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Nestlé LC1
Nestle's Proposed Strategy

Nestlé is one of the largest and most successful food companies in the world. It has successfully introduced many new products into many different segments of the food and beverage industry. Nestlé possess a product, LC1, which is innovative, fairly new in the North American perspective, provides healthy benefits for the consumer, while offering a new avenue for profits for Nestlé. Nestlé, with its probiotic cultures found in its LC1 product, has an innovation that is ripe to be introduced into the North American market. Currently LC1 is primarily offered in Japan and Germany in the form of yogurts, with great degrees of success. Unfortunately LC1 yogurts were unsuccessful in a number of European markets, including France and The United Kingdom.

A LC1 powder was introduced into the American market around 2000. The powder was designed to be mixed into beverages and foods. It was sold at GNC stores, primarily focusing on consumers who were already health conscious about their eating habits. Nestlé used print ads, a direct mailing campaign, a smaller scale campaign targeted at health practitioners, and heavy Internet advertising ( Overall Nestlé’s LC1 powder went larger unnoticed by the US consumer, and achieved only minimal results.

In designing a strategy that would effectively place Nestlé at the head of the probiotic industry in North America market would require several key components. First would be to decide what areas of the Food and Beverage industry in which we would like to introduce Nestlé LC1 products. Second would be to educate the North American consumers as to the benefits that the probiotics possessed in LC1 brings. A strong marketing and advertising campaign would accompany this. Third would be to quickly conduct all moves and enter into each market as quickly as possible to gain maximum market share. Fourth would be to reinvest all profits, over a predetermined amount of time, back into operations, research and design, marketing and advertising to solidify consumer trust, market power and market position. In achieving these components of success we will be employing the six principals described in the book Sun Tzu and the Art of Business by Mark McNeily.

The first principal brought forth in the book is to “Win All Without Fighting” or to prioritize markets and determine competitor focus. Nestlé would need to figure out what areas of the food and beverage industry they are already operating strongly in and pinpoint some key products to introduce LC1 into. Nestlé is one of the largest food companies in the world and offers a wide range of products across many different areas of the food and beverage industry. Nestlé should choose to incorporate LC1 into one strong performing product in each one of its SBU’s. For instance they could introduce it into yogurts through their Dairy SBU, cereals in their Cereal SBU, into chocolate bars in their Confectionary SBU, power bars through their Nutrition SBU, baby formulas through their Baby Food SBU, pet foods through their Pet care SBU, into ice cream through their Ice Cram SBU and into their drinks through their Beverages SBU. Nestlé should choose one product in each of these SBU’s to introduce to the market. This way there is wide area of products with in different areas of the food and beverage industry in which the LC1 product to bring a profit. So if the LC1 does well in certain areas of the industry, but not another, Nestlé can shift its focus from the weak product to the strong product. Introducing it to many different products in many different areas of the food and beverage industry gives LC1 a better chance of achieving success. Nestlé, already begin a diversified food and beverage company, has the benefit being able to explore an option such as this.

Nestlé’s primary competition in introducing these products would be General Mills. General Mills would offer competition in some areas of the industry but perhaps could be an ally in others. Nestlé already has joint venture with General Mills in the cereal industry. These may prove to be beneficial to the introduction of LC1 into a wide variety of popular cereals that the two companies create and distribute. But, it may prove to be a hindrance if General Mills wishes not help due to competition strains that result from other areas of the food and beverage industry.

The second principal is to “Avoid Strength/ Attack Weakness” or to develop attacks against competitor’s weakness. A beneficial strength of Nestlé’s attacks is that the probiotic market in North America is very small. In 1999 probiotics total sales in North America were $67.2 million ( Nestlé would have the benefit of being a first mover or second mover in the industry. A primary weapon to Nestlé’s introduction of LC1 products, with their probiotic benefits, would be high levels of education through advertising and marketing. Nestlé had introduced LC1 in 2000 but to little success. According to Steve Allen, vice president, business development, Nestlé USA, “Nestlé LC1 was too early for the U.S.; the benefits were too general and the price/value relationship wasn’t there” ( Education and consumer understanding as to what probiotics are and the benefits they bring is the main roadblock in LC1’s success.

According to Steve Allen: “What is holding us back in the U.S. is that the consumer does not really have an explanation for probiotics because there is no vehicle or preexisting knowledge on which to build” ( Because probiotic are a form of bacteria or a culture, trying to get the North American consumer market to agree that LC1, a form of bacteria, can help them might prove to be difficult. Nestlé might first want to focus on athletes, mothers of small children, senior citizens and any other health conscious area of the food and beverage market in which to market their LC1 products. Nestlé should highlight to them the benefits of using their LC1 products, such as having an improved immune system or improved digestive system. An area that limited LC1 success in other Europeans markets was that some people viewed LC1 products as away to get better from a sickness, or as a form of medicine. LC1 products are designed to be a sort of body maintenance or even enhancement device and taken regularly. Nestlé should stress the importance of LC1 products being similar to other health oriented foods like nonfat milk or diet soda, which can and should be consumed daily.

In response to competitor attacks, Nestlé can rely on their reputation in European and Asian markets where probiotics have being prevalent for a number of years. LC1 has been widely popular in countries such as Germany, Italy and Japan. Nestlé, being a first mover in most of these markets, can highlight the fact they were hugely responsible for the development and creation of probiotic products and probiotic markets in the world. They were the ones to create an example which all other in the industry to follow. Nestlé can counter attacks on LC1 products in the North American markets with advertising campaigns that highlight their success in foreign markets, using real person testimonials to bolster their positions. Nestlé might also want to employee the help of professional athletes or movie stars to be spokesmen for their products, in hopes of gaining consumer support.

The third principal is “Deception and Foreknowledge” or war gaming and planning for surprise. For this I feel Nestlé should use the implication wheel as a form of war gaming. Because no other major food brand, including General Mills, has probiotic products, the weakness that Nestlé would be attacking would the lack of products that their competitors have to offer in the probiotic market. Nestlé’s first attack should be to educate consumers to benefits of using probiotic products. This educational campaign should be backed with scientific support and with examples of success from the European market. It should be done through advertisements on television, at prime time and during popular sports events preferably, through the newspaper coupled with money saving coupons, and on the internet through links with health food websites. Nestlé should highlight the fact that while such things as obesity and fast food are slowly decreasing the healthy and eating habits of North Americans, LC1 provides products that are healthy, good tasting, which also help improve the body’s functions. It would beneficial to LC1 success if popular athletes or movie stars were hired to endorse the products.

Nestlé’s competitors may respond to these advertisements with their advertisements that may down play or even deny the benefits of using LC1 products. They may play off the consumer’s misconception that all bacteria are harmful to one’s health in an attempt to stir LC1 success. Competitors may respond with advertisements that highlight LC1 lack of success in markets like France or in the United States in 2000. The may wage an anti LC1 advertisement campaign in hopes of slowing down any market share LC1 may gain from its advertisement campaign or to support their own probiotic products. In response, Nestlé should once again shift the consumers focus to their successes in European markets, along with their history in the market and the breakthroughs in research they have found to highlight the benefits of probiotic products in the course of their operations.

Nestlé could use Sun Tzu’s fourth principal, “Shape Your Competition” or integrate best attacks to unbalance the competition, to throw competitors off. Because Nestlé is going to introduce LC1 products in several different areas of the food and beverage industry, they could only advertise products in one or two markets. Then as competitors design their defense in those particular markets, Nestlé would unleash their overall product launch across all the predetermined areas of the food and beverage industry. This should catch competitors off guard, leaving them unprepared to defend against the scope of Nestlés attack. Nestlé may choose not to focus a large amount of resources into the introduction of products into markets in which they tricked their competitors into defend in. Nestlé should then focus their resource in to markets where they had not previously hinted they wished to enter into. These markets should be markets where Nestlé already has strong performing products like their ice cream or chocolate bar products.

This introduction of products should be done with Sun Tzu’s fifth principal in mind which is “Speed and Preparation” or ready your attacks and release them. All actions should be done quickly and following a schedule. Nestlé’s initial hints of wanting to enter into the probiotic market should be made know to the industry about one year before actual product launch. Nestlé, through word of mouth and small advertisement campaigns could hint at the markets and products it was going to launch with their LC1 probiotic benefits. This would be time would competitors would take notice and begin mounting defensive strategies. About six months before product launch, Nestlé should increase the size and scope of their advertisements, including a specific date as to the launch of LC1 enriched products. Here is when Nestlé could start employing the help of Professional athletes or movie stars. Nestlé should emphasizes, in their advertisements, the universal benefits that their LC1 products will bring to all people, along with the fact that these products taste the same as similar products in the same category. About one month to two weeks before product launch, Nestlé should release advertisement revealing the full scope of the products in which they are planning to launch. Between two weeks and product launch Nestlé should hold a party of sorts where they would invite consumers, retailers, distributors, and manufactures from the food and beverage industry to sample Nestlé’s new LC1 enriched products. This would be done to create a positive word of mouth and generate interest within the industry. Nestlé then should release all their LC1 enriched products simultaneously across every food and beverage sector.

For at least a year Nestlé should closely monitor all of its LC1 products, noting which products are performing better than others and in what market sector. Nestlé should then reallocate resources from poor performers or dogs in the market, possibly abandoning certain products or markets all together, to support products that are performing well as stars in their markets. This would follow Sun Tzu’s final principal which deals with leadership, reinforcing success and starving failure. Smart leaders know when to put further assets into products and markets that are performing well and when it would be better to retreat from them. Nestlé has a well-established management structure that is support by a strong reputation in the industry. This, along with the fact that Nestlé is introducing many products into many markets gives them the edge and flexibility to fine-tune their management, production and sale of their LC1 enriched products.

1 > LC1 Background / Dairy Division
2 > Nestlé’s Competitive Strategies
3 > Competitor Profile – General Mills
4 > SWOT Analysis
5 > Proposed Strategic Plan
6 > Sources


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