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Chandresh J Rajaramesh
Multinational Marketing
Prof: James C.Nicholas

NESTLE (GHANA) Ltd

SUMMARY
Nestle (Ghana) was a joint venture between Nestle A.S (a Swiss multinational

corporation) and state-owned National Investment Bank (NIB). In 1971 with

Nestle S.A. owning 51% the joint venture was established. The company had 600

employees and stated capital of 1 billion cedis (about US$1.05 Million). The

company had four core product lines: canned and powdered milk, powdered

cocoa drinks, coffee, and Maggi spice cubes with an Annual sales currently about

25 billion cedis (about US$26.3 Million). Nestle pulverized cocoa drink consisted

of Milo and Chocolim. The two products were quite similar with sixty percent of

the company’s powdered sales from Milo and forty percent from Chocolim.

Chocolim was aimed at rural areas and low-end urban market while Milo was the

premier brand and was targeted to the high-end of the market. Nestle brands

were sold at premiums of 5% to 10% over competitors because if it’s perceived

better quality in the market.

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The Cocoa beverage market was divided into three segments: Premium Segment,

Mass Market and Institutional Market. Nestle managers estimated their share of

80% in the cocoa beverage market; other observers believed Nestle share was

closer to 55%. Major competitors for Nestle were Bournvita and Richoco,

manufactured by Cadbury (Ghana) with an estimated 20% to 40% market share.

Cadbury (Ghana) was 100% owned by Cadbury Schweppes (U.K) and had 120

employees. Another entrant, though on a much smaller scale, was state-owned

Cocoa Processing Company (CPC) which made Golden Tree Vitaco Instant Drinking

Chocolate. In the institutional market CPC was the strongest market. An

additional category of competition came from imports, the most prominent of

which was Ovaltine, marketed by NABB Brothers, a leading distributor of

supermarket products. Milo was the leader in the premium category, while

Golden Tree was the strongest in the Institutional Market. Richoco was believed

to lead Chocolim by about 5% to 10% market share in the mass market.

Nestle also operated its own sales outlet and largely distributed through

supermarkets and departments. Nestle had 100 regular distributors nationwide

and the biggest distributor was Unilever’s G.B. Ollivant subsidiary. Nestle used an

amalgamation of media advertising and sales promotions targeted at the youth

for Milo. The company sponsored highly popular youth soccer leagues, sponsored

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tennis tournaments and marathon race for all ages. Sales promotion technique of

wet sampling (free drinks) was intended at promoting the sales. Media advertising

promoted the themes of good health, growing up, and success as closely related

and linked to drinking Milo. Nestle’s strategy in Ghana was to ensure high

awareness of its brands, widespread distribution and quality of its products which

helped trounce its competitors in the cocoa beverage market.

PROBLEM

How should Nestle (Ghana) sustain its strong competitive market position,

political/economical environment and revenue margins in expansion operations

in Ghana?

ALTERNATIVES

1. Nestle (Ghana) should acquire shares held by National Investment Bank.

2. Nestle (Ghana) should make products affordable to the common people.

3. Nestle (Ghana) should increase rural market promotions.

4. Nestle (Ghana) should expand into the Institutional Market.

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ANALYZE THE ALTERNATIVES

1. Nestle (Ghana) should acquire shares held by National Investment Bank.

Nestle (Ghana) was a joint venture between Nestle A.S. (a Swiss multinational

corporation) and the state-owned National Investment Bank (NIB). In 1971 with

Nestle S.A. owning 51% the joint venture was established. In the mid-1970s, the

then ruling military government of Ghana, the National Redemption Council

(NRC), pursuing an indigenization strategy, acquired 55% of the shares. The

government of current President Rawlings reverted to a 49% share in 1993; held

by the National Investment Bank (NIB). These changes in ownership structure

reflected the country’s shift from a nationalistic philosophy involving state

participation in leading enterprises to a reluctant push towards privatization.

Nestle (Ghana) should acquire the shares held by National Investment Bank.

Nestle (Ghana) will also be in the same market field of its key competitor Cadbury

(Ghana) in the mass market segment and also Nestle (Ghana) will get 100% of the

rewards by acquiring these shares from National Investment Bank. Thus, by

acquiring the shares Nestle (Ghana) will have control over pricing of the products

and also expand into the rural market by lowering the prices on the product to

make it more affordable to the common people. The more control on prices and

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production the more Nestle can do to contract with environmental problems that

they are surrounded by, like rapid increases in inflation and the fast-falling cedi. It

will also help Nestle (Ghana) expand its endorsement strategy to this big part of

the society that hasn’t been exploited to its maximum. The disadvantage for

Nestle (Ghana) is large investment in acquiring the shares from National

Investment Bank and the market is unstable with rapid inflation.

2. Nestle (Ghana) should make products affordable to the common people.

Economically, Ghana was in the lower tier of developing countries and classified

as a least developed country (LDC) by international development agencies

because its per capita annual income was US$400. Nestle (Ghana) needs to

develop products that are affordable to the common people because they are

dealing with a developing country which has a low per capita income of US$400.

Nestle’s perceived better quality products were sold at premium of 5% to 10%

over competitors. The products were becoming less affordable with waning real

incomes. There was also increasing price pressure from imports that were

flooding the market as a result of import liberalization. Nestle (Ghana) needs to

be reminiscent that they are dealing with a developing country even though the

fast-falling cedi and rapid augment in inflation were exerting upward pressure on

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production cost of the products. Ghana has a long history of government-

controlled prices for consumer goods and people were quiet sensitive to price

changes and were said to have long-term negative perceptions of companies that

were perceived to engage in price gouging. People in developing countries look

for affordable products and don’t pay attention to the eminence of the products

thereby Nestle (Ghana) should not have its products above the average price of

similar products in the market. Thus, Nestle (Ghana) should make its products

more affordable to the common people. The disadvantage for Nestle (Ghana) is

the external economic environment was increasingly hostile and risky with the

rapid increases in inflations; high interest rates and the high level of currency

instability were leading them to increase the prices.

3. Nestle (Ghana) should increase rural market promotions.

The statistics shows that only 35.8% of the population of Ghana lives in urban

areas, the rest 64.2% of the population lives in rural areas where there are low

levels of consumer durable ownership such as telephone, television, house, radio

and low circulation of print media. Such setbacks in rural areas mean that mass

promotion was viable primarily in the urban areas. The main drawback is that

companies have to use large investment in promotion of product into the rural

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areas to exploit 64.2% of the population. As an alternative of spending 150 million

cedis (about US$150,800) on sales promotions in urban areas on non media

promotion of 60% and 40% covered media expenditure, Nestle can utilize the

investment to aggressively promote the product in rural areas. It will help Nestle

(Ghana) to venture into the majority of the population and take control of the

market from both sides. The disadvantage of increasing rural market promotions

is the market has high level of currency instability, inflation, no price control

existed and low consumer durable ownership which in turn becomes difficult to

endorse the product in rural areas.

4. Nestle (Ghana) should expand into the Institutional Market

The Cocoa beverage market is divided into three categories based on the product:

The Premium Segment, Mass Market and Institutional Market. Nestle had a

strong market in Premium and Mass Market segment. The Institutional Market is

for products that contain basic unsweetened cocoa powder supplied to school,

hospitals, the armed forces, and so on. Nestle pulverized cocoa drink consisted of

Milo and Chocolim. The major brand Nestle which manufactured Milo was the

leader in the premium category, while state owned Cocoa Processing Company

manufactured Golden Tree Vitaco was the strongest in the Institutional Company.

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Nestle expansion into Institutional Market will help secure student population of

1.95 m in primary school and 805,000 in secondary school. Nestle can market the

products in Institutional Market by sponsoring youth soccer leagues, tennis

tournaments and marathon races for ages 10 to 18 and for schools. Cocoa

beverages were primarily a breakfast drink and should be a must for institutions

like primary and secondary schools.

Nestle’s strategy in Ghana was to ensure high awareness of its brands,

widespread distribution and quality of its products which helps trounce its

competitors in the cocoa beverage market with its theme of good health, growing

up, and success as closely related to its products. Nestle (Ghana) should look at

this market as an opportunity to expand. It will help Nestle (Ghana) to venture

into the majority of the population, take control of the market from both sides

and increase its profit margin. The disadvantage of expanding into Institutional

Market is that the state-owned Cocoa Processing Company was the strongest in

the Institutional Market where it had a cost advantage of estimated 23% lower

because it supplied the basic cocoa powder to other firms. Thus, marketing below

Cocoa Processing Company is a challenging task.

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RECOMMENDATION

I would suggest Nestle (Ghana) should make products affordable to the common

people. By developing Nestle (Ghana) products that are affordable to the

common they can reach majority of the population because they are dealing with

a developing country which has a low per capita income of US$400. Nestle’s

perceived better quality products can help it market in rural areas if the product is

affordable. It will help Nestle (Ghana) also exploit 64.2% of the rural population

and take control of market from both the sides. It will also help Nestle expand

into new market segments like the Institutional Marketing. People in developing

countries look for affordable products and don’t pay attention to the eminence of

the products thereby Nestle (Ghana) should not have its products above the

average price of similar products in the market. Nestle (Ghana) can make

maximum profits from a developing country like Ghana and exploit to every side

of the population, urban and rural.

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IMPLEMENTATION

In order for Nestle (Ghana) to sustain its strong competitive market position,

political/economical environment and revenue margins in expansion operations

in Ghana. Foremost Nestle (Ghana) should make products affordable to the

common people. I would suggest the managers to overview Marketing,

Production, and Finance and Administration structure of Nestle (Ghana). I would

also suggest them to start looking at the competitors marketing strategy such as

their strengths and weakness, Institutional Market segment. Analyze what Cocoa

Processing Company has done so well to remain as a strong leader in the

Institutional market segment. Nestle (Ghana) should take advantage of the

population and exploit it to the max.

Chandresh J Rajaramesh 746378