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Assignment 1 I.

Situation Analysis: a. Company description:  History: it all began when the Anglo-Swiss Condensed Milk Company was founded in 1866. Then, with his great success in infant food, Henri Nestlé joined his company and the Anglo-Swiss together to create Nestlé Group as we can see today. In 1867, the symbolic logo, the “Nest”, was first used on Nestlé’s products. Later, Nestlé’s chocolate started appearing on the shelves. During the period of 1914-1918, Nestlé Group grew even more thanks to the huge demand of condensed milk and chocolate. From only 3 offices in 1905, Nestlé Group owned 40 factories by the end of the war. Between 1919 and 1938, the Company faced financial problems due to the fall in military and buyer purchasing power (Wall Street Crash). However, this was a great opportunity for Nestlé Group to look at its company structure, which led to the first employment of professional managers and the centralization of product studies in one laboratory in Vevey, Switzerland. Moreover, Nestlé Group bought “Switzerland’s largest chocolate company Peter-Cailler-Kohler” (Nestlé, 2018) and hit the Australian market with its famous drink Milo in 1929 and 1934, respectively, followed by the release of Nescafé in 1938. With the rises of freezers, the Company began producing ice cream, frozen foods, and canned foods from 1960 to 1980. After that, Nestlé Group’s perspective on food shifted to “Nutrition, Health, and Wellness,” (Nestlé, 2018) which caused the Company to adopt the WHO code for all its breast-milk products in 1981. The 14-year period from 1988 to 2002 witnessed various brands such as KitKat, Nestea, Nestlé Waters, Nestlé Pure Life, Häagen-Dazs, Mövenpick and Dreyer’s Grand Ice Cream added into the child-brand list of Nestlé Group. Since 2006, the Company has expanded and got deeply involved in preventing social matters such as world nutrition and child labor.  Mission Statement: “Whether it is in terms of convenience, health or pleasure, we are able and committed to create trustworthy products, systems and services that contribute to improving the quality of consumers’ lives.” (Nestlé, 2018)  CEO: Ulf Mark Schneider. He was born in 1965 in Germany. He graduated from Harvard Business School, Harvard University.  When did Nestlé join Vietnam? In 1912, Nestlé started their business in Vietnam with the establishment of their first office in Saigon.

b. Product Description: KitKat The name KitKat was created by a group of writers in London in 1890s during their meeting at a pie shop. KitKat is the short version for the shop owner’s name, Christopher Catling. KitKat is a confectionery product. It is a type of wafer bar with various flavors. In Vietnam, the favorite ones are chocolate-milk and green tea, which is understandable since chocolate-milk is the classic flavor while green tea is becoming a new trend. Although there are many alternatives such as Snickers or Hershey’s, KitKat still stands out in the market. Whilst Snickers advertisements mainly focus on how much nutrition and calories per serve, KitKat demonstrates how relaxing and creative people are when they consume it, especially with the punchline: “Have a break, Have a

KitKat” (Nestlé, 2018). Moreover, its unique designs (1 finger, 2-fingers, and 4-fingers) allow buyers to easily share it with their friends and family to enjoy the tastes of KitKat together. In addition, despite being a wafer bar, the calories amount per 100 grams of a KitKat bar is just a little bit under that per 100 grams of a Snickers bar. Written on the packages, the nutrition information clearly shows the consumers that the difference between these two snacks is just around 4 kcal, meaning a KitKat bar can provide you not only an adequate break but also extra energy for the work ahead. II. Marketing environment: A. Microenvironment: 1. Suppliers: With the rise in demand for confectionery products (Appendices) and the resource gradually becoming sacred (see Natural Factors), it is important for a company of Nestlé magnitude to have a sustainable and reliable supply of raw materials. One of the most important ingredients for the production of KitKat products is cocoa. Rather than relying totally on third parties, Nestlé has started to work directly with the farmers through Nestlé Cocoa Plan in collaboration to the International Cocoa Initiative. Nestlé Cocoa Plan producers supply approximately one-third of the Nestlé’s total global cocoa used for their production line. This allows Nestlé to reduce cost in the long term (since there is no third party), increase input through training the farmers, avoid competing with rival companies for supply and most importantly, reduce child labor. According to the Nestlé cocoa plan report, more than half of child labor has been reduced over three years in their supply chain. Switching to a cleaner and more sustainable supply of raw materials also means to prevent skepticism from the media and the public. This is especially important for Nestle since they've gotten a bad press from a scandal in 2010 involving the unethical supplier. (see 5. Public) 2. Competitors: According to Euromonitor, with the higher growth of confectionery products in retail volume (7,4%) compare to the world (4,4%) and Asia Pacific (5,4%) in 2018, Vietnam is becoming a potential market for confectionery brands. This means Nestlé is facing serious threats from global brands like Belcholat, Wrigleys, Alpenliebe, Mentos and local brands like Bibica, Hai Ha, Long Hai, Hai Chau. Despite having the biggest market share for a brand of Nestlé, KitKat is still falling behind a few Vietnamese confectionery giants. This is because these local brand products are cheaper, more well-known to the older generations. They are also more suitable to Vietnam custom and tradition, according to Asia News Monitor, people seem to prefer confectionery products from Vietnamese manufacturers more than foreign products in preparing for the coming Tet holiday. Despite the issue regarding competition, Nestlé has a niche market. They rank second in market share for Chocolate confectionery, only behind Belcholat. This is a big opportunity for KitKat since Chocolate confectionery is growing at a faster rate (10%) than confectionery product (7,4%) in retail volume (Euromonitor, 2018). 3. Marketing Intermediaries: Wholesaler, Reseller, and Retailer Resellers are playing a vital role in distributing and helping the company find customer easier. Like other fast-moving consumer goods, KitKat needs to appear in various stores and shops so that it can attract as many buyers as possible and Nestlé has been doing a great job by taking advantage of the large distribution networks including supermarkets (Fivimart, Aeon Citimart, BigC, Lotte Mart), convenience stores (Circle K, VinMart+) and online retailers, Tiki, for example. These retailers not only act as distributors but also are advertising KitKat by simply placing them on their shelves at appealing and eye-catching positions. 4. Customers: Reseller markets ‘Reseller markets consist of intermediaries, such as wholesalers and retailers, who buy finished products and resell them for profit’ (Ferrell et al, 2014, p. 194). According to Thu Huong, confectionery products from Nestlé Vietnam such as KitKat matcha has been released in all

supermarkets, large and small national retail grocery chains. Some well-known supermarkets and shopping malls in Vietnam are Aeon Citimart, BigC, Coopmart, Lotte Mart, VinMart, Mega Market. Beside supermarkets, convenience stores such as Circle K, Shop & Go, FamilyMart are also gaining more and more popularity. The company often offers discounts in some retail stores to attract more customers and reach sales targets.

5. Public: Citizen-action publics: Citizen-action publics are a type of group which may affect the company’s decision-making. This public consists of consumer organizations, environmental groups, minority groups, and others. In 2010, protesters from Greenpeace organization dressed up as orangutans and stood outside Nestlé’s headquarter in Croydon to claim that this company used palm oil from Sinar Mas Group, a supplier accused of illegal deforestation (‘TAKING ACTION’, 2010). After KitKat campaign from Greenpeace organization, Nestlé imposed new policy to suspend all purchases from suppliers which had ‘high risk plantations or farms linked to deforestation' (Greenpeace, 2010). Media publics: Nestlé Vietnam has launched a wide range of marketing campaigns as well as PR programs such as advertisements appeared frequently on TV and social media like Facebook, Tumblr, YouTube. For instance, as chocolate confections in Vietnam are usually considered as gifts on special occasions such as Valentine’s Day, Lunar New Year holidays (Redruello, F 2013), KitKat Vietnam had launched a digital marketing campaign named “Take a day off for love” in 2014 to connect with young consumers (J Walter. Thompson Vietnam). This campaign was created to help people show their affection to each other and bring them closer. By this marketing campaign, KitKat social media reached was valued USD70,000 against the actual spending of USD20,000, which gave the company a 350% return on investment (Mirum Vietnam, 2015). B. Macro environment: 1. Demographic factors:

Figure 1: Vietnam’s population growth Source: Trading Economics, 2018

Vietnam is witnessing rapid changes in demographics and society. After many years of growth, the population in Vietnam reached approximately 95.5 million in 2017, which was an increase from about 85.12 million in 2008 (Trading Economics, 2018). More than 76% of the population is in the working age (General Statistics Office of Vietnam, 2018). Having a wide range of labor force participation in Vietnam is beneficial for many companies including Nestlé. However, one of the challenges in the Vietnamese labor market is a lack of skilled labors since the rate of trained workers in Vietnam is about 21.5%. The proportions of Vietnamese people living in rural area and urban area are 64.9% and 35.1% respectively (General Statistics Office of Vietnam, 2017). Some confectionery products from Nestlé such as KitKat become more difficult to penetrate and deliver to rural regions since chocolate tends to melt in warm conditions. 2. Economic factors: Economic factors include components that influence consumer purchasing abilities and spending patterns. According to The World Bank, after economic and political reforms under Doi Moi in 1986, Vietnam witnessed significant economic growth as well as robust development and transformed from one of the poorest countries to a lower middle-income nation. Real GDP growth in Vietnam is predicted to reach 6.8% in 2018, which is a rise of 0.3% in the previous forecast. Especially, the sales of chocolate confectionery in retail volume and retail current value terms in 2018 rise gradually by 5% and 10% respectively to reach 5,762 tonnes and VND2,289.3 billion (Euromonitor, 2018). Nestlé was one of the top companies in the overall chocolate confectionery industry in Vietnam in 2017, 2018. 3. Natural factors: Since the natural resources that are in need as inputs, they include shortages of raw materials, increased pollution, increased government intervention and draw a greater attention to environmentally sustainable strategies. In April 2018, Nestlé was ambitious enough to promise that their entire packaging is either recyclable or reusable by 2025. However, the company still makes sure the used packaging is sustainable. This includes: eliminating non-recyclable plastics, encouraging the use of plastics that allow better recycling rates, and eliminating or changing the complex combination of materials, while always optimizing the packaging. According to The Reuters’ ‘Drastic plastic: Vietnam beach awash with tide of blue waste’, Vietnam is the fourthlargest contributor to marine plastic pollution globally, a 2015 study by the University of Georgia showed. Therefore, it can be anticipated that Nestlé’s plan for a greener planet will have a big impact on Vietnam’s environment. 4. Political factors: The political environment consists of laws, government agencies, and pressure groups that can either facilitate or preclude a business' ability to conduct business activities in a given society. In the year 2018, Vietnamese Prime Minister Mr. Nguyen Xuan Phuc has announced to reduce corporate income tax (CIT). From 20%, it is expected that the tax will be cut down to 15%-17%. The deduction of CIT concentrates on micro and small enterprises. This benefits companies that follow a parent-subsidiary structure, enabling companies such as Nestlé Vietnam (a subsidiary under Nestlé) to save cost and concentrates more on improving and innovating their product line namely KitKat, Milo, Nescafe, … III. SWOT Analysis: 1. Strengths:  KitKat is owned by Nestlé, one of the most powerful companies in the confectionery business. (source on market share)  Having a large distribution network enables KitKat to reach various types of customers from teenagers, foreigners (prefer buying from convenience stores) to middle-aged buyers (prefer buying from supermarkets for their kids).

2. Weaknesses:  For KitKat: - Compared to its competitors such as Choco Pie, Nabati, and Oreo in Vietnam, KitKat has no outstanding flavors or designs. - Sugary taste and high in calories may discourage people to consume the bars. - The product misses a remarkable number of rural customers due to the product’s cost and cultural aspects.  For Nestlé Group: - Huge distribution networks may be an advantage, but it requires great efforts in managing good terms with these firms. - Mark-ups will be added when the product is transferred between these distributors, causing unnecessarily high price. 3. Opportunities: Opportunities are external factors which are outside organization’s control. They can be used as an advantage for the business (Lekh Bhatia 2015).  As a country with dense population, Vietnam has great labor force participation. Big companies like Nestlé Vietnam can easily to recruit workers.  Since Vietnam’s economic growth as well as the improvements in living standards, Vietnamese consumers are more willing to purchase products.  The deduction of CIT from 20% to nearly 15%-17% is expected to help Nestlé Vietnam save a great deal of money. Therefore, Nestlé can focus on their product line innovation and improvement. 4. Threats: Threats refer to factors that have the potential to harm an organization.  Consumers are increasingly health conscious  Strong local, national and international competitors, namely: Hai Ha, Kinh Do, Bibica, Hershey, Ferrero, Meiji, …  Price is not as affordable as local/national companies’ brands, making it harder for rural residents to gain access to purchase.

IV. STDP 1. Segmentation

Small children

Segment

Teenagers

Young adults

Middleaged adults

Country

Vietnam

Region

Urban and Suburban areas

Seniors

Geographic

Age

3 – 12 years old

13 – 19 years old

Income

36 – 55 years old

>55 years old

Middle to High income

Middle to High income/ Savings

Male and Female

Gender Demographi c

20 – 35 years old

No or Low No income/ income/ Depending Depending on family on family

Middle to High income

Occupation

Student

Psychologica l

Personality

Office worker

Retired

Middle to Upper class

Social class

Lifestyle

Student; Office worker

Student

Dependent, Dependent, Independent, Independent Active, Active, Active, Parents Open Open Open

Have sweetness preference taste wise

Energetic, Willing to try new product experience

Priceconscious, Willing to try new product

Independent/ Dependent on family

Healthconscious, Qualitysensitive

Healthconscious, Qualitysensitive

For their children

For their grandchildren

Occasion

Breaktime

Benefit

Satisfy their needs for energy and cravings sweetness

Convenien t Affordable Satisfy their needs for energy and cravings sweetness

Convenience Affordable Satisfy their needs for energy

Affordable

Affordable

User status

Regular, potential users

Regular, potential users

Regular, potential users

Regular, potential users

Non-users

User rate

Medium to Heavy

Medium to Heavy

Light to Medium

Light to Medium

Light

Attitude towards product

Positive

Positive

Positive

Indifferent

Indifferent

Loyalty status

High

High

Middle to High

Middle to High

None to Light

Behavioral

2. Targeting According to the segmentation analysis, KitKat targets people of all ages. However, its potential market is young adults aged 20-35, most of which are office workers and students, who usually have break times during their working hours. It can be seen that KitKat’s advertisements are mainly aimed for young office staffs. The fact that KitKat promotes its brand as a snack rather than chocolate has made it favorable and convenient for the youngsters to consume. For the market targeting, KitKat has adopted the differentiated strategy.

Children, in general, are also targeted as they have the highest confectionery consumption rate among different age groups. Others potential consumers are middle-aged adults who buy the snack for their children rather than consume it on their own. Since senior people are conscious of their well-being and often have health problems, they tend to spend little on confectionery are not the potential market. 3. Differentiating a. Product: KitKat has four variants of size to satisfy different customer preference for cocoa content and nutrition. According to Euromonitor’s analysis, Vietnamese customer sophistication in chocolate is relatively low, therefore, chocolate products with low cocoa percentage are preferred. The 2-finger and 4-finger KitKat are suitable for most customers not only for their affordable prices, 9.000 VND and 14.000 VND respectively but also for their light cocoa content. In 2018, chocolate pouches and bags sales have the fastest growth performance due to Vietnamese people’s inclination towards lighter snacks. To meet this growing demand, KitKat also offers the KitKat bites bag. With a higher price than the other two size variants, KitKat bites bag contains 100 grams of round, bite-sized chocolate treats which are easier to eat and share with other people. For customers who prefer bigger bars like Snickers and Mars, KitKat chunky is a good option with a lower price than other brands’, only 13.300 VND per bar. KitKat is most famous for their wide variety of flavors. A great number of Vietnamese consumers believe that green tea flavor is healthier than the traditional milk chocolate. Understand this, every size variant has both milk and green tea chocolate option for customers to choose. However, KitKat two best-selling products 2-finger KitKat and KitKat chunky have more than two flavors. The classic 2-finger KitKat has the most flavors among four size variants. It offers classic milk chocolate, green tea, green tea and red beans, double chocolate, caramelized hazelnut, coconut, and pink rose. KitKat chunky comes with milk chocolate, green tea, hazelnut, or cookies and cream. b. Distribution Despite not having an independent store, KitKat still has a widespread distribution system. Because anyone can be KitKat’s customer, KitKat appears in most supermarkets and convenience stores in urban and suburban areas. As a result, KitKat is a...