Evaluation of Nutella Marketing Strategy

Introduction:

This report was requested by Peter McPherson. Its aim is to evaluate the marketing strategies used by Ferrero for the product Nutella in 2012 and suggest possible ways to improve them. Ferrero is a successful international company with over 21,913 employees and a turnover of 7,218 million Euros in the year 2011.

One of the best-selling products of this company is Nutella. This report will concentrate on this product and the marketing techniques used by Ferrero to promote it, as well as how they achieved such great success. At the end of the report, readers can find solutions for problems faced by this company in terms of successful marketing strategies. My lecturer Peter McPherson requested this report, and it will be submitted by December 7th, 2012. During preparation of this report, different sources of information were used.

All of the information included is secondary, as none of the surveys were conducted. The following is a list of sources:

• Nutella official website (http://www.wakeuptonutella.co.uk/)
• Leckie and Leckie Business Management course book
• Tutor2u website (http://www.tutor2u.net/default.asp)
• Business Dictionary website (http://www.businessdictionary.com/)
• Notes prepared during classes

Findings History: In 1940, Piera and Pietro Ferrero decided to transform their small pastry shop in Alba into a factory in Italy.

With a strong desire to create innovative products, Michelle Ferrero continued to develop his company and revolutionize the food habits of millions of consumers. Thanks to an efficient partnership with his wife Maria Franca, he was one of the first manufacturers to open production sites and offices abroad. Today, the company’s history spans three generations, with Michelle and Maria Franca’s sons working together as Managing Directors at the top of the Group for more than 10 years.

Unfortunately, one of the sons, Pietro Ferrero, tragically died in Africa during a humanitarian mission that was inspired and driven by him. The mission aimed to prelaunch the Ferrero Social Enterprises. Currently, Giovanni Ferrero continues to run the company by himself. In 1940, Mr. Pietro Ferrero invented Nutella spread when there was very little chocolate due to World War II and a small supply of cocoa. He had the idea to use hazelnuts which were highly available in Pedimont where the company was operating. Initially called pasta gianduja,” Nutella was sold in loaves.

After some time, the producer realized that he needed to invent something easier to spread on bread. This is how supercrema gianduja” was created. From the first day it was introduced, it was a great success because chocolate was almost six times more expensive than the hazelnut mixture. Some Italian groceries started a service called “The Smearing,” which allowed kids to go to the store with a piece of bread for a “smear” of “supercrema gianduja.” On April 20th, 1964, “gianduja” was renamed as “Nutella,” and the first jar of this new spread left the factory.

Nutella was first imported from Italy to the U.S. 30 years ago and has since become popular all over the world. The history of marketing is closely tied to economic and social changes throughout time. During the mid-18th century, when the Industrial Revolution began, mass production became possible for the first time. Inventors and producers focused on improving worker output in factories because demand for products exceeded supply.

During the production-oriented period, companies were able to focus solely on production due to limited competition and a lack of product variety for customers. Buying in bulk and using mechanized processes helped keep labor costs down, known as economies of scale. However, around the 1930s, economic conditions changed with the development of mass production allowing for a wider range of products to be produced at lower costs.

This led to an increasing number of competitors. At that time, the production level was higher than the demand. Companies needed to change their strategies and convert from large-scale production into large-scale consumption, becoming sales-oriented. This meant that the main concern of a company was to convince customers to buy their products. It could be done in many ways, such as keeping prices low. The company could only afford to keep prices low if production and sales remained high. To achieve this, companies needed to find ways to attract customers, such as employing salespeople.

During that time, Hard Selling became very popular. It included discounting, money off” offers, and aggressive sales techniques. This period saw the development of marketing functions such as advertising, promotion, and selling for the first time. In 1960, companies began to consider customers’ needs in addition to production and sales for the first time. As living standards improved and incomes rose, customers wanted more luxury goods. This led producers to realize that they could achieve higher sales by producing products for which there was demand.

They have stopped wasting time trying to persuade consumers to buy unwanted products and have recognized that price is not as important as they thought. This stage is called being marketing-oriented. The marketing concept is all about matching a company’s capabilities with customer wants. This matching process takes place in what is called the marketing environment.

Marketing has many definitions, for example: Marketing is a management process that identifies, anticipates, and satisfies consumer wants at maximum profit. Marketing delivers a standard of living for society.

Nevertheless, all marketing strategies have one thing in common: they aim to identify and fulfill customer needs.

Analysis of the Business Environment

Macro Environment:

The macro environment encompasses the global economic situation and includes external factors that affect companies but cannot be controlled by them. These factors vary by industry but impact all of them. External factors are represented by the acronym PESTEC.

Micro Environment:

The micro environment includes stakeholders with whom a company has regular contact.

Micro-environment factors refer to all the factors that are in close proximity to a business and have a direct impact on its well-being. There are other factors that can also have a significant impact on the business, such as:

• Media: The media can either help or break” an organization. If the media speaks positively about a company, it can help promote it, sell more products, and gain new customers. However, if the media presents the company in a negative light, it can ruin its image and cause customers to stop buying its products.
• Competitors: Competitors can also have a significant impact on a business.

It is important for a company to offer customers something different or better than what their competitors are offering. Ferrero decided to introduce a unique product that none of its competitors had at the time – Nutella, the first hazelnut spread in the market.

The marketing mix for Nutella includes seven P’s which are controllable variables that the marketing department can manipulate to achieve their sales targets. Nutella is a bread spread made from hazelnuts and comes in jars of various sizes.

The Seven P’s of marketing include: People, Process, Physical Evidence, Price, Place, Promotion and Product.

Price represents the actual amount paid by the customer for a product or service.

Place represents where a customer purchases a product or service.

Product represents the goods or services that a customer purchases.

Promotion represents the way in which a customer is made aware of a product or service and convinced to buy it.

The Marketing Mix for Nutella

• Price:
• 750g – €3.60
• 400g – €1.99
• 100g – €1.19
• Place:
Grocery stores
• Product:

Nutella – chocolate hazelnut spread

Ferrero promotes Nutella through various channels such as television, newspapers, and billboards. The advertisements are targeted towards both kids and parents.

When it comes to goods and services, there are two types: tangible and intangible. Tangible goods are physical items that we can touch, such as toys or cosmetics. Even online shopping can be considered tangible if the product is shipped to us. On the other hand, intangible goods and services cannot be touched, like music or computer programs purchased online.

Nutella is a tangible good since customers can physically touch it.

Regarding the product mix,

Product mix, also known as product portfolio or product assortment, refers to the range of products that a company produces. Some product lines may be very similar, such as Kinder Surprise and Kinder Bueno. However, other product lines can be vastly different, such as diapers or razors. Ferrero produces many products, but all of them are very similar to each other – like Raffaello, Ferrero Rocher or the aforementioned Kinder Bueno and Kinder Surprise.

Product range represents variations of the same product produced by the company. For example, a car company can sell both cars and vans.

A good example for Nutella is that it is sold in different sizes. Each product needs to satisfy the needs of the customer if the company wants it to be sold. The core product is any item that satisfies the needs of the customer. For example, Nutella is a product directed towards kids, so to satisfy their targeted customers’ needs, it has to be quite cheap and have a taste that kids will like. Nevertheless, customers’ needs are more complicated; companies need to satisfy a whole range of them. For instance, Nutella has to be not only tasty and affordable but also healthy; it also has to alert people about its ingredients so that some allergic people won’t get ill.

This is what we call a product concept. An augmented product is a product with additional features. This means that, for example, as Ferrero has many competitors, it has to add new features or packaging to the product in order to make Nutella more attractive to consumers.

The Product Life Cycle (PLC) shows the different stages a new product passes through over time and the sales that can be expected at each stage. The first stage is Development – during which technological and scientific research are concluded in order to produce a new product that will meet the demands of customers.

In 1940, Nutella was introduced to the market. Its inventor, Mr. Pietro Ferrero, conducted market research and discovered that chocolate was in short supply. He decided to start selling hazelnut spread instead since hazelnuts were relatively cheaper at the time.

Launching a product on the market can be expensive due to costs such as advertising, stock holding, and promotion. If the product is innovative and there are few competitors in the market, these costs can be even higher. When Nutella was first introduced in 1940 as the first hazelnut spread, it had no competitors.

Nevertheless, the price wasn’t too high as the target market was the average customer. During the growth stage, sales increase significantly as customer knowledge about the product grows. Nutella passed this stage 30 years ago when the company began selling its product internationally. In maturity, a product has its common place in the market, growth begins to slow down, prices fall and there are more competitors. Nutella is currently at this stage; there are competitors but Nutella has a strong position in the market. At saturation, consumer tastes may begin to shift.

As changes occur, more and more products are going out of stock. Competition becomes increasingly fierce.

6. Decline – Changes in customer tastes and technologies, as well as the introduction of more advanced products to the market, have led to a drop in sales and eventual withdrawal from the market.

7. Further growth in sales – The life of a product can be extended by initiating some extension strategies. There are many different strategies that can be used by a company, including promotion through a promotion mix – a combination of specific promotional methods used for a family of products or just one product.

The elements of the promotion mix include advertising, direct marketing, personal selling, and merchandising.

Advertising is a form of communication used in marketing to persuade customers to buy a product. As Nutella is a branded product, it is much easier to promote. Branded names help create an identity for a product that customers can relate to through images. In the case of heavy branding, it is essential to remember the defensive role of advertising as competitors can easily cancel out all efforts made by manufacturers who try their best to preserve the status quo.

Successful advertising can help create a positive image of the company, which is a useful tool in public relations. It is essential for Ferrero to have a good company image as Nutella is a product directly marketed towards families and kids. Public Relations is defined as the deliberate, planned, and sustained effort to establish and maintain mutual understanding between an organization and its public. Public relations are concerned with the behavior of the organization, its products, services, and individuals that give rise to publicity.

Unlike publicity, which is the result of information being made known, public relations results are controllable. Companies can communicate with various publics to achieve specific objectives. Public relations activities include:

• The community: organizations need to act as if they were members of the community, like private citizens. Involvement in community activities and the development of a community relations program can help achieve goals.

For example, Nutella organizes different competitions for kids such as drawing or writing contests where they can win prizes.

Employees are an internal aspect of public relations and can bring many benefits in involving the workforce in organizational goals and establishing mutual understanding. Ferrero tries to support its employees throughout their careers by giving them special training and opportunities to develop.

The government, both local and national politicians, are important sources for an organization. For example, proposed legislative changes can affect the business. Ferrero needs to make sure that all health regulations are being followed by them and that all changes in law will be sought after.

The financial community includes commercial and merchant banks, investors, share analysts, and city journalists. These groups make up the ‘public’ with whom an organization should communicate to be seen as financially credible. Ferrero needs to maintain good relations with banks as it may require financial assistance during times of significant investments.

Distributors are the middlemen in a company’s channel of distribution. This group includes wholesalers, retailers, brokers, agents, and dealerships. Distributors require information about products and services to have the knowledge and confidence necessary to become effective resellers.

Ferrero needs to ensure that communication between the company and retailers is good, and that they have a good knowledge of the product. Promotion is one of the four P’s in marketing mix. It represents actions taken by a business to promote and advertise its products. The term promotion consists of several things:

• Advertising – non-personal communication transmitted through mass media
• Publicity – free promotion made by news stories in media
• Sales promotion – price/money related communication, like coupons or discounts.

Promotion has three main objectives:

To present information to customers and others, increase demand, and differentiate a product, it can be promoted in various places such as the internet, media, and newspapers. Additionally, there are many ways to promote a product such as offering free items or discounts.

Direct marketing involves making contact with existing customers to promote products and services. It allows for personalized messaging and can be cost-effective while generating sales. This method is especially powerful for small businesses. There are many methods used by businesses for direct marketing.

Ferrero is a big international company that doesn’t use direct marketing as part of its promotion strategy. Instead, it prefers to use mass sources like media. However, personal selling is still an important strategy for them, which involves door-to-door or tele-sales strategies. For example, some pharmaceutical companies employ sales representatives to visit doctors’ surgeries and persuade them to prescribe certain medicines.

There are two types of markets: industrial and retail. The industrial market involves businesses selling products to each other before they reach the customer. This process is known as trading between companies. On the other hand, the retail market (also known as the commercial market) represents the relationship between retailers and consumers, where sales are made between both parties.

Price is determined by various factors that impact the decision-making process of setting up a product’s price. These factors include many determinants that influence how high or low a price will be.

There are several factors that influence pricing, including:

• Cost of production
• Profit the company wants to make
• Market demand for a product
• Industry standards
• Service provided by the company
• The experience the company has
• The target customer for the product
• The competition in this segment of the marketThe location of the company The image of the company A branded product

  A common pricing strategy is competitive pricing. In a highly competitive market, some companies may set similar prices for their products to avoid being eliminated from the market. For example, petrol companies may use this strategy.

  Instead of using pricing methods, firms often rely on non-pricing strategies such as advertising, promotions, and packaging to persuade customers to purchase their products.

  One pricing strategy used by companies with the financial means is destroyer pricing. This involves setting low prices in order to force competitors to do the same. Some competitors may not be able to survive and could be forced out of business. Once competitors are eliminated from the market, prices may return to their previous levels or even increase.

  On the other hand, premium pricing is a strategy employed by some companies where high prices are set in order to create an exclusive image for their products. Examples of these types of companies include Ferrari and Gucci.

  Timberland. When Nutella was first introduced, it was an innovative product with no competition on the market. Nowadays, many companies offer a similar product. Ferrero uses a competitive pricing strategy to avoid a price war with its competitors, such as Cadbury (a jar of Nutella and a jar of Cadbury in the size of 400g cost the same price – ?1.99 each).

  Determinants of Place

  The place where the product is sold is crucial for business success as it can determine the amount of sales a company will reach.

  The factors that can have an impact on the place where products are sold include climate, cost of renting a place, clientele, image of the company, type of business, and competition.

  Channels of distribution refer to the route that a product takes from the manufacturer to reach the customer. The route chosen depends on various factors such as:

  • Product – Some products are highly technical and require expert knowledge for selling. These goods are often sold directly from the manufacturer to customers.

  In contrast to food products like Nutella, which are distributed through wholesalers and retailers before reaching the customer, there are several factors that can influence how a manufacturer decides to distribute their product:

  • Finance available to the organization
  • The reliability of companies in the distribution chain – if some parts of the chain are unreliable, manufacturers may decide to supply directly to customers
  • The desired image for the product – if it is designed as a luxury item, it may only be sold in select locations
  • Government restrictions – certain products can only be purchased in specially designated places, such as medicines in pharmacies.

  The product’s life cycle is an important factor to consider when determining where and how to sell it. If a product is in the beginning stages of its life cycle, it may only be sold in outlets where a higher price can be charged. The following routes are possible: People, Process, Physical Evidence.

  The People sector of the Marketing Mix represents all individuals who work for the company. They play a crucial role in the success of a business. Proper training for staff is essential as not only the product but also the service provided by them builds the company’s image. How staff look, talk, dress and behave are integral parts of a company’s success.

  Nutella carefully chooses its employees and ensures that their qualifications and skills match the requirements of the position. This factor is linked to customer service and involves a number of processes that make marketing effective in an organization, such as handling customer complaints, identifying customer needs and requirements, and managing orders. Ferrero Company understands that satisfying customers is key to the success of the company. Therefore, they conduct extensive research to determine consumer needs.

  Physical Evidence refers to the experience customers have from using a product or service. Before a product or service is presented to a customer, it is important to help them understand what they are buying. This can be achieved by providing brochures and pamphlets. Ferrero mostly uses TV advertisements to showcase their range of products.

  Market research can be divided into two types: quantitative and qualitative. Quantitative information is measurable and usually expressed in numerical form. This type of information helps companies analyze data and make accurate forecasts.

  The Ferrero Balance Sheet is prepared every year and presents all financial information about the company. Qualitative information, which is expressed in words and can be descriptive and sometimes involve judgements or opinions, is also included.

  If secondary data does not provide sufficient information to satisfy research objectives, primary data must be collected. There are four methods for collecting primary data:

  1. Survey research – this is the most common method and involves consideration of major issues such as the selection of communication method (mail, telephone),

  There are two main methods for gathering information through surveys: questionnaire design and depth interviews. The first step in maximizing response to a survey is to carefully consider the phrasing of questions.

  Depth interviews typically involve either an individual face-to-face interview or a group discussion with 5-25 respondents. Individual depth interviews are particularly useful when the subject matter is confidential or potentially embarrassing, or when a highly detailed understanding of complicated behavior or decision-making patterns is required (such as planning family holidays). Group discussions, on the other hand, are often used for brainstorming and generating ideas.

  When it comes to market research, there are different methods that can be used to gather data. Two common ones are generating ideas for new products and services, as well as exploring consumer response to promotional and packaging ideas.

  Another method is observational research, which involves viewing and listening to situations while recording human behavior with monitoring instruments. This approach is often used when obtaining data through surveys is too expensive. Examples of its use include monitoring traffic flow, studying a retail outlet’s display methods, prices, and customer flow; viewing competitors’ products at an exhibition; and observing product usage.

  Experimentation involves the manipulation of one or more variables by the experimenter in such a way that its effect on another variable can be determined. For example, manipulating price to determine its effect on sales. However, there are types of errors that can affect experimental results:

  • Motivation – respondents may alter their responses to a specific stimulus over a period of time, irrespective of external events.
  • Exogenous occurrences – events not controlled by the experimenter, such as competitive actions.
  • Selection – when the groups made for an experiment aren’t equal.

  Primary research involves collecting new data directly from the source. It has advantages such as gaining accurate and up-to-date information, and knowing all sources of information. However, it can be expensive to conduct and may take a long time to prepare. Disadvantages of primary research include instrument variability, which refers to changes in the measuring instrument over time, and last respondents who may refuse to continue with the experiment.

  On the other hand, secondary research is carried out by using published sources of information. This type of research can be less expensive than primary research but may not always provide current or accurate data. Sources of secondary data include published reports, articles, and databases.

  Internal sources are generated by the organization itself. Examples include accounting records, sales force reports, and customer complaint records.

  External sources are data generated by sources outside the organization, such as newspapers, periodicals, and research reports. The advantages of using external sources include being inexpensive and easy to access. However, there are also disadvantages such as the information being out of date or not relevant.

  Random sampling involves pre-selecting individuals from a list, typically from a telephone directory or electoral register.

  Interviewers choose random people from a list and call them. This sampling method can be expensive as all selected individuals must be interviewed. Stratified random sampling divides the sample into segments based on how the population is divided, resulting in a more representative group. Quota sampling involves researchers being provided with instructions about the number of people and their characteristics, and it is up to the interviewer to find individuals who fit these criteria. What factors contribute to changes in business?

  Product/Service

  There are many factors that can affect the product or service sold by a business. For example:

  • There is no demand for the item.
  • The product doesn’t have all the features that customers want.
  • The product includes costly features that consumers don’t need.
  • The packaging doesn’t look attractive.
  • Competition is present.

  Ferrero’s products may be affected by competitors or a smaller demand for Nutella. Nevertheless, as the product has been on sale for a long time, it has achieved quite a high status and its image is good, so there isn’t much danger from competitors.

  The place where a product is sold can be affected by several factors, including:

  • The type of product being sold. Some products require technical knowledge and are sold directly from the manufacturer.
  • The use of appropriate distribution channels by the company.
  • Government restrictions that may affect sales.
  • The product life-cycle. For example, some products in the introductory stage may only be sold in certain outlets.
  • The available finances of the organization.

  Nutella is a grocery product that does not require any special distribution lines or technical knowledge to use.

  That is why the place where Nutella is sold is more flexible. The only thing that is important to Ferrero is that Nutella is directed mostly towards kids and families, so it has to be placed in stores where this kind of customer does their shopping.

  Price can be affected by a few factors:

  • Company’s objectives
  • Competitors’ prices
  • Position of the product in its life-cycle
  • Cost of manufacturing the product
  • Level of advertising or promotion
  • Profit level expected
  • Suppliers’ Prices.

  Nutella’s target market are families with kids. That’s why, in this particular case, high prices are not recommended because sales may drop.

  Moreover, the cost of producing and transporting Nutella is not too high. Therefore, even setting a low price will bring profits for the company. Promotion can be affected by various factors such as the stage of the product in its life-cycle, product type, budget, and target customer. Ferrero promotes Nutella in many ways including TV advertisements and newspapers. As this product is directed towards younger consumers, it has to be planned and made in a way that is easy to understand. Nutella is a well-known brand that makes big profits every year; hence budget is not a significant concern. Lastly, segmentation.

  Definition Segmentation is the process of breaking down an existing target market into clearly identifiable sub-markets. There are different types of segmentation:

  • Geographic: This type of segmentation separates people based on their location and where the product can have the best sales. It is important to consider whether the region is urban or rural.
  • Demographic: This segmentation separates customers into groups based on factors such as sex, age, family size, income, occupation, education, religion, race and nationality.

  Psychographic segmentation focuses on the personality, social class, and lifestyle of a group. Examples include sports fans, cooking enthusiasts, or travelers. Behavioral segmentation is based on the frequency of product use or brand loyalty within a group. A good example is Apple, which has many loyal customers. Nutella targets families and kids, so they use demographic segmentation. Consumer needs and wants change at different stages of life.

  That is why Ferrero needs to consider the wants of the youngest members of society. Segmentation is important as it helps to better understand customer needs. It will assist the company in getting more benefits from consistency in their marketing strategy and becoming more competitive with their target audience.

  After many years of development and hard work by all employees, Ferrero has become a big successful international company recognized around the world. One of its most popular products is Nutella.

  This branded product gained its fame because of its great taste and well-planned marketing strategy. Through a well-developed marketing mix and conducting many marketing researches, the product has been developed to satisfy the target customer’s taste.

  Recommendations:

  • Pricing strategy: As Nutella was the first hazelnut bread spread on the market, it gained its fame and place in the market. However, after some time, competitors started launching their products and Ferrero had to share the market with them. A destroyer pricing strategy is a good solution for this situation. Ferrero can easily afford lower prices and eliminate its competitors.
  • Channels of distribution

  If Ferrero tries to skip wholesalers in its distribution channel, it could set lower prices to support the suggested pricing strategy and shorten the time it takes for the product to reach customers. One place Ferrero may want to consider selling Nutella is through new channels, such as opening small stores or cafes that exclusively sell Nutella and products containing it, like cakes. Additionally, Ferrero can start new promotions to attract customers. For example, when a customer buys one jar of Nutella, they have a chance to win another one. Information about the prize can be placed on the bottom of the cap.