Select your language

Suggested languages for you:
Log In Start studying!
StudySmarter - The all-in-one study app.
4.8 • +11k Ratings
More than 3 Million Downloads
Free
|
|

All-in-one learning app

  • Flashcards
  • NotesNotes
  • ExplanationsExplanations
  • Study Planner
  • Textbook solutions
Start studying

Pricing Strategy of Nestle Company

Save Save
Print Print
Edit Edit
Sign up to use all features for free. Sign up now
Business Studies

The moment you make a mistake in pricing, you're eating into your reputation or your profits.”

- Katharine Paine

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? Let’s find out!

Case Study on Nestle

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.

In this case study, we will focus on Nestle's pricing strategies. Pricing is the most important element for maximising revenues. According to Harvard studies, if there is a 1% improvement in pricing, it leads to an 11% increase in profits (approx.). If the pricing structure is incorrect, the business loses profit with each transaction made. Therefore, correct pricing is critical.

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

Here are some of the strategies implemented by Nestle in order to achieve its targets and goals.

Nestle Price skimming

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.

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.

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.

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

Penetration pricing strategy

Penetration pricing is a pricing strategy that an organisation 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.

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.

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.

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.

Discounts offered

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

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

Competitive pricing strategy

Another general approach that Nestle follows is analyzing the pricing strategies of its rivals. Nestle has several brands and for every brand, it has separate departments that assess the pricing strategies of its rivals. Besides that, it examines the marketing style, sales, and innovation of rivals. The competitive pricing strategy assists in achieving Nestle's desired position as they acknowledge the preferences of the consumers.

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.

Pricing Strategy of Nestle Company - Key takeaways

  • 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.


Sources:

Howandwhat, https://howandwhat.net/marketing-mix-nestle/

The Strategy Watch, https://www.thestrategywatch.com/pricing-strategy-nestle/

Price intelligently, https://www.priceintelligently.com/blog/bid/182007/6-must-read-pricing-strategy-quotes

StuDocu, https://www.studocu.com/my/document/tunku-abdul-rahman-university-college/pricing strategy/bbdt3193-pricing-strategy-for-the-company-nestle/18242524

Studymode, https://www.studymode.com/essays/Nestle-Pricing-Strategy-1058790.html

Iide, https://iide.co/case-studies/nestle-marketing-strategy/

Iide, https://iide.co/case-studies/marketing-mix-of-nestle/

Howandwhat, https://howandwhat.net/marketing-mix-nestle/

Pricing Strategy of Nestle Company

Nestle uses price skimming and penetration pricing strategies.

Nestle uses some of the pricing strategies such as price skimming, inexpensive and bundle pricing strategy, penetration pricing strategy, stock keeping units, psychological pricing strategy, discounts, and competitive pricing strategy.

  • Price skimming
  • Market penetration pricing
  • Premium pricing
  • Bundle pricing
  • Value-based pricing

  • Cost-Based Pricing
  • Value-Based Pricing
  • Competition-Based Pricing

Final Pricing Strategy of Nestle Company Quiz

Question

Who founded Nestle?


Show answer

Answer

Heinrich Nestle

Show question

Question

When was Nestle founded?


Show answer

Answer

1866

Show question

Question

How did Nestle start?


Show answer

Answer

Heinrich created Nestle for distributing milk food for newborns and found that it could be created from powdered milk, sugar, and baked food.

Show question

Question

With which company did Nestle merge?


Show answer

Answer

In 1905, it merged with Anglo-Swiss condensed milk, hence making the product range broader with infant formulas and condensed milk.

Show question

Question

What is price skimming?


Show answer

Answer

Nestle uses price skimming for some of its products when it enters the market of a country.

Show question

Question

How did Nestle implement price skimming?


Show answer

Answer

Nestle’s brand ‘Nescafe’ was depicted as a product of target segment of the upper-class. Later, with the success of this approach and strategy, they lowered the prices and targeted the upper-middle class.

Show question

Question

What is Nestle’s bundle price strategy?


Show answer

Answer

Since the consumers preferred to buy bundles, Nestle started offering value-added bundle packs for its Maggie product for instance, and at a reasonable price.

Show question

Question

What is a penetration pricing strategy?


Show answer

Answer

This is a pricing strategy that an organisation uses to offer new products at lower prices and attempt to attract more customers away from rivals.

Show question

Question

How did Nestle implement a penetration pricing strategy?


Show answer

Answer

When Nestle introduced the new flavors of Maggie instant noodles, they sold at  £2.25 in comparison to its rivals who sold at  £3. This strategy was to allure away the consumers from the rivals.

Show question

Question

What is psychological pricing strategy?


Show answer

Answer

This pricing strategy facilitates creating a positive psychological influence on the consumer and lures them to buy the product.

Show question

Question

What is Nestle’s psychological pricing strategy?


Show answer

Answer

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.

Show question

Question

How is Nestle implementing its competitive pricing strategy?


Show answer

Answer

Nestle has several brands and for every brand, it has separate departments that assess all the pricing strategies of the rivals. Besides that, it scrutinizes the marketing style, sales, and innovation of rivals.

Show question

Question

How is a competitive pricing strategy helpful?


Show answer

Answer

The competitive pricing strategy assists in achieving the company’s desired position by acknowledging the preferences of the consumers.

Show question

Question

What are Nestle’s global pricing strategies?


Show answer

Answer

Some of the strategies include price skimming and penetration pricing.

Show question

Question

What is the significance of a pricing strategy?


Show answer

Answer

According to Harvard studies, if there is a 1% improvement in pricing, it will lead to around an 11% increase in profits. If the pricing structure is incorrect, the business is losing profit in each transaction made. 

Show question

60%

of the users don't pass the Pricing Strategy of Nestle Company quiz! Will you pass the quiz?

Start Quiz

Discover the right content for your subjects

No need to cheat if you have everything you need to succeed! Packed into one app!

Study Plan

Be perfectly prepared on time with an individual plan.

Quizzes

Test your knowledge with gamified quizzes.

Flashcards

Create and find flashcards in record time.

Notes

Create beautiful notes faster than ever before.

Study Sets

Have all your study materials in one place.

Documents

Upload unlimited documents and save them online.

Study Analytics

Identify your study strength and weaknesses.

Weekly Goals

Set individual study goals and earn points reaching them.

Smart Reminders

Stop procrastinating with our study reminders.

Rewards

Earn points, unlock badges and level up while studying.

Magic Marker

Create flashcards in notes completely automatically.

Smart Formatting

Create the most beautiful study materials using our templates.

Sign up to highlight and take notes. It’s 100% free.