Mavesa Final Report

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Case 2

Mavesa s Nelly Brand:Pricing to Gain Market Control

Submitted By:Hari Padmakumar

Jijo FrancisNavtej Singh Sran


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(Mavesa's Nelly Brand: Pricing to Gain Market Control, 2000) Page | 1

IndexI. Introduction 2

II. Market Research. 3III. Market Analysis... 5IV. Case Analysis.. 6V. Conclusion 10

VI. Bibliography. 11


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I. IntroductionThere was a huge recession in Venezuela during 1990 which caused a lower consumption of

food and household products. The people were thus changing to low price brands. The market

for the mayonnaise in Venezuela became really competitive during this time. This led Mavesa,

one of the leading food manufacturing companies to reduce their product price in order to gain

market share.

About the company:

Mavesa is one of the major Venezuelan company which produces wide variety of food

products, beverages and cleaning products. It was founded in 1949 by Alberto Phelps, Andres

Boulton, William Coles & Angel Cervine. It became the leading consumer production company

in Venezuela by 1999 and had a yearly sale of $418

Million. Its headquarters is located in Caracas and it has

factories throughout the country. It has distribution services

in more than 54,500 Venezuelan stores, which is about

ninety percent of the total domestic stores. The companys

main products are spreads, sea food products, sauces,


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beverages and cleansing products. They are well known for their Mayonnaise and Margarine.

They export their products to many major countries including North America, Europe and

Japan. Mavesa is traded at the NYSE and at the Venezuelas Local Exchange. Mavesa was the

market share leader in 34 product categories. The company had a steady and strong growth

because of its management talent. The company adopted new organizational structures to

adapt with the frequently changing market conditions and it gave more decision making power

to the employees which helped in increasing the efficiency of production. The major

competitors of Mavesa were Kraft, Albeca and Hellmanns. (mavesa)

II. Market ResearchVenezuelan market is the fourth largest economy in Latin America. There is high inflation and

customers always shift towards the low price products. The main target market for the

mayonnaise customers is of age between 25 and 55 years old. There is a high demand for

mayonnaise since it is consumed with different kinds of food. The growth for mayonnaise

market is 2% per year. There are varieties of customers in this market segment. The major

purchase of mayonnaise is done by the women and it accounts for 71% of the total purchase.

The customers have low differentiation for appearance and packaging of products. The overall

production of mayonnaise is about 11,000 tons. Sixty percent of the total market share is


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owned by Mavesa and the rest is owned by Albeca and other regional companies. The market is

really price sensitive.

The figure shows the sales mix for Mavesa Company in the year 1998.

Age Group of Customers

Age Group Percentage

0-14 years 29 percent

15-24 years 18.8 percent



65+ years 5.6 percent

19%

35%

3%

7%

6%

10%

12%

8%

MAVESA'S SALES MIX

Mayonnaise

Margarine

Other Spreads

Other Sauces

Sea food Products

Beverages

Cleaning Products

Other


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III. Market Analysis SWOT Analysis:Strength:

Mavesa was listed on NYSE and Carcas stock exchange. It is a leader in management style. Strong market leader in 34 categories of products. Control of its national distribution network. Strong growth in recent times Huge market portfolio Adaptive and responsive to changing market conditions Expanding geographically through acquisitions, mergers and exports It owns around 60 % of the industrial segments( restaurants)

Weakness:

Weak brand image Brand loyalty is low The price range of the sub-segment products are not amongst the lowest Mavesas broad product and market portfolio requires a high sales force which

would lead to higher costs

High overhead costs

Opportunities:

Growth in the salad dressing segment Growth in the industrial segment


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High growth in the household segment Consumer buying behavior of Mayonnaise: 16 times a month by both adult as well as

children; used in all meals in a day

Broadening the market segments: Household segment (77%) and industrial segment(23%)

Threats:

Competition from large multinational firms such as KRAFT and HEINZ. Recession in Venezuela and the subsequent de-valuation of the Bolivar Declining growth in the premium segment Competition from lower priced substitutes of other less-famous local brands

IV. Case Analysis What opportunities exist within the family segment for Mavesasmayonnaise brands?

The family segment for Mavesas mayonnaise brand was mainly divided into two main

categories: Economy and Premium. It contributed to around 77 per cent of the total sales

volume whereas the rest falls under the industrial category. It was reported that mayonnaise

was purchased mainly by women who formed the majority of the purchasers (71 per cent of

the time).


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Economy Segment:This segment was created in the year 1990. Over the previous four years,

there had been tremendous growth in this sector and was expected to continue rising at the

same rate even in the coming years. This segment also varied highly from the premium

segment in terms of consumer buying behavior. It was mainly due to the fact that the major

criterion was the low price. As a matter of fact, mayonnaise brands had competed in this

segment fiercely and since 1997, 14 new brands had entered this sub-segment mainly due to its

progression and viability.

Premium Segment: The major unique selling point of this segment was the product quality.

The key factors that contributed to quality were colour, level of acidity, thickness, fat content

etc. Also unlike the economy segment, consumers were generally loyal to this brand. This was

proven by the fact that Mavesa continued to be the market leader in this segment through their

LTO brand. It was really different from other mayonnaise brands in terms of its quality and taste

(It included a combination of spices like garlic, mustard, pepper and salt).

Describe the trade-offs faced by Mavesa. Should they decide to repositionNelly using price?

Even though Mavesa was still registering growth in its economy segment, the management

decided to have more dominance over the market share. In-order to obtain that objective,


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Mavesa had to trade off their gross profit for market share. This was to be achieved by their

new pricing strategy: i.e. by reducing the cost of the brand products.

It should reposition itself using price because the cost associated with a price decrease

would be balanced by reduction in production costs so as to increase their market shares both

in the economy segment as well as the industrial segment. This could be achieved because

Nelly was the lowest cost producer in the low cost segment which could provide a big scope for

this strategy. Also innovations such as lessening the amount of oil in the production process

and the introduction of flexi packs in the designing section paved a major way in reducing the

costs.

What are Mavesas strengths, given the current competitiveenvironment?

In spite of the competitive environment and the varying role of the economy sub-segment,

Mavesa still had its strengths. Some of them are:

The price reduction would allow Mavesa to gain control of the market share like it had done for

the premium segment especially after the acquisition of LTO.


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Ever since Mavesa had acquired LTO, the focus had shifted from price to product differentiation

as people gave more importance in quality.

The recent price changes would allow consumer to shift loyalty from informal brands back to

Nelly.

What other strategies could Mavesa employ to take advantage of theexisting opportunities?

Some of the strategies that Mavesa could implement are the following:

They should consider the option of providing incentives to wholesalers rather than pricereduction.

They should enforce a new level of brand image in-order to retain the customer loyalty. Increasing promotional discount to wholesalers. Improving the distribution channels, especially in the small and medium store segments

through their wholesalers.

Giving more importance to Research & Development so that packaging and testingwould be improved which in turn would lead to further reduction in manufacturing

costs.


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V. ConclusionMavesa is a major food production company in Venezuela which reduced its price in order to

gain market share. This was achieved by launching their product named nelly. Nelly created

high household economy segment due to its low price. It was a good product but it couldnt

sustain because it lacked brand image. Instead of reducing the price, they should have given

incentives to the wholesalers. They should have developed new brand image in order to

maintain their customer loyalty and improved their packaging. Mavesa could also have made

improvement through product distribution in small and medium stores via the wholesalers and

promotional discounts should have been provided. (writework)


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VI. Bibliography

(n.d.). Retrieved from writework: http://www.writework.com/essay/mavesa-s-nelly-brand-improving-

distribution-gain-market-co

(n.d.). Retrieved from mavesa: http://listofcompanies.co.in/mavesa-sa/

Mavesa's Nelly Brand: Pricing to Gain Market Control, 9B00A008 (June 19, 2000).

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Mavesa Final Report