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Background
Nestlé Company started off from a single man’s idea, and developed into a giant
corporation. Nestlé’s headquarters are located in Switzerland, but the company
maintains factories and operations in almost ever country in the world. The company
has also been increasing in size each year. In addition to this increase, Nestlé is also
increasing its variety of product offerings. Nestlé’s business strategy encourages
product growth through innovation and renovation. This strategy has allowed the
company to develop different products in various fields including baby food, dairy
products, prepared foods and beverages to name a few.
The company has created Nestlé Nutrition, a global business organization designed to
strengthen the focus on their core nutrition business. Strengthening their leadership in
this market is the key element of the company’s corporate strategy. Further, Nestlé
Nutrition aims to deliver superior business performance by offering consumers trusted
science based nutrition products and services. In regards to international strategy,
Nestlé’s competitive strategies are associated mainly with foreign direct investment in
dairy and other food businesses. Nestlé aims to balance sales between low risk, low
growth countries of the developed world with high risk, potentially high growth markets
such as Africa. Nestlé also claims that it will not take unnecessary risks for the sake of
growth and will follow and respect all applicable local laws in each of its markets.
Nestlé has much strength, such as being a low cost operator, and having a research
and development team that will aid in product innovation. Also, Nestlé has health-based
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products which are becoming more popular as consumers are becoming more health
conscious, such as in the U.S. A threat to the company is that some of the markets that
they are entering are already mature. For example, Danone, one of the top competitors,
has already established a leadership position in the yogurt market. Other top
competitors include ConAgra, Kraft Foods and General Mills.
Nestlé’s goal is to maintain, preferably to increase its market share and sales volume in
order to have stability in the market. (Nestlé adopts a sales oriented pricing scheme). If
Nestlé has an increase in sales volume they will have an increase in market share.
When Nestlé maintains or increases its market share, their products will be more widely
used by consumers. This will then increase share prices and stock, as Nestlé will be
seen as having a stable position when compared to competitors in the same market.
Problems and Issues
Problems with Marketing Techniques
Nestlé’s marketing tactics in promoting the use of infant formula in Third World countries
wasn’t moral. Nestlé was not acting within the boundaries of moral standards. Every
corporation must understand and realize the corporate ethics and responsibilities they
should have. The problem was that Nestlé used unqualified sales girls, the distribution
of free samples, marketed to people who were incapable to fulfill the minimum
requirements for giving formula safely to the baby, and the association of bottle-feeding
with healthy babies to promote the use of infant formula to mothers who would have
been better off breast-feeding their babies.
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In many Third World countries there never should have been advertising and
promotions for infant formula because it is not safe due to unsafe water supplies and
the difficulties in keeping bottles sterile. Where water is unsafe babies are up to 25
times more likely to die if they are bottle-fed. The cost of the formulas is another
problem for some Third World families costing them up to 1/3 of their family’s weekly
income. Back in 1974 when the infant formula controversy began, in Nigeria the cost of
feeding a 3 month old infant was approximately 30% of the minimum urban wage (what
the majority earn) and by the time the infant is 6 months, the cost would have risen to
47%. This is what led some mothers to dilute the mixture up to 3 times what it ought to
be, it even led some to start using powdered milk which is not intended for infants, but is
cheaper. This leads to dehydration, malnutrition and diarrhea, known as bottle baby
disease. Instead of saving a lot of money and breast-feeding mothers were convinced
by advertisements, doctors, nurses and midwives to use formula.
Formula milk companies were donating gift bags containing baby vitamins and formula
to hospitals and midwives even after the EOC 51. Instead of midwives helping the
babies latch on to the breast after birth like they were supposed to, they were giving out
promotional gift bags. Unholy alliances existed between medical professionals and baby
food companies. As a result of these alliances, the medical professionals helped
promote baby food products while the baby food companies would provide gifts ranging
from food to sponsored events and conferences. Doctors have been known to receive
air conditioners and air fare to go places. Doctors were not explaining to mothers how
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they could work and breast-fed with support, rather they were encouraging them to use
formula.
Advertisements and posters used idealistic imagery, often showing white children rather
than the ethnicity of that country, suggesting that bottle-feeding is the modern, western
way, therefore the right way of doing things. There were slogans used in Nestlé’s ads
and labeling such as ‘100% complete nutrition’ and ‘Now even closer to mothers milk’,
misleading mothers to thinking formula is as good, almost as good, or even better
than their own milk. People in places like the Philippines were known to claim from
advertisements that formula’s have vitamins which allow the baby to catch up faster with
things being taught to them, grow faster, and become more intelligent, even geniuses.
Other Problems
One of the major problems is that the marketing practices of infant formula
manufacturers, physician dominated medical systems, and the relationship between
industry and health professionals has resulted in widespread misinformation about
breast-feeding, false claims of the equivalence between breast milk and artificial
substitutes, and the devaluing of women’s knowledge about breast-feeding in general.
All of Nestlé’s infant feeding products did provide instruction leaflets in the main
languages of the country where they were sold including simple line drawings to
illustrate the method of preparing the feed. Nestlé did not take into consideration that
most Third World mothers are illiterate and the four simple line drawings by themselves
are meaningless. Nestlé’s Mother Book instructions on bottle-feeding began with “Wash
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your hands thoroughly with soap each time you have to prepare a meal for baby”.
Nestlé didn’t take into consideration that many households in the Third World had no
washing facilities at all nor had an indoor kitchen.
Nestlé Issues Since the Infant Formula Controversy
Even though the link between bottle-feeding and infant diseases and deaths was
brought to public attention in the early 1960s, it was not until the publication of the
pamphlet, The Baby Killer , that the infant formula controversy gained prominence. The
pamphlet was written by Mike Muller and became available in March 1974. It raised
awareness about the problem of how the baby formula was being marketed resulting in
thousands of infant deaths. War on Want, a London based activist group concerned with
hunger and poverty and other problems of the Third World. The pamphlet claimed that
Third World babies were dying because their mothers were feeding them infant formula
that was being marketed by multinationals such as Nestlé of Switzerland and United
Kingdom’s Cow and Gate. The aftermath of the publication led to an international crisis
for Nestlé. Nestlé mismanaged the crisis while NGOs got public support for their
position by cleverly and skillfully handling the controversy.
The issue moved into a new phase when the Third World Action Group (TWAG)
translated the pamphlet in German in Switzerland and published a 32-page version in
May 1974 with a new title, Nestlé Totet Babys (Nestlé Kills Babies). Nestlé had a fast
response to this, but not a very good one; they sued all those involved with the
translation and publication of the booklet. The judge found the 30 members of TWAG
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guilty of libel. Nestlé did win its lawsuit but they lost their public relations battle at the
same time. At the end of The Berne Trial the judges closing statement is, “If Nestlé S.A.
wants to be spared the accusations of immoral and unethical conduct, it will need to
change its advertising practices.”
The first Nestlé boycott in 1977 led by Infant Formula Action Coalition (INFACT)
had a large impact on Nestlé’s revenues. Their products were boycotted in the U.S.
to end the promotion of infant formula. This was a small part of the major problem which
is to improve total infant nutrition throughout the Third World that must be resolved on a
global basis if the health of babies in the developing nations is to be improved. The
boycott against Nestlé’s products and eventually those of the infant formula
manufacturers generated the largest support of consumer movement in North American
and its impact is still being felt in the industry, governments, and citizen’s action groups
around the world. The Nestlé boycott became one of the most successful consumer
boycotts in history lasting 7 years, it ended in 1984 after talks with Nestlé, WHO,
UNICEF and Muskie Commission Activist groups. It was the largest nonunion boycott in
history with over 100 organizations in 65 countries. It cost Nestlé as much as $5.8
million in lost revenue.
U.S. Senate hearings, chaired by Edward M. Kennedy, further damaged Nestlé’s
reputation and suggested the need for international consensus. Senator Kennedy asked
the World Health Organization to “convene an international conference on infant health
and nutrition”. Another problem was the disagreements between governments, the
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industry, health experts, legal experts and citizen groups over key issues of the code,
like differences between educational advertising and promotional advertising,
distinctions between fee samples and free supplies, and distinguishing between
legitimate support for health service and inappropriate incentives to win brand loyalty.
Nestlé should have paid more attention to the Protein Advisory Group (PAG) issued
statement 23 which outlined the responsibilities of governments, pediatricians and the
infant formula industry. They should have also given more attention to PAG asking
manufacturers to look to marketing practices and product labeling. Nestlé did perform
an internal audit and concluded that the only charge necessary was greater emphasis
on the “primacy of breast feeding in its advertisements.”
Nestlé shouldn’t have decided that the Muskie Commission fulfilled its mandate and let
it dissolve. During the 1978 Congressional Hearings, a Nestlé Brazilian operations
manager, Ballarian, claimed that the boycott and the campaign against the infant
formula companies were really an “attack on the free world’s economic system,” led by
“a worldwide church organization with the stated purpose of undermining the free
enterprise system.” This was a mistake for Ballarian to speak out like this, and it didn’t
make Nestlé look good as far as public relations.
By late 1980s Nestlé along with other baby food companies had diverted some of the
marketing budget from public promotion to expanding the tactic of placing large
quantities of free or low cost milk in maternity facilities. Due to the inadequacy of
medical training of breastfeeding management, health officials used the supplies for
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World Health Organization (WHO)
Due to the efforts of such groups as the Infant Formula Action Coalition and the
International Nestlé Boycott Committee, the growing awareness among public health
officials eventually resulted in the adoption of an infant formula marketing code by the
World Health Assembly in 1981, with the United States one of a handful of countries
casting a negative vote. The World Health Organization is charged with responsibility for
monitoring the implementation of the Code, frequently called the WHO Code. Its terms
restrict the promotion of infant formula and set out requirements for labeling all infant
formula products. It is less restrictive than regulations regarding prescription drugs, for
example, but it does forbid advertising of infant formula to the general public or the
employment of "milk nurses" to promote formula use among expectant mothers. It is
intended to serve as a model for codes to be adopted by nations as well as a guide for
company activities.
Third World Organizations (TWO)
An illustrative term being used here to reflect a group of organizations and committees
that accused Nestlé of unethical and socially irresponsible behavior. TWO believed that
Nestlé's actions were socially irresponsible and unethical. One of the their arguments
was that the consumers perceived the quality of the product as high, and were using
this over breast feeding, when in fact breast feeding was a more healthy approach. The
TWO felt Nestlé was being unethical by promoting their product as a better choice over
breastfeeding, as the consumers in these developing nations were educated enough to
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make well informed decisions. Another of the TWO's agreements was that in some
countries, only polluted water was available therefore mothers would have to use
contaminated water for mixing the formula, ultimately passing the bacteria and diseases
on to the baby. Selling a product that has to be mixed with water when no healthy water
source available is socially irresponsible.
Knowledge
When Nestlé first entered these developing countries they didn’t have a multi-domestic
market orientation. They didn’t tailor their products or marketing activities to the culture
of the nations they were entering. They sold the formula in the developing countries as
they did in the US and other more developed nations. Only about 10% of products sold
in developing nations can be sold without any changes, meaning that companies
planning on entering these types of nations must do extensive research (including
diffusion research) to determine what adaption, if any, to their products and marketing
strategies has to occur in order to be successful.
In the United States and other more developed countries, formula does conform to the
values and behavior patterns of mothers. Many moms work and do not have more than
6 weeks at home with their baby. While they could pump milk and bottle feed the baby
later, this takes a lot of time. Most working mothers don’t have free time to sit around
doing this. Often women turn to formula at the point they have to go back to work. In a
society where women don’t work or they have 1-2 years at home with their children
breast feeding is more of an option. In less developed countries where many moms
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don’t work, don’t have much money, and stay home with their children all day, nursing is
a necessity and formula feeding is more of a luxury.
Marketers act as change agents any time they introduce an innovative idea or product.
Nestlé’s entrance into the Third World markets and the advertising messages they
delivered started influencing the minds and behaviors of the mothers. They brought
about culture change in societies as women were shifting towards feeding their children
infant formula instead of breast milk. Since Nestlé was a change agent they had even
more responsibility when it came to the development of those societies. Prior to entering
the market, Nestlé’s plan should have included an assessment as to their best
marketing approach given the market. To determine whether the marketing approach
and promotions were socially responsible or ethical, look to the three ethical
principles: utilitarian ethics, rights of the parties, and justice or fairness. Nestlé's
actions did not optimize the benefits for all constituents. While their sales in Third World
countries benefited increased their profits, babies receiving the formula weren't more
susceptible to getting sick and being malnourished. Nestlé's actions didn't reflect
fairness or respect the rights of all parties involved. They marketed their infant formula
powder mix to societies that only had contaminated water at their disposal. They
promoted their products in a way as to infer that healthy western children drink formula.
For these reasons and others, Nestlé’s actions did demonstrate some unethical
behavior, unintended or not.
Behaving in a socially responsible way is something that will take a significant amount
of resources for a MNC that has operations in various countries. The international
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marketer will have to understand all of the different societies. Acting socially responsible
quite possibly could mean different things in different markets. Therefore, the
businesses actions may be ethical in one country while the same actions and decisions
are considered unethical in another.
Businesses can not make all of their decisions based upon the operating nation's
existing laws. This is true because in some cases local laws don't exist and in some
markets certain behaviors are condoned while in others it is frowned upon. Since laws
were developed based on historical behaviors that society felt were unethical and or
socially irresponsible, businesses must operate at higher standards than dictated by the
laws in order to be considered ethical.
Companies need to understand how the cultural influences are interwoven with the
perceived value and importance a market places on their products. Products are a
bundle of utilities that the consumer receives and the culture and values of the
consumers plays a significant role in how important the product is to them. Prior to
entering these Third World markets, Nestlé should have thoroughly researched the
society and culture to determine the extent of adaption required of their products in
order to maximize the value of their products. Nestlé may have been able to offer a
different formula? If water pollution is a concern, they could sell only the ready-to-serve
formula in that nation. Maybe changing the name and/or labeling of the package to
better align themselves with the needs of the specific market would have been helpful.
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Using the Product Component Model, the marketer can assess the impact of the factors
affecting the acceptance of a product, focusing on three main components: the core
component, the packaging component, and the support services component. These
components consist of the whole bundle of utilities, including all tangible and intangible
assets. In Nestlé's case, the core component was the actual powdered formula, the
packaging component included the bottle and the labeling, and the support services
could have been viewed as providing nutrition to the children. After assessing these
factors Nestlé may have discovered that it should have converted from powder formula
mix to premade formula, changing the core component. In regards to the packaging
component, Nestlé could have created labeling that would be understood by the
common person in that society. This might mean having pictures in place of words, or
clearly stating this is a second choice alternative to breast feeding. To add to the
support services component, Nestlé may have provided educational resources and or
nurses to help ensure the countries are utilizing the formula in a healthy and safe way .
Actions and Recommendations
Increasing their Social Responsibility and Ethical Behaviors
∙ Nestlé needs to do what ever it can to reposition itself as a force of good.
∙ Defense restrictions on commercial milk products will not necessarily promote more
breast-feeding because mothers may just feed their infants something else, so more
needs to be done to promote breast-feeding and Nestlé should find ways to help.
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UNICEF executive Director James Grant along with other health experts have estimated
that as many as 1 million infant lives a year could be saved by the promotion of
breastfeeding, others have estimated that 10 million cases a year of malnutrition and
infectious disease are directly attributable to faulty bottle-feeding.
∙ Nestlé should find a way to become involved with the Baby-Friendly Hospital Initiative,
like sending in donations or even working with the organization to help.
∙ Nestlé should remain a member of Infant Food Manufactures (IFM).
∙ Nestlé should keep its internal Nestlé instructions to Nestlé employees updated and
up to standards to avoid any more problems.
∙ Nestlé should continue their efforts on social responsibility by sponsoring events at
international medical and nutrition conferences, and events like celebrating the
Canadian Year of the Family, and funding research on infant feeding.
∙ Nestlé should be careful with their pricing strategy and make sure they are selling their
products in third world countries for reasonable and affordable prices for the people,
and they should maybe consider selling the products for even less in these places.
∙ Nestlé also needs to learn from its mistakes and not be so neglectful and they should
respond to issues in a reasonable amount of time, because when they don’t they look
irresponsible and careless.
Recommendations Related to HIV
With the increased risk of HIV infection being spread via a mothers' milk, Nestlé has an
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opportunity as a market for formula indeed exists if breast milk isn't feasible. Reach out
to the governments and the health agencies. Show them you have an international
commitment to their country. Specific to the nation, how can Nestlé help them fight in
the battle of HIV/AIDS? Can they provide testing and free samples to those positive for
HIV, as they did in one country? Maybe they can offer education on the benefits of
breast feeding and the risks as well if the mother isn’t healthy. For those not healthy
provide them with education about formula and some samples.
If a mom is HIV positive she can pass it to the baby via conception, birth, and
breastfeeding. You might be able to educate all of the people about HIV/AIDS so that
further spreading can be limited. If using condoms is a possibility for the people, maybe
provide them so that fewer women will contract HIV leading to fewer babies contracting
it from their moms. Setting up clinics for preconception, prenatal, and post-partum check
ups for the women providing them with the resources necessary to make informed
decisions about their health and their babies well being.
Nestlé should continue to offer testing and samples in less developing countries all the
while knowing how and what issues that society is facing, ensuring these efforts will
make matters better not worse. They should provide money and or prescriptions to help
those mom’s and babies infected. They should work with the governments and health
agencies to provide regular testing and condoms and education on contracting
HIV/AIDS. Educate the women on diseases that can be passed on to children
(conception, delivery, breast feeding). Educate moms/women on the benefits of breast
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feeding when a mom is healthy. Offer tests for moms to determine if breast feeding is
the best option. If they are disease free, properly nourished, have enough water/food for
moms so their milk supply is healthy and plentiful. Increase the OB/GYN use. Pay for
doctor to provide checkups to the moms to help promote healthy pregnancy and
newborns.
How Could Nestlé Avoid These Accusations?
One thing that Nestlé could have done to have avoided the accusations of "killing Third
World babies" and still market their product is to develop a (global) marketing campaign
designed specific to the country, supporting breastfeeding and its benefits. Educate or
fund the education of communities about breastfeeding. Market bottle feeding and
formula as options to mom’s if they are sick, malnourished, or if the baby isn’t gaining
adequate weight. Offer testing for HIV and other contagious diseases that can be
passed from a mom to her baby via breastfeeding.
Recommendations on Protecting Themselves from Future Attacks
Learn and know the culture of the nation you are doing business in. They must ensure
that their marketing strategies and advertisements fit in with the culture and promote the
things specific to the society that are most important. Know if the country is sick. What is
the rate of HIV and other infectious diseases and can they be contracted via breast
milk? Know the culture of nations to best direct the marketing approach. A MNC must
have various marketing strategies dependent upon the characteristics of the market.
Some strategies may differ from region to region and only be able to use the same
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strategies for various countries and/or regions.
Work with the government and any national health organization (example in the US
each state has a department of health). Identify their policies and beliefs. How can you
sell your products and be/remain socially responsible. If you work with a nation and get
their support you might be able to thwart attacks from the likes of the TWO. Know about
the various world organizations for example WHO, and their stance on your products
and the issues surrounding your products and the impact to their society of your
products and marketing activities.
Nestle has to make every effort to market their products in a socially responsible way,
which means different approaches in different societies. If malnourishment is a big
issue, market the formula as supplemental, only to be used in addition to breast milk in
order to ensure the baby gets all the nutrition required. In the US, the formula
commercials state that breast feeding is preferred, and there is usually a statement in
fine print at the bottom of the screen. The issue some have with this is they believe that
the people aren't as educated in developing countries therefore they don’t know or
understand the importance of breast feeding. They don’t have the same medical care as
in more affluent, developed countries.
Any products new to a social system are considered to be innovations. Obtaining
knowledge about the diffusion of these products will help to determine a successful
marketing strategy, guiding the communication of product information and attributes.
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This is where Nestlé can ensure that their advertising and product labeling provide an
accurate representation of the benefits and weaknesses in feeding formula to your
infants. If they are aware that the product is going to be dispersed at a hospital upon
delivery, they can provide thorough education to the medical professionals so that they
clearly understand the product and its intended use, and can then share that info with
the new mothers.
Justification
Nestlé will favor continued sales rather than more restricted promotional methods, they
have changed their practices sufficiently to warrant cancellation of the boycott. Further,
Nestlé’s efforts to comply will probably not result in greater protection of infants as
competing companies will quickly fill the gaps, this would place Nestlé at a competitive
disadvantage that they may not be able to resist and will return to such practices. Also,
new strategies to encourage hospitals and health professionals to implement the WHO
Code will effectively control Nestlé and its competitors. A strategy that seeks national
adoption and enforcement of the WHO Code would be more reliable and fair to all
companies than the current boycott method which depends on violations coming to the
attention of leaders in affluent countries who can put forth commercial pressures on the
offending company.
Consequences
It is the business’s responsibility to perform an analysis paying careful attention to the
possible negative implications the introduction of their product may have. Otherwise, the
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diffusion of their product can result in unplanned dysfunctional consequences to the
society. It is the marketer’s responsibility to develop marketing programs that will both
achieve product diffusion goals as well as avoid negative impacts to the culture. As in
the Nestlé case, its products had a negative impact on various cultures. The outcome
resulted in the company demonstrating corporate social responsibility by ensuring that
the best interests of mothers and babies are served by Nestlé employees around the
world.
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References
1.Cateora, Philip R., John L. Graham. International Marketing 13th ed. New York:2007.
2.Nestlé Boycott, http://en.wikipedia.org/wiki/Nestl%C3%A9_boycott
3.www.nestle.com
4.www.jstor.org
5.http://mutinationalmonitor.org
6.www.heritage.org
7.www.babymilkaction.org
8.www.babymilk.nestle.com
9.www.breastfeeding.com