ABADA COLLEGE

Pinamalayan, Oriental Mindoro

ACTIVITY

Name: _____________________________ Date: _____________

CASE ANALYSIS: NESTLE PRICING STRATEGIES

In 2019, Nestle earned half of its worldwide sales in America. It had a cumulative revenue of
about 92.6 billion Swiss Francs that year. How was Nestle able to generate that much revenue? What is
their pricing strategy?
Nestle was founded in Switzerland by Heinrich Nestle in 1866. Nestle is one of the oldest
multinational companies. From the early stages, Nestle wanted to take advantage of growth opportunities
in different countries. In 1905, it merged with Anglo-Swiss condensed milk, broadening its product range
to include infant formulas and condensed milk. Nestle currently has 447 factories, with operations in 189
countries.
Nestle is a multinational brand with a present net worth of about $270 billion. The success that
the brand has is due to its pricing strategy. The revenue of Nestle is continuously growing, this depicts the
successful identification and placement of its products in the market. Generally speaking, Nestle’s
products are pricier in comparison to the products of the retailing brand.
Nestle’s pricing strategy is fairly distinctive in contrast with other brands. It merely hinges on
recognition which is attributed to the apparent quality of the product. Based on this quality and the
attitude of the customers, Nestle assesses the pricing strategy it wants to implement.

Nestle’s pricing strategies

1. Price skimming is a pricing strategy in which a company charges a high price initially and lowers it
over time.
Nestle uses price skimming for some of its products when it enters the market of a country.
 Nestle believed that the target consumers for Nescafe coffee were upper-middle-class consumers.
Later, with the success of this approach and strategy, they lowered the prices and targeted the middle
class.

2. Inexpensive pricing strategy

Amongst its wide range of brands, Nestle offers a fair price for quite a few of its brands and
products. Pricing is based on market segmentation. Market segments generally involve a target audience.

Market segmentation is the practice to divide the target market into subgroups. It forms subsets
depending on needs, psychographic, behavioral, and demographic criteria.
If Nestle is trying to target the mass market, then they implement an inexpensive pricing strategy instead
of an expensive one.
This happened in the case of Nestle's Maggi noodles. It is considered affordable in comparison to other
products of Nestle. However, if the price of Maggi is compared globally with other noodle brands, then it
can be perceived as a little pricey.

3. Bundle price strategy

With time Nestle has understood that people do not usually do their groceries every day, instead, they
prefer purchasing in bundles. Therefore, Nestle implemented the bundle packs approach.

Ex. Initially, Maggi was sold in a single pack but later on, Nestle offered a 16 pack which eventually
increased the sales.

4. Penetration pricing strategy

Penetration pricing is a pricing strategy that an organization uses to offer new products at lower prices in
an attempt to attract more customers away from rivals.
When Nestle introduced a new flavor of Maggi instant noodles, they were sold at a low price of £2.25 to
entice new customers. Nestle’s strategy was to lure more customers away from its rivals which offered
alike flavors priced at £3.25. Nonetheless, when Nestle gained a greater customer base they increased the
price to £3.

5. Psychological pricing strategy

Psychological pricing facilitates in creating a positive psychological influence on the consumer and
attracts them to buy the product.
Nestle Aero bliss was sold for £8.99 instead of £9. This pricing strategy will have a positive psychological
impact on the consumer and will encourage them to purchase the product.
6. Stock keeping units

Nestle does not want to lose any customers, so it has diverse pricing for every stock-keeping unit,
allowing it to reach a bigger consumer base. From Maggi noodles to Cereals, Nestle has it all covered,
whereby the company offers different sizes of packs.

Ex. Nestle’s cereal is slightly pricey in comparison to other brands. Hence, it started offering mini
pouches for everyday consumption. This has made the pouches a lot cheaper than larger packs, hence
allowing different segments of customers to buy Nestle’s products.

7. Discounts offered

Nestle offers discounts in various retail stores. Nestle products are often bundled and come with a 5% or
10% discount.

Ex. Coffee and creamer, as a bundle, is cheaper than buying the two items separately.

Global pricing strategies of Nestle

Globally, Nestle attempts to ensure the pricing strategies that will assist it in achieving its
financial objectives.These strategies typically involve the penetration and skimming strategy. The price of
Nestle products automatically rises when they are exported to other regions. Alternatively, it also
implements price skimming, as it sets a higher price at the start and then ultimately reduces the price
based on the customer demand.

Over the years, Nestle has become one of the leading parent brands with successful divisions
under its name. What has made Nestle successful with consumers is that it adapts to different pricing
strategies according to the regions its selling and according to the product offered. It gives preference to
the demands of its customers and tries to provide the best quality products at different price ranges so that
all segments of consumers are able to afford its products, hence, increasing the sales and profits for the
company.

NOTE:
 Nestle was founded in Switzerland by Heinrich Nestle in 1866.
 Heinrich originally created Nestle for distributing milk food for newborns and found that it could
be created from powdered milk, sugar, and other natural food.
 Nestle is a multinational brand with a present net worth of about $270 billion. The success that
the brand has is due to its pricing strategy.
 Nestle’s pricing strategy is fairly distinctive in contrast with other brands.
 Nestle uses various pricing strategies including price skimming, inexpensive and bundles pricing
strategy, penetration pricing strategy, stock keeping units, psychological pricing strategy,
discounts, and competitive pricing strategy.
Required:
1. Comment on Nestle’s pricing strategies.
2. Explain how these strategies may become either an advantage or a disadvantage.
3. What competitive advantage does Nestle have against its competitor using these strategies?