Pricing and Repositioning a Recalled Product

Nestle’s biggest challenge

 

The 2015 Maggi ban in India took a toll on the brand’s reputation and consumer’s trust in the brand. The ban came into force after samples of Maggi were found to have excess levels of lead and monosodium glutamate(MSG). India being the second largest market for Maggi had great potential to cost the company a fortune. Following the ban, consumer trust in the brand was obviously shaken. Not only did it affect the Indian market, but the ban spread to neighboring countries such as Singapore and Nepal as well. In a press release, Nestle stated that “the trust of our consumers and the safety of our products is our first priority” (Pandey and Singh, 2016). So, the biggest challenge for Nestle is to formulate a comeback strategy that repositions the brand in the market in a way that it is perceived as the most trusted brand by its stakeholders that completely overwrites the serious damage caused to the brand’s reputation and make sure this damage to the product line does not impact the sales of its entire portfolio. It is all the more challenging for Nestle to regain markets after a long absence.

Marketing environment

 

Nestle should be sensitive to the issues that constitute the macro-environment it operates in. This includes customer demographics, culture, social trends, political/legal environment, education, technology advances etc. Emerging economies like India contribute 43% of Nestle’s overall revenues and that is expected to further increase (Pandey and Singh, 2016). The changing consumer lifestyle has driven increased demand for packaged food in emerging economies like India. Hence, India should be on Nestle’s primary focus.

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The micro-environment i.e. the immediate environment that affects Nestle India comprises of suppliers, consumers, competitors and the company itself. Along with these, shareholders and employees also constitute the major stakeholders. Due to a halt in production, the 1500 permanent employees involved in production were temporarily shifted to training and trade building activities (Pandey and Singh, 2016). After the ban came into force, suppliers were left out high and dry because they had huge dependence on Nestle as a buyer of their spices of Maggi so they were seeking new customers and hoped to reduce future dependence on limited clients. The company experienced huge financial losses and lost faith and trust in the eyes of the customers. Maggi has a lot of competitors such as Patanjali Atta Noodles, Sunfeast YiPPee! Noodles, Top Ramen, and Knorr Soupy Noodles but it continues to hold 63% of the market share (Pandey and Singh, 2016). For enduring success and growth, Nestle should focus on mitigating these risks by making consumer centric decisions and focusing on competitor intelligence by keeping an eye on what the competitors are doing or what they are going to do and how that appeals to the customers. Nestle should also embark on becoming more socially responsible by engaging in fundraising and increasing involvement with charitable institutions to regain consumer’s trust and faith in the brand.

Brand Repositioning

 

Nestle should make appropriate use of positioning and come up with a creative yet practical promotional approach as a part of their repositioning strategy.

Positioning

Positioning refers to how consumers perceive the product or a service in the market relative to its competitors’ offerings. The main stakeholders are the customers and it is crucial for Nestle to make sure that post re-entry, consumers have a clear understanding of what Maggi offers. There is no need for Maggi to differentiate its product from its competitors owing to the fact that it already dominates the noodle market. While developing their positioning strategy, Nestle should go through the following six steps: First, they need to evaluate consumers’ perceptions of the product in relation to its competitors. Therefore, it needs to put more emphasis on regaining the perception of the brand as one of the safest brands. Second, it needs to identify the market’s ideal points and market sizes for the product. Re-iterating the fact that India being an emerging economy has great growth potential for packaged food. Third, it should identify the competitors’ positions. It’s biggest competitor, Patanjali claims to offer a price of 15 rupees in comparison to 25 rupees charged by Maggi for the same size of noodles (Pandey and Singh, 2016). This should be taken into account while making pricing decision for re-entry of the brand. Fourth is identifying consumer preferences which is reflected in the market share of Maggi. Fifth is selecting the position. Nestle could reposition its marketing approach by promoting the product as safe for consumption. The final step is to monitor the positioning strategy. Markets are dynamic i.e. consumer preferences are not stagnant and the competitors’ offerings change over time as well. Thus, Nestle should make the necessary adjustments to step three and four regularly.

Promotion

Nestle could use integrated marketing communications (IMC) by using a mix of interactive online and passive offline approaches to enhance the impact of brand’s communications with its customers.

Marketing-Growth Relationship

Nestle was able to anticipate changes in consumer spending and increased demand for packaged products in emerging economies. It created the idea of its noodles being a source of happiness in its 2012 advertisement by linking its old functional message of being a convenient “2 minute” product to one of emotional significance (Pandey and Singh, 2016). In doing so, Nestle has been able to concentrate its marketing efforts towards establishing emotional ties between its products and the consumers by bringing up positive emotions like joy and happiness. These initiatives have made it possible for Nestle to influence the decision-making process of the consumers by placing themselves in consumer’s product evoked set (Grewal et al, 2015). It is evident from this case study that Nestle’s 2009 television campaign used India’s passion for personalised stories to celebrate Maggi’s 25th anniversary. It capitalised on brand loyalty and encouraged consumer participation through content creation and successfully came up with genuine, emotional and personalised appeal for its products. The surprising response that it achieved through this helped Nestle create more new flavours to extend its product line which further allowed capitalising on marketing to connect to consumer emotions followed by a spur in sales. Moreover, due to incline of consumer preferences towards healthier products and identifying potential growth in healthier food segments, it launched “Oats Noodles” starring a famous Bollywood actress in its advertisement once again extending its product line and value proposition towards health focused consumers (Pandey and Singh, 2016). All of these initiatives have enabled Maggi to gain a market share of 63% in the noodle market.

Pricing

Pricing is of critical concern to Nestle because it is related to product value that is perceived by the consumer to which Nestle is supposed to make a reasonable return (Grewal et al.,2015). Nestle has always marketed and priced its product as a premium product compared to its competitors by focusing regressively on brand reputation and promising higher quality products by providing healthier and tastier products providing better consumer value. Since pricing directly “influences consumer purchase behaviour” (Pandey and Singh, 2016), Nestle decided to maintain prices at pre-ban levels and stuck to same premium pricing strategy even after suffering massive financial and reputation losses. Instead, it decided to increase “tangible and intangible value” of Maggi by making the product safe for consumption by complying to national labelling legislation and by promoting awareness through effective labelling (Pandey and Singh, 2016) and by putting more emphasis on other marketing mix components such as product and places, therefore, impacting how Nestle creates, delivers and captures value.

Value Based Approach

Value Based Approach pricing focuses on setting prices that covers overall value of the product offering as perceived by the consumer (Grewal et al., 2015). It has two methods: improvement value method and cost of ownership method. Post ban, Nestle suffered from a drastic decrease in consumer trust regardless of the fact that it had been declared as one of the five most trusted brands in a customer survey (Pandey and Singh, 2016). This resulted in both tangible and intangible losses for the company. Improvement value method could be used to reinvigorate brand value by Nestle as the products could now be priced on the basis of estimated improvement value the consumers would be willing to pay relative to competitors. If Nestle continues to use appropriate promotional strategies to market their product, it is probable that consumers once again assume trust in the brand over time. Nestle’s response to the crisis comprised of their comeback on pricing and making sure that the price reflected a definite trade-off between costs and benefits and how this trade off was perceived by consumers. This demanded Nestle to map the perceived value of Maggie against its competitors like SunFeast and Bambino (Pandey and Singh, 2016). Being one of the leading companies in the world, it could not have decreased the price because a decreased price would have come across as an expression of inferior quality which would have lost consumer trust. It could also not have increased the price because the consumer would have no incentive to pay more after the loss of confidence in the product. So, keeping the prices same at pre-ban levels helped it maintain its position as a premium product.

REFERENCES

Grewal, D. and Levy, M. (2015). Marketing.

Pandey, N. and Singh, G. (2016). NESTLÉ’S MAGGI: PRICING AND REPOSITIONING A RECALLED PRODUCT. [online] Ivey Publishing. Available at: https://services.hbsp.harvard.edu/api/courses/578299/items/W16344-PDF-ENG/sclinks/4b7614955de491bac675eec923bb4f33 [Accessed 27 Oct. 2018].

Thibodeaux, W. (2017). [online] What is value based pricing and Marketing?. Available at: 

http://smallbusiness.chron.com/valuebased-pricing-marketing-23141.html [Accessed 27 Oct. 2018].