in the wartime economy.

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The end of World War II was the beginning of a dynamic phase for Nestlé. Growth
accelerated and companies were acquired. In 1947 came the merger with Maggi
seasonings and soups. Crosse & Blackwell followed in 1950, as did Findus (1963),
Libby's (1971) and Stouffer's (1973). Diversification came with a shareholding in L'Oréal
in 1974. In 1977, Nestlé made its second venture outside the food industry by acquiring
Alcon Laboratories Inc.

In 1984, Nestlé's improved bottom line allowed the company to launch a new round of
acquisitions, notably American food giant Carnation and the British confectionery
company Rowntree Mackintosh in 1988, which brought the Willy Wonka Brand to
Nestlé.

The Brazilian president, Lula da Silva, inaugurates a factory in Feira de Santana (Bahia),
February, 2007.

The first half of the 1990s proved to be favorable for Nestlé: trade barriers crumbled and
world markets developed into more or less integrated trading areas. There were two
major acquisitions in North America, both in 2002: in June, Nestlé merged its U.S. ice
cream business into Dreyer's, and in August a US$2.6 billion acquisition was announced
of Chef America, the creator of Hot Pockets. In the same time frame, Nestlé came close
to purchasing the iconic American company Hershey's, though the deal fell through.
Another recent purchase includes the Jenny Craig weight loss program for US$600
million.

In December 2005 Nestlé bought the Greek company Delta Ice Cream for €240 million.
In January 2006 it took full ownership of Dreyer's, thus becoming the world's biggest ice
cream maker with a 17.5% market share.

In November 2006, Nestle purchased the Medical Nutrition division of Novartis

Pharmaceutical for $2.5B, also acquiring in 2007 the milk flavoring product known as
Ovaltine. In April 2007 Nestlé bought baby food manufacturer Gerber for $5.5 billion.

In December 2007 Nestle entered in a strategic partnership with a Belgian chocolate

maker Pierre Marcolini.

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 BRAND NAME OF NESTLE

Nescafe Gervais Extreme

L'Oreal Maggi
Nestlé Rowntree Maxibon
Nestlé Purina / Friskies Galderma
Nestea Buitoni
Cereal Partners Herta
Dreyer's Ice Cream Gerber
Nestlé Waters Nespresso
Baerenmarke Alcon Laboratories
Nesquik Jenny Craig
Baci Nestlé Professional
Nestlé Baby Food Willy Wonka

PRICING OF NESTLE

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Nestle has seen a strong start to 2008, partly thanks to its strategy of increasing product
prices quickly in line with commodity price increases. The food manufacturer
said in an update on its organic growth outlook for the year that "sharp upward
movements and increased volatility" in the commodity markets in the past year
forced it to advance price increases for finished goods so as to partially absorb
the higher input costs. "Combined with the pricing effects in place at the end of
last year, this accounts for a strong pricing element in organic growth for the
first two months of 2008." Consequently, Nestle is predicting that growth for the
whole of the year will approach that of 2007. Last year it reported sales of CHF
107.6bn (c €5.8bn), up 9.2 per cent on the previous year, and organic growth of
7.4 per cent. This exceeds its long-term trend target of 5 to 6 percent. Nestle
spokesperson Francois-Xavier Perroud told FoodNavigator.com that although
the company reacts quickly to fluctuations in costs, there is a time lag between
commodity prices rising and the knock-on effect on finished products because
the products are already in the shops with their price tags on them. However
since the manufacturer actually makes its sales to the trade weeks before the
goods are sold to consumers, it can see the benefit of the higher prices a while
before they are effectively passed on to consumers by retailers. Moreover,
product price increases the same across Nestle's geographical markets and
product lines. The effect of commodity prices varies from country to country
and from product to product, so finished product prices are not decided centrally
but by market. Where Nestle responds to commodity price increases, it also
responds to fluctuations in the other direction and may lower prices again
accordingly. Nestle chairman and CEO Peter Brabeck-Letmathe said: "We
expect our raw material cost pressures to abate somewhat in the course of the
year, and foresee foresee price increases to trend lower in the second half of the
year."

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 PRICING POWER OF NESTLE

The company is well positioned to cash in on the growing spends on processed foods.
Foods major Nestle has again demonstrated how powerful a portfolio of brands it has
with gross margins expanding 240 basis points to 52.2 per cent in the September 2009
quarter. Of course the fact that prices of key inputs, except sugar, remained more or less
stable during the quarter helped bring down costs. But the company was also able to
improve its product mix and thereby earn better realisations, reflected in its top line,
which grew 17.6 per cent to Rs 1,302 crore. Sales were driven by an 18 per cent growth
in the home market, the 17th consecutive quarter of high-double-digit revenue growth.
However, increase in staff costs and higher spends on advertising and marketing meant
that operating profit margins, at 20.3 per cent, expanded by just 160 basis points. A lower
tax rate of just 27 per cent helped push up profit after tax by 38.7 per cent to Rs 182.8
crore. With Indian consumers increasingly able and willing to spend on branded and
processed foods, Nestle should continue to command pricing power given that there is
limited competition for many of its products. Also, the company has been trying to
increase penetration, especially in non-urban markets, by launching its brands at lower
price points. That, together with the growth of organised retail in bigger cities, should
help Nestle sustain double-digit volume growth. In the current year to December 2009,
the company is expected to grow revenues by just under 17 per cent to around Rs 5,100
crore, while net profits are estimated to grow 32-34 per cent over those reported in 2008.
Next year, though, profits are estimated to grow 18-20 per cent. The stock has had a great
run and at Rs 2,663, trades at around 30 times estimated calendar 2010 earnings. Nestle
has almost always commanded a big premium to peers in the FMCG space and that trend
should continue

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 PRODUCT DEVELOPMENT OF NESTLE

Nestle is thought to be reviewing its packaging design roster for the first time since
2003.The global food corporation is understood to be looking at rationalizing a cross-
divisional roster, which has grown from a strict list to a sprawling catalogue of
consultancies, based on the personal preferences of Nestle marketers. Although, to date,
there has been no formal communication between Nestle and consultancies, groups were
first contacted earlier this year to fill in requests for information and to give details of
how much they’d billed Nestle for the past year. The company is now thought to be
setting out how much it is spending on design and evaluating its consultancies. It is
understood to be putting together a design roster team to create a shortlist based on
credentials including size of business, potential client conflicts and key challenges.
Among the groups currently working with Nestle are Coley Porter Bell, Brand opus,
Dragon Brands and Blue Marlin. According to one industry source, impactful design and
new product development across its portfolio of brands has been hindered by the number
of divisions design work has to be approved by. Nestle has been the focus of recent
reports suggesting that it faces a raft of challenges in creating innovations to maintain
profits and keep its brands afloat. It did, however, report a 6 per cent rise in profits last
month, despite criticism of its record in product innovation. The company’s most recent
attempt at new product development – Boosted Smoothies, a joint venture with Boost
Juice Bars – has floundered in the UK because the product has struggled to get
supermarket listings. Other innovations have included chilled ready-to-go latte drink
Nesfrappe..

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PRODUCT LIFE CYCLE OF NESTLE

Business theory suggests that products follow a life-cycle, going throughphases of

development as follows:
• the conception of an idea/product
• research and development
• introduction to the market.
A period of growth then follows as consumers become increasingly aware of the product
and, if successful, it becomes profitable. Eventually, the growth of sales will level off -
this is the mature phase and is usually the result of increased competition. The theory
predicts that sales will gradually decline as the market becomes saturated and consumer
tastes change. However, it would be wrong to assume that after the uphill struggles of the
development and growth phases, life becomes easier on the level. It is a considerable
challenge to the marketers to prolong the profitable mature phase for as long as possible.

At Nestlé, we apply a product life cycle approach involving its partners from farm to
consumer in order to minimize the environmental impact of our products and activities.
Our aim at all stages of the cycle is to use natural resources efficiently, to favor the use of
sustainably-managed renewable resources and to target zero waste. In this way, we intend
for its brands to stand for environmental sustainability. Nestlé's initiatives aim to improve
the environmental performance of the products along their entire life cycle. These include
sourcing sustainable raw materials, reducing energy consumption and minimising air
emissions by moving to different fuel types. Nestlé invests an average of CHF 40 million
a year to reduce its air emissions. Another significant step in the value chain is transport.
Nestlé has initiated a pilot with Schenker, an international logistics company, to evaluate
the effect of different types of transport, distances driven and fuel type used. Through
internal research and development at Nestlé there have also been significant advances in
the environmental impact of refrigerants and packaging. Without compromising product
quality there was a reduction of 392 000 tonnes of packaging material between 1991 and
2008.

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 ADVERTISING OF NESTLE

Evidence shows that Nestlé advertised and still advertises its formula as a risk-free
substitute (or even a preferable alternative) to its products, resulting in increased use.

Advertising for children:

Nestlé sponsors the Healthy Thai Kids programmed, reaching 5000 primary schools with
nutrition education. Above the children learn the importance of a balanced diet and
discover, in an interactive way, how food is digested. Responsible advertising to children
has always been part of Nestlé' Consumer communication principle. They are aimed at
encouraging moderation, healthy dietary habits and physical activity without
undermining the authority of parents or creating unrealistic expectations of popularity or
success. They also ensure that we do not create difficulty in distinguishing real from
imaginary.

THE MEDIA BUSINESS: ADVERTISING -- ADDENDA; Nestle Unit

Selects Dailey:

The chocolate and confections division of the Nestle Food Company in Glendale, Calif.,
the American unit of Nestle S.A. of Switzerland, has named Dailey & Associates in Los
Angeles, a unit of the Interpublic Group of Companies, to handle advertising for its
Nestle Crunch and Nestle Buncha Crunch candy brands.

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Exclusive Advertising Contract with Nestle:

Immedia has signed an exclusive advertising contract with Nestle on its Impulse Live
radio station and is expanding its sales team through an outsourcing agreement with
Unique Communications Group. Immedia, the provider of live tailored radio stations for
retailers, is pleased to announce it has signed an exclusive advertising contract with
Nestle on its Impulse Live radio station. Following a series of successful advertising
campaigns such as Smarties Bar, KitKat and Polo on Impulse Live, Nestle will now
become the station's exclusive chocolate and sugar confectionery advertiser for 2005.

New advertising campaign for Nestle 'Treasures' chocolate snacks:

Trying to spark its sluggish Treasures, Nestle is aiming at on-the-go consumers who
pluck their indulgences from convenience stores and checkout aisles with five-piece
packs of the bite-sized chocolates. The new packs aim to reverse low consumer
awareness blamed in part by confection buyers on the bagged candy's opaque packaging.
The count-good pack, suggested by c-store operators, has a window clearly disclosing
five individually wrapped treats.

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 FINDINGS

While doing this report we noticed some things in nestle regarding their job design. These
are mentioned below-
1. Nestle has different brand name for different products. Sometimes it becomes
confusing whether it is nestle brand or not.
2. Nestle marketing strategies are different for different region.
3. Despite of being global crisis, nestle performance is much better.
4. There is a time lag between commodity prices rising and the knock-on effect on
finished products because the products are already in the shops with their price
tags on them.

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 LIMITATION

As far as report writing is concerned, we are bound to make mistakes, as well as face
various other problems. Thus, few of the problems faced while preparing this report and
some of the weaknesses of this report are given below-

 Nestle is a multinational company that’s why we were unable to have any

physical survey. .

 Getting relevant papers, documents and information were strictly prohibited.

 In web sites there are lacks of information.

 It was a very short time that’s why we could not go through our report.

RECOMMENDATON

1. Nestle should expand its business.

2. Nestle should more conscious on its product-life cycle.
3. Nestle should more attentive on its advertising activities.
4. Nestle should improve its product day by day.
5. Nestle should minimize its product price.

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 CONCLUSION

Nestle has seen a strong start to 2008, partly thanks to its strategy of increasing product
prices quickly in line with commodity price increases. Through internal research and
development at Nestlé there have also been significant advances in the environmental
impact of refrigerants and packaging. Without compromising product quality there was a
reduction of 392 000 tonnes of packaging material between 1991 and 2008. Evidence
shows that Nestlé advertised and still advertises its formula as a risk-free substitute (or
even a preferable alternative) to its products, resulting in increased use.

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