Group 3: Agustin, Chua, Eligio, Enriquez, Palo, Poral

Case 1 (Nestle: The Infant Formula Controversy)

Problem

Nestl, with established stronghold in the international market, has faced charges of
hard-selling their infant formula products to consumers in Third World countries, who were
incapable of using the products properly. It was argued that Nestl were encouraging mothers
to give up breastfeeding and instead use their product. With such controversy leading to product
boycotts, tighter policies, and banning of mass media advertising, Nestl still maintained its
share of Third World infant formula market. With this, how could Nestl have avoided those
accusations while still marketing its products, considering it was proven to be a cultural change
agent to its consumers?

Point of View
The group takes the point of view of Nestl Alimentana in view of how it should have
marketed its products with regards to globalization and cultural disparity in different regional
markets during that time of the controversy.

Assumptions
Two economic categories are used in this paper: developed countries and developing
countries or third world countries.
Representative countries, namely Germany and Nigeria are used in the Hofstede
Cultural Dimension Theory Framework to define the differences between developed and
developing or third world countries, respectively.
The SWOT was analyzed with the characteristics unique only to Nestl to properly weigh
the advantages and disadvantages of each frame.

SWOT

Strengths Weaknesses
established brand restriction on marketing practices in
international market reach agreement with WHO code
extensive marketing practices and narrow and constricted marketing
channels channels

Opportunities Threats
HIV outbreak product boycotts of
increasing number of working women WHO/UNICEF/individual
organizations
banning of advertising
tighter policies (internal and external)
Relevant Frameworks
A. Hofstedes Cultural Dimension Theory Framework
Power Distance (High or Low)
Nigeria, which we used as a
representation of the Third World
countries, scored higher than
Germany which means more referent
power is used.
Nestl used to promote its infant
formula products through giving
samples to doctors who in turn
endorse the product to their patients.
Nestl was also accused of giving
samples in maternity wards through
the milk nurses.
In relation to high power distance in
Third World countries, the use of
sampling through professionals as a
medium of marketing can be linked to
the misconception of the Third World
consumers of the value of the
products.
Masculinity vs. Femininity
Nigeria is more inclined to femininity,
meaning, there is a similarity between
the values of men and women in their
society.
Feminine countries are described as
tender people. They value care for the
weak and good quality of life while
masculine countries are tough and
more competitive.
Third world countries may have a
higher tendency to purchase products
which advertise better nutrition and
better quality of life.
Long-term vs. Short-term Orientation
Nigeria is more inclined to short-term orientation while Germany is on long-term
orientation. Countries with short-term orientation are more likely to resist change in
Individualism vs. Collectivism
Nigeria is into collectivism which
means there is strong cohesiveness
among in-groups compared to
Germany which is more individualistic.
Advertising, which exhibits local
values and traditions, has a greater
impact on consumers in developing
countries. Whereas the more
individualistic consumers from
developed countries are more
influenced by advertising where the
product differentiates itself specifically
from other products in the market.
(2011, Ahmed El-Khatib)
Nestl should have made accurate
advertising for more collective
countries especially if the advertising
theme deals with local values.
Uncertainty Avoidance (High or Low)
Nigeria scored lower than Germany
which indicates that they are more
comfortable with ambiguous situations
and unfamiliar risks.
Consumers in developed countries
are more health conscious than in the
developing countries. Thus, food
packaging is extremely important in
developed countries because lack of
sufficient data about the product can
lead to loss of sales. (2011, Ahmed
El-Khatib)
The difference in packaging of
products offered in developing and
Third World countries can be
attributed to the miscommunication of
products value to customers.
 their traditions and values while those with long-term orientation see adaptation and
problem-solving as necessary.
Third world countries are those that have little to no economic development. Most of
them have no access to clean water supply and do not get the right food nutritional
value. In terms of breastfeeding, because mothers in third world countries do not get
the right nutrition, the nutrition of the milk they produce for their children is also not
healthy enough. In using powdered milk products, not having clean water certainly
affects the nutrition of the milk that should be produced.

With this framework, the characteristics of a developed country, Germany in this case,
and a third world country, Nigeria, showed important cross-cultural differences. These
differences are important for companies to take into account when strategizing marketing
activities. Differences in a societys culture have effects on the values of their people, and will
then affect their behavior.
All five dimensions of the framework point that Third World Countries are highly
vulnerable with the information being fed to them. Their cultural and economic situations lead
them to misinterpretation of messages and misuse of certain products. These factors should be
considered by Nestl in advertising their products in developed countries and developing
countries because as we can see in the analysis from the framework, even small differences in
their culture mean totally different things between the two countries.
 B. EPRG Model

Ethnocentrism Polycentrism Regiocentrism Geocentrism

Home country Host country Regional World
orientation orientation orientation orientation
Everything is Several Market is The world is
centered on important composed of one large
the domestic foreign several large global market
market markets exist economic
regions

Considering the timeframe in our POV, the available market scope of Nestl has
regional orientation. However, product advertisement and marketing practices were not adapted
to this orientation. There is a degree of standardization on how the infant formula products are
advertised. Clever radio jingles on radio, TV, endorsements by doctors, and samples given by
milk nurses are all established in the different economic regional markets of Nestl, which in
this case may be perceived to be having a home country orientation. Nestl should have
considered the regional disparity of its market with regards to culture and values since product
acceptance and value interpretation may be dependent on cultural differences.

C. Uncontrollables in the Global Macro environment Framework

(image courtesy of: FAO Corporate Document Repository)

Since there has been a lag in purchases of its product in developed countries due to
existence of substitutes, Nestl has decided to venture in markets of emerging economy to
pioneer brand establishment. This international market penetration has reached Third World
countries as well as developing countries. However the presence of uncontrollables in the
international environment must be considered.
In Nestls case, there are certain uncontrollables not taken into consideration in its
market penetration. The stage of development is one, Nestl was not able to consider that Third
World countries may not have access to clean water which is needed to consume the products
they are trying to sell in those markets. Another thing is economics, Nestl was not able to
consider inflations in underdeveloped countries that may result to higher prices for the products
sold in these markets domestically. This, in turn, affects the consumption behavior of the
consumers. There are reported instances of a mother dividing one infant formula SKU to her
two infants when in fact it must be good for only one consumer with regards to required nutrient
intake levels. Culture is the number one uncontrollable factor to consider for any company trying
to venture in the global market. There are dimensions of culture that Nestl was not able to take
into consideration in its marketing practices as discussed in our Hofstedes framework. Ethics
must also be taken into account since it is not universal. There are some practices that are
socially acceptable in some countries but not in others. In facing allegations and charges
against the infant formula products of Nestl, they must have defined beforehand if their actions
have been unethical based on the regional markets affected definition of what is ethical in
defending themselves against product boycotts and advertisement banning. In addition,
demographics under social uncontrollable must also be considered. Consumers in developing
countries are generally less educated. Therefore, they often show no care as to how products
are disposed. Hence, the environmental conditions are much worse in those countries than in
developed ones (2011, Ahmed El-Khatib).

Recommendation

What Nestl should have done was to communicate its products value accurately to its
consumers. Infant formula are perceived as substitutes to breastfeeding when in fact, the
product is just a supplement to compensate for the needed nutrition intake of infants.
Misconception of value can be attributed to giving out samples to physicians who, in turn,
endorse the products to the patients. As discussed in Hofstedes cultural dimensions, high
power distance in underdeveloped countries like Nigeria contributed to the misconception of the
consumers since the endorsement came from professionals. In addition, Nestls scheme is
very much like what pharmaceutical companies do, which is using physicians as medium to
endorse their products. Therefore, it can be concluded that this marketing medium has given a
necessity connotation to the infant formula products. Marketing practices must be aligned to
regional orientation rather than home country orientation which is most likely than not inclined to
a degree of standardization. With this, promotions through physicians must be discontinued and
Nestl should have limit its marketing channels to radio and TV. However, better execution of
commercials must be taken into account, such as promoting breastfeeding for infants of 0-6
months old and must establish to the masses that their products are just supplementary.
Another consideration is the lack of nutrition education in underdeveloped countries.
Nestl can incorporate nutrition education in its product commercials to raise awareness. Most
of the allegations against Nestl are associated with the wrong usage of its products such as
using microbiological contaminated water in diluting the infant formula products. Nestl should
have addressed this concern before legal cases were raised by coordinating with local
governments and organizations of its markets. With the recent issue of HIV cases, Nestl can
support organizations which provide HIV testing. This can add to the publicity of its products
since in this matter, the infant formula products are necessary substitute rather than just a
supplement to infants whose mothers are HIV positive.

Lessons Learned

Global brands such as Nestl does not only manipulate the economy but it also changes
the culture. As an agent of this cultural change, international companies like Nestl must
consider that different countries have different cultures and therefore, should have applied
different approaches in its marketing practices. In line with this, these companies must take into
consideration not just cultural variances but as well as per country profile which includes
economy, government, ethics, demographics as such.
Since marketing is very vital in penetrating the international market, global companies
must have its advertising accurate in providing product information and must be culturally
sensitive as well. In addition, they must make sure that they have chosen the right people as
sales agents since they may be the one with direct contact with the consumers. In Nestls
case, using milk nurses was a bad idea in avoiding miscommunication of its products value.
Wrong market perception of products value does not often results to sale losses for in Nestls
case it resulted to huge sales but with negative side effects to its markets consumer behavior.
Nestle and any other companies which may have directly or indirectly cause a negative impact
to its consumers must take the accountability for its actions.

References

10 Consumer Behavior Differences Between Developed and Developing Countries by Ahmed

El-Khatib,https://wearedevelopment.net/2011/11/01/10-consumer-behavior-differences-
between-developed-and-developing-countries/

Introduction to Global Marketing by FAO Corporate Document Repository,

http://www.fao.org/docrep/w5973e/w5973e02.htm

Differences in Developed and Developing Nations, http://study.com/academy/lesson/economic-

inequality-differences-in-developed-and-developing-nations.html