Nestle – What Type of Business Strategy? Should It Appropriate? Use 5-Forces Model to Analysis?
Nestle is commonly employing product differentiation strategy because nestle is focus on R&D to develop unique and exclusive products that can be extinct from other brand for example Nespresso, it is a home coffee machine that use its exclusive coffee capsules that other conventional espresso machine never had.
Nestle recently spent a lot of money to set up a R&D department in China is a indicator that Nestle is aimed to develop exclusive product to match with Chinese customer taste. It is appropriate that Nestle use product differentiation strategy because when Nestle change the strategy to cost leadership, Nestle may need to sacrifice the product quality due to use lower quality raw material for example, the raw material that are little deteriorated and will become spoilage .
For the 5 force analysis of Nestle enter into the China market:
Bargaining Power of Suppliers: The amount of Supplier is large, therefore the supplier bargaining power is low because raw material in China is everywhere can find for example dairy farmer. Nestle also has it own source of milk in China – Inner Mongolia it can have the cost advantages.
Bargaining Power of Buyers: Nestle product is exclusive so buyer’s bargaining power is low for example, Nespresso. Also, Since China economic is blooming, consumer purchasing power is increasing relatively. Dairy product industry is far away from fully supplied. Nestle is possibly use it financial, technical advantage to obtain the best competitive advantages to obtain large market share.
Threat of New Entrants: In the liquid milk and powder milk industry, Nestle has a hundred years history in research and development on baby milk powder . In some business segments of Nestle like coffee, Nestle has 65 years history in operating a instant coffee and Nestle is standing in oligopoly. In the China market share of instant coffee, Nestle