G4 – Nescafe Italy
M987Z226
刁鳳嬌
M987Z218
Nguyen T.Hong Duy
M987Z247
Nguyen Mac To My
Outline
Company background: Nestle Italy
The Italian consumer – key trends
Coffee consumption: Italy compared
with other countries
Coffee 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
workforce
Increased International mobility
Changes in the ethnic composition of
the population
Rising level of education&culture
among the population
Consumption
Bar Locations
31% 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 Distribution
Bars 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 Imports
The 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 Italy
STRUCTURE 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 coffeeprocessing technology:
• Roasted
• Decaffeinated
• Instant
3 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 companies
 Product: (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 others15%. 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 Competitors
Lavazza SpA of Turin
Segafredo-Zanetti SpA of Bologna
Crippa & Berger SpA of Milan
Procter & Gamble Italia
Illy Caffe` of Trieste
Consorzio Sao Café
Café do Brasil
Nestcafe in Italy
Instant coffee was introduced into Italy in 1962
Nestcafe different formulation: Degree of
roasting, the type of solubilization, the raw
materials used
Italian market: specific and deep-rooted coffee
culture
Nestle objective: perceived as real coffee
Marketing 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 FAILED
More 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” advertising
The 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
Sales
700
580
600
500
400
640
500
400
300
200
100
0
1972
1982
1986
1988
Nescafe first success
Nescafe 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 price
Var. manufacturing costs = 37.5% retail price
Gross operating profit = 47.5%
Sales & distribution costs = 15.3%
Operating profit = 32.3%
Netle’ Italy management desire
Wide distribution of the brand
Increasing sales
Increasing the quality of coffee to support this
desire
Motivational study about Nescafe
 2/3 prefer during meals or in the afternoon; 1/3 remaining
use as a “milk modifier” in the morning
 The different brands of Nescafe’ are easily distinguished
 43% 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
Focus older
segment
(-)would not lead to
significant increase
in sales
(+)the segment
more attractive in
the longer term
Broaden as a “milk
modifier”
(-)cannibalization
effect & inevitable
internal conflict;
(+)leadership with
Nesquik & Orzoro
Penetrating the CHR
segment of the market
(-)sales would barely pay
back the initial
investment needed for
entry and distribution of
the product.
(-)significant switch from
espresso to Nescafe in
coffee shop was very
unlikely
Optimal option
Positioning 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-caffeinealternative 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-caffeinealternative 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 (200-250-400500 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