Porter’s Five Forces Model of Nestle

Nestle is a multinational company which works as a brand and it has many small companies working under it. It was initially introduced in 1867 with the launch of its first product that was dehydrated kids food and this was very successful at that time and thus Nestle got the high profits within no time. It touched the cruising stage within very few months of its successful existence and this lead it to achieve even more and more.

Afterwards company did quality mergers which led it to the heights of success in quality food products among the whole market. Nestle has always focused over their customer’s need and demands which has made it a growing and company with a good will. And one can see that it has become a global name today. Nestle has been successful in satisfying its customers by innovation and other strengths of the company. Porters five forces model is very important to evaluate the internal and external environment of the company (Porter, 2008).  Below mentioned is the Porters five forces analysis for Nestle in which we will discuss each one in detail.

Porter’s Five Forces Model

Porter’s Five Forces Model is a very important tool to analyze the industrial parameters and to develop business strategy. Here five different factors would be discussed to highlight the attractiveness and productivity of a market. Now we will discuss it for Nestle.[sky]

Threat of New Entrants

If the market is attractive the new entrants would always be a threat for the company but if the market has been restricted to a limited resource and it has very few areas of improvement so it becomes difficult for new entrants to get into the market and hence monopolies exist. Although Nestle has accomplished a strong name in the market but as the food processing industry is very huge and viable; so there are a lot of companies who already entered in this market and somehow achieved a place in the market even though they could not cross Nestle in terms of market share.  Every year number of companies attempt to enter the market and strive for their share of profit and productivity in the market but very few survive. Nestle has been the leader of market for a century almost so now it has become a very big challenge for the new entrants to not only work over their quality but they also have to cut the share of Nestle to survive which is quite equal to impossible. Fundamentally, Nestlé is persistently on the board, and therefore the threat of new entrants is temperate.

Threat of Substitute Goods

Substitutes have always been in line whenever we talk about products market, every kind of product has a substitute present which leads it to the heights of competition when taken seriously. As the product is very common and daily use product so the threat of substitutes is very high here. Like if we take the example of bottled water so the substitute of this is lean pockets that serve as a competition. So Nestle has to innovate its products tremendously to stay in the market and to work efficiently for removing the threat of substitutes. We can take the example of recent innovation which is health consciousness and wellness factor that has been introduced in all products of Nestle. Such initiatives would make it easier for Nestle to go beyond the substitutes.

Bargaining Power of Suppliers

Bargaining power of suppliers is very important factor to be considered in any industry as they are the main strength of the company. Nestle is known for strong relations with the suppliers around the globe due to its immense buying power and also because of the fact that in such dairy and agricultural products quality is always important. Nestle as always focused over strong and sturdy business relations to make the ongoing quality stronger. Additionally, Nestlé also presents helpful guidance to its suppliers on how to work more proficiently to decrease redundant expenses. And thus it cares of its suppliers which I return pays them off in the form of quality products.

Bargaining Power of Customers

[large]The bargaining power of customers has always been an important factor in terms of company’s performance so this should be given reasonable value while accessing the company’s position. Customers carry huge quantity of bargaining power concerning their utilization of different Nestlé products. Although a lot of substitute products and competitors Nestle customers have very influential choices but still the quality that has been maintained by Nestle has made it very successful among the users. It is very important to understand the power of the customers and also their needs so that they can be better satisfied. This is what Nestle always cares about and that is reflected in Nestle health and wellness programs that ar being used wile creation of new products as society has in progress of becoming more health conscious. 

Competitive Rivalry within the Industry

Competition if healthy would bring huge success but if negative would destroy the whole industry so it should be critically analyzed for better future of the company. Nestle has a very strong position in the food processing industry but few major rivals do exist in the industry like Kraft Foods and Groupe Danone. Above mentioned companies are fighting continuously to get on to each other and avoid any sort of competition but I is still there. If we talk about marketing and advertising these companies have spent hell of their expenditures for the purpose of effective marketing and advertising and in competition they have always ut performed each other. Competition is violent in the food processing industry, and this is a plus point for consumers. Provided that these companies carry on in competing with each other, consumers will persistently enjoy improving product qualities.

References

Nestle. (2012). Website: http://www.nestle.com/Pages/Nestle.aspx Retrieved 7th August 2012.

English Tea Store. (2010). Website http://www.englishteastore.com/nestle-history.html  Retrieved 7th August 2012.

Nestle. (2012). Website: http://www.ehow.com/about_5114217_history-nestle-chocolate.html Retrieved 7th August 2012.

Michael E. Porter. (2008).  "The Five Competitive Forces that Shape Strategy", Harvard Business Review, January, p.86-104.