Strategic Management: Value Chain Analysis, Cost Leadership & Strategy

This essay provides a detailed analysis of strategic management concepts, focusing on value chain analysis, cost leadership, and differentiation strategies. It begins by explaining the value chain and its components, including primary and support activities, using Nestle as a case study to illustrate inbound logistics, operations, outbound logistics, marketing and sales, and services. The essay then discusses cost leadership as a strategy for gaining a competitive advantage by offering products at lower prices, highlighting Nestle's approach in the chocolate and confectionery industry and the risks associated with this strategy. Finally, it examines differentiation strategy, where companies create unique products to attract consumers, mentioning Nestle's market positioning through image, people, and service differentiation. The essay concludes by emphasizing the importance of these strategies in achieving long-term success in a competitive market.

Strategic Management

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Answer 1.
A value chain is an activity which includes production, distribution, and marketing. It is a
process of organising these activities in order to analyse them. The main aim of this process
is to establish communication between the leaders of each stage to ensure the process of
organising the activities is effectively and efficiently. Value chain analysis helps the
organisation to understand the key capabilities easily and it also analyses the challenges
which require the improvement. It also helps to understand the competitors create value and
to decide to extend the particular activities. Michael E. Porters introduced the concept of a
value chain to analyse the situation and process of organisation. Porter also developed the
five forces model which helps the organisation in measuring the position of the company as
compared to the competitors in the current marketplace. Competitive advantage cannot be
gain by the one activity. The discrete activities of the organisation contribute to the gain of
competitive advantage such as producing, delivering, marketing, designing, and supporting.
Porters split business activities into two categories such as primary and support. Primary
activities of the company include the main activities which are used by the organisation such
as inbound logistics, operations, marketing sales, and many others. The support activities of
the company help the primary functions and compromise the activities such as human
resource management, procurements, technology and development, and many others. Primary
and support activities are used by the company to ensure the activities that operate effectively
and efficiently (Mudambi, & Puck, 2016).
Primary activities of Nestle
Inbound logistics
It is related to the process of receiving, storing and distributing of raw material which is
used in the production process. Nestle receives, stores and distribute the material at the

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warehouse. It has been seen that the company receives the stock from outside which is not
available for the production in Malaysia and its main headquartered is also located in Mutiara
Damansara. That is why the company has to stores the production material in warehousing
and later on distribute the product in the market. The manufacturing facilities of Nestle are
available at the Shah Alam, Kuching, Chembong, and Petaling Jaya. The company has a
National distribution centre which is located at Bukit Raja, Klang from which the company
distributes the products in the operational areas. It has factories in Malaysia from where the
company manufacture the product and then it distributes the product in the different region
(Christopher, 2016).
Operations
It is the stage in which the company turns their raw material into the final product for the
consumers. Nestle manufactures the various types of food which include junior foods,
culinary products, ice cream, chocolates, coffee, and many others. The company manufacture
the product and convert the raw material into the finished product for the consumers. For
each product the company requires the different ingredients and raw material for the
production such as manufacturing the chocolate; the company requires the Cocoa, milk and
many others as an ingredient. It has been seen that the process of manufacturing the chocolate
will be done by using the machine for whipping the ingredients then froze them for ready the
chocolate in the chiller. Then the output will be ready and then it packed in their size and
brand (Bee, Diby, Mbacké, & Wettstein, 2015).
Outbound logistics
It is a stage in which the products are distributed to the consumers. Nestle distribute their
product by using the land transportation rather than the rail transportation because the risk of

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damage the product is less. The other groceries products distributed by the Tesco and many
other grocery shops (D'heur, 2015).
Marketing and Sales
This stage involves advertising, distribution channels, pricing, promotions, sales-force
organisation, and many others. The most important thing of Nestle is that the food should be
approved by the higher authorities so that the consumers can officially consume the product
peacefully (Doz, 2017). The product of the company is labelled with the important
information related to the product for the consumers. The company is brilliant in attracting
the customers. The company uses the many types of Advertisement that are made by Nestle
such as television commercials and flyers are passed around at the shopping mall.
Services
It refers to the activities which are required for the company to maintain the product
quality with the process which includes the installation and training maintenance, repair and
after-sale services. Nestle provides the official website to the consumers to review its product
and the services. It has been seen that it is beneficial for all the functions and purposes of the
product because it provides the satisfaction to the consumers. The company produces a
product which makes the consumers feel happier and prevent them from getting diseases. The
company tries to produce low sugar content so that every consumer can inhale the product
(Jenkins, & Williamson, 2015).
Supporting Activities
Procurement
It is the process that the how the raw material for the product is obtained. Buying process
of raw material helps the company in carrying out the primary activities. Nestle finds the

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suppliers to buy the raw material. Nestle has various suppliers around the world who is
always available for them (Jacobs, Chase, & Lummus, 2014).
Human resource management
This function of the company includes the hiring and retaining process. It also provides the
training, paying salary and employees benefits. It has been seen that the company is not only
famous for its quality of products but it also attracts people to join their company. Nestle
offers the opportunity to the public for the job and also open the door for internal employees
for different positions which is beneficial for the society as well as for the company. The
company provides useful information on the websites for the interested candidates who want
to work with them. Nestle comes under one of the companies which take care of their
employees’ rights and duties. The activities of hiring and recruiting the employees are good
at Nestle (Sroufe, & Joseph, 2017).
Technological development
It can be used in the process of research and development to manufacturing the new
products and designed the process of automation. It has been seen that this activity is used to
improve the quality of product and services. Nestle has a Research and Development
department which helps the company to make sure that the company fulfil the requirement of
the public or not. This activity of the company consumes the high cost but it is beneficial for
the company because it pays back the company with a double profit (Sminia, 2017). The
company is also using the solar panels in the warehouse as energy consumption.
Consumption of high cost on solar energy is beneficial for the company because consumption
of energy is consuming the high cost as expenditure.
Infrastructure

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It is a company support system which helps to maintain the daily routine activities.
Accounting, legal, administrative, and general management are the factor which is necessary
for the effective infrastructure. This function is used by the companies to their advantages. In
the case of Nestle, the company has a very effective and stable infrastructure. The company
designed and planned properly by expertise and highly educated people who have experience
in the nutrition field. It has been seen that the accountant, administrative, lawyer and the other
official officers of the company perform their responsibilities perfectly which is assigned as
per their quality. The board of directors of the company also support the system which helps
the company in achieving the objective by performing their job well (Wheelen, Hunger,
Hoffman, & Bamford, 2017).
Answer2.
Cost leadership
In this strategy, a firm sets their cost less in the industry to attract the consumer. The
company gets the cost advantage which is based on the structure of the industry. The
company gets the cost advantage by lowering their prices. In this strategy, the cost of the
company is below as compared to the other companies in the industry which attracts the
consumers towards the company. The company gets the competitive advantage by lowering
the prices that is why the company is excellent performers in its industry.The company gets
the competitive advantage by attracting the more consumers. Low cost attracts the consumers
towards the services of the company as compared to the other companies; more sale of the
company means the company gets a competitive advantage (Kinyuira, 2014).
In the case of Nestle, the company has low prices of their product as compared to other
companies such as Chocolate and confectionery. The company is the lowest cost producer of
Chocolate without compromising with the quality in the industry. The company is mainly

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focused on the cultural environment, behaviour and communication issues to maintain the
quality of chocolate. It is important for the company to focus on these factors to maintain the
quality and the cost of the product. Nestle invested in the chocolate and confectionery
industry which became the world leader in the chocolate and sugar confectionery industry.
The cost leadership strategy of the company in Chocolate and confectionary industry attracts
the more suppliers of high-quality raw material which helps the company to maintain the
quality of the product. The company gets the competitive advantage by maintaining the
quality of the product with the low cost. The techniques and tools help the company to reduce
the cost of the product (Moon, Hur, Yin, & Helm, 2014).
It has been seen that every strategy has risk which is face by the company as same the
company faces the risk from cost leadership strategy. Although the company gets a
competitive advantage by lowering prices of the product it is observed that the other
companies also follow this strategy. As technology improves, the companies have the
advantage to reduce the cost of the product. There are many companies which can easily
adopt the technology and reduce the cost of the product. The companies target the various
narrow markets to achieve an even lower cost within their segments as a group gains the
market share. The companies get the market share by lowering the cost of the product in the
narrow market. It becomes a risk for the Nestle because the other chocolate and confectionary
industry also follows the strategy. The company has to set the prices by keeping in mind the
factors such as the company has to set the cost which is low as compare to the other
companies and also the company has to take care about the production cost. The companies
face the difficulty at the time of setting the cost of selling the product. Lower cost becomes a
risk for the companies if it cannot cover the production cost of the product (Saluja, &
Mahajan, 2017).
Differentiation strategy

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It is a strategy in which the company produces the product which is different from the
other companies. The consumers always seek unique product for themselves; different and
unique products attract more consumers. A different product is beneficial for the consumers
when it also satisfies the consumer’s need. Consumer satisfaction attracts the more
consumers towards the goods and services of the company. The companies are rewarded for
the uniqueness in the product with the premium price. Product differentiation strategy helps
the company to gain control of the market (Verbeke, Kano, & Yuan, 2016).
Nestle use this strategy to attract a large number of consumers and boosting the sale of the
product and services of the company. It has been seen that the company target different media
to advertise the product in the market such as newspaper, television, magazines and many
others. The market positioning of Nestlé’ includes image differentiation, people
differentiation, and service differentiation. Nestlé’ has a different logo from the other
companies or from its competitors that are greatly accepted by its customers (González-
Benito, Martos-Partal, & Fustinoni-Venturini, 2015). The company has a large number of
employees those are highly educated and trained. It is beneficial for the company to have
highly educated employees. Experienced help in maintaining the quality of product and the
highly educated employees help in producing the product different with some new ideas. The
company has 24 hours hotline services which make the services different from the other
companies in the industry. It has better services for consumers as compared to the other
companies in the industry (Miah, et al., 2015). The company gets the competitive advantage
by producing the product different from the other companies. The positioning strategy of the
company makes the product different from the others.
Although, the company gains the advantage from the differentiated strategy but this
strategy also has a risk. The company faces the risk by following this strategy such as a
change in customer taste. The company comes under the food and beverage industry in which

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product can easily be differentiated from the other by adding some new flavours. There are
various firms that main aim is to achieve the greater differentiation in their market. Those
companies add some new flavours and attract more consumers towards the product. The
consumers attract towards the new flavours which are difficult for the company to produce a
different product in a few months. The company has a major risk of following the product
differentiation is the consumer taste. Sometimes consumer behaviour towards the product
does not like by the consumers then the company faces heavy loss (Hansen, Nybakk, &
Panwar, 2015).
Focus strategy
This strategy contains two strategies such as cost strategy and differentiation strategy. The
company follows this strategy to analyse the competitor's cost of the product. The company
has to differentiate the product by setting the different price as compare to the other
competitors (Tansey, Spillane, & Meng, 2014). Cost and differentiation strategy of Focus
strategy used by the companies to attracts a large number of customer. The companies who
achieve success in the following focus strategy get the high development in the market.
In the case of Nestle, the company follows the focus strategy to attain the market share in
the market. Nestle identify the challenges which are raised by their competitors. After
identifying the challenges the company placed nutrients labelling on the wrappers to inform
the customers about the ingredients which are used in the production of the product and it
also mentioned the nutrients ingredients (Misani, 2017). Nestle distinctive segment value
chain is different from the other companies which are hard to copy by the competitors. The
company set the prices by analysing the competitor’s prices and challenges.
It has been seen that the company face the risk due to following the focus strategy. The
company faces the risk such as a change in the target segment, setting cost and others. The

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company expands their business which is beneficial for the company but by expanding the
business the company target segment also changes. The company has a risk of losing the
customer with the same strategy in the different target market. The other risk of the company
is the cost leaders. The companies face the risk of over cost product it means the company
has to set the price as per the market price. Nestle face the risk of cost; sometimes the
company is not able to do set the right prices at the right place that is why the company faces
the heavy loss at a time (Brenes, Montoya, & Ciravegna, 2014).

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