Nestlé Spain: Caja RojaNerea EscribanoCorporate Image & Reputation • MS Corporate Communication • December, 2011

QUESTION 1:

EVALUATE THE IMAGE AND REPUTATION OF CAJA ROJA, FERRERO ROCHER, AFTER EIGHT AND BACI.

NESTLÉ CAJA ROJA FERRERO ROCHER

- Market leader for two decades

- First boxed chocolates to be sold in traditional food stores and supermarkets.

- Familiar image, not a luxury or for an special ocasion item

- High price: 10% more expensive than Ferrero Rocher.

- Sold mainly in marginal outlets and small supermarkets (II)

- New in the adult targeted chocolate market.

- Follower competitor in a growing market with an aggressive advertising campaign.

- Universal flavor

- Luxury and high quality product with a sophisticated image

- Sold mainly in hypermarkets and small supermarkets (II)

AFTER EIGHT BACI

- Very loyal segment of consumers (product with a particular flavor composition)

- Not present in consumers minds (I)

- Sold mainly in hypermarkets and marginal outlets (II)

- Not present in consumers minds (I)

- Sold mainly in hypermarkets and marginal outlets. (II)

(I) In a piece of research done in December 1992, After Eight and Baci were spontaneously recalled by less than 1% of

housewives.

(II) Information developed from Exhibit 66B, 6C, 6D and 6E and included at the end of the document.

QUESTION 2:

EVALUATE HOW IMAGE AND REPUTATION AFFECTS TO SALES RESULTS

In 1972 Nestlé launched “Caja Roja” in which different kinds of chocolates appeared side by side. These were the first boxed chocolates to be sold in traditional food stores and supermarkets in Spain, but as we have seen in the previous question, Nestlé “Caja Roja” was sold mainly in marginal outlets.

Until 1989 Nestlé had been the clear leader in boxed chocolates in Spain. In 1988 acquired the British Rowntree (“After Eight” and “Quality Street”) and the Italian Perugina (“Baci”) with the aim to reinforced its leadership in Spain.

In September 1989 Ferrero launched their Ferrero Rocher in Spain with an aggressive advertising campaign. Nestlé’s Product Manager thought that they would be able to maintain the leadership, only reinforcing their range of products with the new acquisitions and increasing the advertising budget.

Nevertheless, Nestlé’s strategy did not work, and Ferrero increased its market share sharply year by year until Nestlé España lost its leadership in boxed chocolates in 1992, as we can see in the chart below:

In my opinion, the erroneous positioning of “Caja Roja” (there was a contradiction between the image perceived by the consumers and the image expected by the company) and the efforts to introduce the new products without defining their targets were the main reasons for Nestlé’s market share lost.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

1989$ 1990$ 1991$ 1992$

Market'Share'Evolu/on'

Nestlé

Ferrero

Otros

As a result, Ferrero Rocher’s market share grew almost 20% from 1989 to 1992, thanks of consumers perceived this product to be consumed it at home, and also because of the product’s different sizes and formats, which helped the impulse purchase (3 chocolates boxes, for example). Caja Roja’s formats. with an average net contents around 300 grams, made this kind of impulse purchase more difficult.

28.42% 28.00% 26.30% 23.62%

8.00% 11.48%

21.43% 27.63%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

1989 1990 1991 1992

Chocolate Market Share by Brand and Year

Ferrero Rocher

Baci

After Eight

Caja Roja

COMPANY

EXPECTED IMAGE

Alternative Consumption“To be consumed at home”“Because today is today”

To be sold in supermarkets

CONSUMERS

PERCEIVED IMAGE

Still perceived as “a present”

Only 50% of buyers consumed it at home

Bought in marginal stores

QUESTION 3:

WHAT SHOULD CAJA ROJA HAVE DONDE TO MAINTAIN THE LEADERSHIP?

In my opinion, the main mistake was not to make a convenient research work in 1988 to evaluate the image perceived by consumer’s of Nestlé’s “Caja Roja” at that time and analyze the target of the new products: After Eight, Quality and Baci.

Instead of this, they increased the advertising budget, and heavily promoted After Eight (as Ferrero’s direct competitor) when they sensed that this product was for a more limited segment of consumers.

The increase in media advertising made by Nestlé between 1990 and 1991 had no results, because it was erroneously focused in promoting After Eight and Baci. This promotion has no the expected results as we can extract from the piece of research done in December 1992.

In my opinion, because of its format (bigger sizes) and the point of being a “classical” boxed chocolate assortment, “Caja Roja” had in the early 90’s and nowadays, the image of a kind of present more than for self consumption.

0.00%$

10.00%$

20.00%$

30.00%$

40.00%$

50.00%$

60.00%$

70.00%$

1989$ 1990$ 1991$ 1992$

Es#mated)media)adver#sing)expenditures)

Nestlé$

Ferrero$

Merci$

Otros$

INFORMATION ABOUT RETAILERS DEVELOPED FROM EXHIBITS 6B, 6C, 6D AND 6E

19%

24%

10% 9%

6%

32%

Caja Roja - Retailers

Hypermarkets

Small Supermarkets

Large Supermarkets

Traditional Food Stores

Self Service

Marginal Outlets

49%

15%

6%

5%

6%

19%

After Eight- Retailers

Hypermarkets

Small Supermarkets

Large Supermarkets

Traditional Food Stores

Self Service

Marginal Outlets

35%

4% 1%

19%

1%

40%

Baci- Retailers

Hypermarkets

Small Supermarkets

Large Supermarkets

Traditional Food Stores

Self Service

Marginal Outlets

36%

22% 10%

10%

9%

13%

Ferrero Rocher- Retailers

Hypermarkets

Small Supermarkets

Large Supermarkets

Traditional Food Stores

Self Service

Marginal Outlets