Case Study

Nielsen Insights in Action: Solution Touches Marketing, Sales, Finance, Supply Chain
Nestl Confections sweet on Nielsen pricing insights Company Facts
Nestl Founded in 1866 in Vevey, Switzerland Employs 280,000 people and operates in almost every country in the world Largest food and beverage company in the world

Company Nestl Confections

Headquartered in Vevey, Switzerland, Nestl was founded in 1866 by Henri Nestl and is today the worlds largest Food and Beverage Company and a thought leader in nutrition, health and wellness. Sales for 2009 were $99 Billion. The company employs around 280,000 people globally and maintains factories or operations in almost every country in the world. Nestl Confection brands familiar in the United States include Nestl Crunch, Butterfinger, Raisinets and Wonka.

The Business Issue

Nestl Confections approached Nielsen to determine the volume impact of different pricing approaches and assess the relative market response to different promotion strategies. The research would focus on singles, king, 8-packs, fun size, minis and concession boxes of chocolate and sugar candy.

In contracting for the study, Dave Allen, Manager, Pack Marketing, Promotions and Merchandising for Nestl, recognized that study results could dramatically change Nestls promotional mix and price structure for 2009. Pricing was of particular interest, because two category-wide price hikes raised prices 22.5% in 2008 and there was concern about consumer reaction to the price increases. Further, where driving volume was once the only priority, the company now was seeking a strategic balance between driving volume and profitability.

The Solution

Single-serve chocolate bars produced some of the most interesting findings. An analysis of pricing and price elasticities suggested that Nestl singles experienced higher lifts at deeper discounts and with price multiple offers. When focused only on driving volume, this was a successful strategy. However with the shift towards improving profitability along with the recent price increases, pursuing this strategy was no longer an option.

Nielsen Insights in Action: Optimize Promotion, Achieve Category Growth

The analysis uncovered that shallower discount offers yielded higher spending efficiencies than deeper discounts where no lump sum fees were paid to grocers for displays or feature ads. Retailers began to waive the ad fees, making up the difference by forward buyingrequiring special pricing for a month, committing to just two weeks of promotion, then loading up on product at the lower price. Nestl used the study to better understand and control this practice. Nielsen made several recommendations for single-serves. First, set the lowest price discount necessary to secure retailer support for feature ads and displays in accounts that do not charge ad fees. In accounts that do charge ad fees, run deeper discounts with accompanying feature and display activity to offset the fixed fees. Additionally, test special offers and gauge the effectiveness of price multiples at higher price points where the competition was not aggressively promoting. Nielsen adapted its global price promotion simulator to help Nestl model alternative market scenarios factoring in volume, profit, retailer profit, trade spending levels and other metrics.

Case Study

Nielsen brought a true management perspective to the table, looking beyond just the marketing implications of price and promotion, to the financial and operational aspects of their recommendations. They helped us develop a consumer-driven approach to marketing decisions that helped us improve margins across the portfolio and improve ROI on trade spend.
-Dave Allen, Manager, Pack Marketing, Promotions and Merchandising, Nestl Confections

A Win-win Outcome

The Nielsen approach provided an understanding of price elasticities and the impact of trade promotions on Nestls volume. These learnings confirmed that chocolate packs had much different price elasticities than sugar thus allowing Nestl to develop an improved plan to optimize the trade strategy across the Chocolate and Sugar portfolio. Study findings convinced Nestl senior management that lower volume forecasts for 2009 were reasonable to expect, a fact confirmed when actual sales results landed within 2-3 percent of projections. At year end 2009, Nestl reaped significant margin gains, despite volume declines. This fundamental shift in strategy delivered the best results for Nestl Confections in many years. Changing the emphasis to include profit goals enabled Nestl to re-set volume expectations with operations and management. Nestl now cites this study as a best practices example that enabled them to more precisely calibrate production and supply chain forecasts to changing market realities.

To learn more about how Nielsen can help with your pricing and promotion strategies, contact sales.us@nielsen.com or visit www.nielsen.com
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