The moment you make a mistake in pricing, you're eating into your reputation or your profits.”
- Katharine Paine
In 2019, Nestle earned half of its worldwide sales in America. It had a cumulative revenue of about 92.6 billion Swiss Francs that year. How was Nestle able to generate that much revenue? What is their pricing strategy? Let’s find out!
Case Study on Nestle
Nestle was founded in Switzerland by Heinrich Nestle in 1866. Nestle is one of the oldest multinational companies. From the early stages, Nestle wanted to take advantage of growth opportunities in different countries. In 1905, it merged with Anglo-Swiss condensed milk, broadening its product range to include infant formulas and condensed milk. Nestle currently has 447 factories, with operations in 189 countries.
In this case study, we will focus on Nestle's pricing strategies. Pricing is the most important element for maximising revenues. According to Harvard studies, if there is a 1% improvement in pricing, it leads to an 11% increase in profits (approx.). If the pricing structure is incorrect, the business loses profit with each transaction made. Therefore, correct pricing is critical.
Nestle is a multinational brand with a present net worth of about $270 billion. The success that the brand has is due to its pricing strategy. The revenue of Nestle is continuously growing, this depicts the successful identification and placement of its products in the market. Generally speaking, Nestle’s products are pricier in comparison to the products of the retailing brand.
Nestle’s pricing strategy is fairly distinctive in contrast with other brands. It merely hinges on recognition which is attributed to the apparent quality of the product. Based on this quality and the attitude of the customers, Nestle assesses the pricing strategy it wants to implement.
Nestle’s pricing strategies
Here are some of the strategies implemented by Nestle in order to achieve its targets and goals.
Nestle Price skimming
Price skimming is a pricing strategy in which a company charges a high price initially and lowers it over time.
Nestle uses price skimming for some of its products when it enters the market of a country.
Nestle believed that the target consumers for Nescafe coffee were upper-middle-class consumers. Later, with the success of this approach and strategy, they lowered the prices and targeted the middle class.
Inexpensive pricing strategy
Amongst its wide range of brands, Nestle offers a fair price for quite a few of its brands and products. Pricing is based on market segmentation. Market segments generally involve a target audience.
Market segmentation is the practice to divide the target market into subgroups. It forms subsets depending on needs, psychographic, behavioral, and demographic criteria.
If Nestle is trying to target the mass market, then they implement an inexpensive pricing strategy instead of an expensive one.
This happened in the case of Nestle's Maggi noodles. It is considered affordable in comparison to other products of Nestle. However, if the price of Maggi is compared globally with other noodle brands, then it can be perceived as a little pricey.
Bundle price strategy
With time Nestle has understood that people do not usually do their groceries every day, instead, they prefer purchasing in bundles. Therefore, Nestle implemented the bundle packs approach.
Initially, Maggi was sold in a single pack but later on, Nestle offered a 16 pack which eventually increased the sales.
Penetration pricing strategy
Penetration pricing is a pricing strategy that an organisation uses to offer new products at lower prices in an attempt to attract more customers away from rivals.
When Nestle introduced a new flavor of Maggi instant noodles, they were sold at a low price of £2.25 to entice new customers. Nestle’s strategy was to lure more customers away from its rivals which offered alike flavors priced at £3.25. Nonetheless, when Nestle gained a greater customer base they increased the price to £3.
Psychological pricing strategy
Psychological pricing facilitates in creating a positive psychological influence on the consumer and attracts them to buy the product.
Nestle Aero bliss was sold for £8.99 instead of £9. This pricing strategy will have a positive psychological impact on the consumer and will encourage them to purchase the product.
Stock keeping units
Nestle does not want to lose any customers, so it has diverse pricing for every stock-keeping unit, allowing it to reach a bigger consumer base. From Maggi noodles to Cereals, Nestle has it all covered, whereby the company offers different sizes of packs.
Nestle’s cereal is slightly pricey in comparison to other brands. Hence, it started offering mini pouches for everyday consumption. This has made the pouches a lot cheaper than larger packs, hence allowing different segments of customers to buy Nestle’s products.
Discounts offered
Nestle offers discounts in various retail stores. Nestle products are often bundled and come with a 5% or 10% discount.
Coffee and creamer, as a bundle, is cheaper than buying the two items separately.
Competitive pricing strategy
Another general approach that Nestle follows is analyzing the pricing strategies of its rivals. Nestle has several brands and for every brand, it has separate departments that assess the pricing strategies of its rivals. Besides that, it examines the marketing style, sales, and innovation of rivals. The competitive pricing strategy assists in achieving Nestle's desired position as they acknowledge the preferences of the consumers.
Global pricing strategies of Nestle
Globally, Nestle attempts to ensure the pricing strategies that will assist it in achieving its financial objectives. These strategies typically involve the penetration and skimming strategy. The price of Nestle products automatically rises when they are exported to other regions. Alternatively, it also implements price skimming, as it sets a higher price at the start and then ultimately reduces the price based on the customer demand.
Over the years, Nestle has become one of the leading parent brands with successful divisions under its name. What has made Nestle successful with consumers is that it adapts to different pricing strategies according to the regions its selling and according to the product offered. It gives preference to the demands of its customers and tries to provide the best quality products at different price ranges so that all segments of consumers are able to afford its products, hence, increasing the sales and profits for the company.
Pricing Strategy of Nestle Company - Key takeaways
Nestle was founded in Switzerland by Heinrich Nestle in 1866.
Heinrich originally created Nestle for distributing milk food for newborns and found that it could be created from powdered milk, sugar, and other natural food.
Nestle is a multinational brand with a present net worth of about $270 billion. The success that the brand has is due to its pricing strategy.
Nestle’s pricing strategy is fairly distinctive in contrast with other brands.
Nestle uses various pricing strategies including price skimming, inexpensive and bundles pricing strategy, penetration pricing strategy, stock keeping units, psychological pricing strategy, discounts, and competitive pricing strategy.
Sources:
Howandwhat, https://howandwhat.net/marketing-mix-nestle/
The Strategy Watch, https://www.thestrategywatch.com/pricing-strategy-nestle/
Price intelligently, https://www.priceintelligently.com/blog/bid/182007/6-must-read-pricing-strategy-quotes
StuDocu, https://www.studocu.com/my/document/tunku-abdul-rahman-university-college/pricing strategy/bbdt3193-pricing-strategy-for-the-company-nestle/18242524
Studymode, https://www.studymode.com/essays/Nestle-Pricing-Strategy-1058790.html
Iide, https://iide.co/case-studies/nestle-marketing-strategy/
Iide, https://iide.co/case-studies/marketing-mix-of-nestle/
Howandwhat, https://howandwhat.net/marketing-mix-nestle/
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