Mavesa’s Nelly Brand: Pricing Strategy for Market Control

| Mavesa`s Nelly Brand : Pricing to Gain Market Control | 19/03/2013 | Mavesa’s Nelly Brand: Pricing to Gain Market Control Problem statement The year is 1999 and Jose Luis Paez, the category manager for Marvesa mayonnaise is contemplating whether he should use a new pricing strategy that cuts the price of their product due to Venezuela’s current economic conditions and increasing competition in the segment.

As this new strategy aims at gaining market share the possibility of negatively impacting profits in the foreseeable future is also an issue. Therefore, is this the best strategy Marvesa should use in order to alleviate the problem? SWOT MAVESA STRENGTHS| WEAKNESSES| Traded on the NYSE; * Extensive product portfolio; * Management talent; * Market share leader in most of its categories despite multinationals; * Strong recent growth; * Geographic expansion through exports, acquisitions or mergers; * Owns 60% of industrial segment (restaurants); * Good national distribution network; * Flexible and responsive to changing market conditions; * Lowest cost producer of the low cost segment;| * Contracting mayonnaise sales within Marvesa; * Nelly has minimal brand loyalty and brand image; * In category where low price is a primary criterion, Nelly`s price are not among the lowest; * Do not have the appropriate sales force; * High overhead costs;| OPPORTUNITIES| THREATS| Salad dressing segment growth; * Growth in the industrial segment; * Improve channels to increase shares in medium and small stores; * Flexi-pack; * Huge growth in the household segment;| * Changing competitive environment becoming more saturated, volatile economic environment; * Recession in Venezuela; * Kraft is launching mayonnaise; * Shift in lower priced brands due to economic downturn; * De-evaluation of the bolivar; * Competition: Albeca and Kraft; * Economy brands expected to represent 34% * Mature mayonnaise market; * Decline in the premium market;| Options: Option #1: Implement the aggressive new price strategy. Focus on targeting the economy household segment. PROS| CONS| Nelly created this segment; * Nelly`s taste attributes; * Huge growth predicted to continue; * Nelly occupied approximately 48% of the market;| * Primary criterion is low price; * Only 15% of the market by volume; * Albeca; * Entry of Kraft; * Little brand loyalty in this segment;| Option #2: Implement the aggressive new price strategy. Focus on targeting industrial segment. PROS| CONS| * 23% of the market by volume; * One customer account signifies a lot of sales; * 16% growth in the last year; * Mavesa has 60% share of the market; * | * Competition based mainly on price; * Price wars between competitors; * Low profitability;| Option #3: Maintain current prices. Focus on targeting the premium household segment. PROS| CONS| 85% of the market by volume; * Decline in the volume over the past 2 years; * Quality is the key buying criterion; * Customers are loyal to the brand;| * Recession in Venezuela; * Nelly`s cost-cutting innovations make it less relevant for this segment; * Kraft mayonnaise is perceived as the one with the highest quality;| Decision Matrix: | Profitability| Growth Potential| Brand image| Sales Efforts| | Option 1| 4| 4| 2| 2| 3. 0| Option 2| 2| 4| 3| 3| 3. 0| Option 3| 2| 1| 4| 3| 2. 5| Recommendation: Nelly should implement its new aggressive pricing strategy. As the decision matrix shows it, they should leverage the reduction in cost production to increase their market shares both in the economy household segment and in the industrial segment. Low-costs

Nelly is the lowest cost producer in the low-cost segment which leaves some margin for cost reduction. The main threat about it is the overhead costs that Nelly has to pay for sales force and management regarding the company`s size in comparison to its competitors. It is assumed that cost-cutting innovations such as the flexi-pack and the reduction of oil in the production of mayonnaise will compensate for those costs. It also has to be precarious and not set is price to low or too high. Protection of the shares in the Premium market Nelly should make clear differentiation between the salad dressing targeting economy segment and mayonnaise targeting the premium segment.

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The company wants to implement cost-cutting innovations to gain more share in the economy segment, but it do not want to lose its shares in the premium market. By offering two products, one marketed as mayonnaise for the premium market and one marketed as salad dressing for the economy market, Nelly could increase its shares while gaining more shares. Distribution Channels and Sales Force Investment will have to be made in order to either hire more trained sales force to get access to more medium to small-sized stores or increase wholesalers and distributors additional margin on volume discounts. By increasing wholesalers and distributors` margins on volume discounts, it could become and incentive to push sales.

Nevertheless, since the difference in the level of distribution between stores attended indirectly and directly by Nelly`s sales force is important, hiring new sales force would be the most recommend strategy. Industrial Even if this segment has low profitability because of the price wars, Nelly could take advantage of the cost-cutting innovations made in production and packaging. In this segment, one customer account represents huge sales. Mavesa already has 60% of the market shares while its major competitor owns 30% of the shares. With its new low cost, it could at least gain the remaining 10% of the shares that is split among small regional competitors who would probably not be able to follow the price reduction.

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