Nestlé just forgot about its market

The change in the fortunes of Maggi — an iconic brand in India — has shocked many. From being a two-minute saviour of moms, it has become their guilt-ridden nightmare overnight. It is being banned in many States, and people all the way from left to right are having a field day at the expense of Maggi. And Nestlé is fumbling.

Is this episode unique to Maggi? Could Nestlé have responded better? Is Nestlé the only culprit here?

The Maggi fiasco is not unique. Other well-known brands have faced similar crises. Johnson & Johnson had the Tylenol crisis, Lexus cars showed sudden acceleration problems, the cola giants faced the issue of pesticides in their drinks, and so on. While it can be rightly argued that no company can predict and deal with all possible issues with its products before they appear, the response of a company determines the consequences. A company should respond to a crisis such that the damage to consumers and its brand are minimised.

Raising doubts There are two sides to this issue. One is the quality of Maggi products and the other is Nestlé’s handling of the crisis. There is no question that Nestlé should have produced high quality products as it claims. If it has cheated consumers, it should receive exemplary punishment.

From a business point of view, Nestlé’s actions show bad judgment. Nestlé is a food products company that claims to care for consumers’ health, and the product in question is aimed at children. These factors should have alerted Nestlé to maintain higher sensitivity. Because consumers cannot judge food quality easily, perceptions become critical.

Nestlé’s delayed and defensive response shows it in poor light and raises doubts about its commitment to consumer welfare. Its defence of Maggi without independent investigation has not only created doubts about the motives of the company, but also prolonged the crisis in the media. Such continuous media coverage can firmly associate Maggi with health issues in the minds of consumers, impacting its brand positioning. No matter what the outcome of the investigations, Nestlé would stand to lose.

Poor understanding The crisis has exposed Nestlé’s lack of understanding of its target market. A large proportion of consumers of Maggi are children. While many adults care less about their own health — sales of cigarettes and alcohol testify this — everyone cares dearly about vulnerable populations. This is not new and Nestlé should have known better.

Years ago, a backlash against antidepressants such as Prozac was triggered partly by their prescription to children. Overall, Nestlé’s management has displayed lack of understanding of its market, weakness on ethical issues, and an inability to handle such crises. Consequently, the positioning of Nestlé as a company that cares for consumer’s “Nutrition, Health and Wellness”, and Maggi as good for health are under a cloud now.

As soon as the problems surfaced, Nestlé should have taken actions that reinforce its brand positioning while handling the crisis. It should have stopped the sale of Maggi on its own until further investigation. It should have communicated to consumers that it really cares about their health and wellness, and is willing to lose money but will not compromise their health.

The next step should have been to keep the issue away from the media glare, to the extent possible. It should have tried to focus the discussion on its responsible approach to the crisis, the positive aspects of its products, and how it cares about its customers. Post the investigation, it could have formulated an appropriate response. Clearly, Nestlé’s knee-jerk “two-minute” defensive response fails the consumer smell test.

Quick reaction We live in the age of social media where digital news spreads across the globe in minutes and issues can no longer be confined to a geographical region. Further, issues remain longer in memory due to continued access to information on the web. Consumers now wield significant influence on the fate of brands.

Given these challenges, it is more important for companies to respond quickly to prevent PR disasters. They have to be proactive in engaging customers, cultivating relationships with them, and finding solutions to their problems. Well-managed companies don’t just sell products, they deliver superior value. Customers in turn reward such companies through their loyalty.

Maggi is not promoted as one more foot item. Rather, it provides a solution to busy parents by providing them a quick and healthy alternative to feed their children.

Since trust is the bedrock of a partnership with customers, any issue that raises doubts about Nestlé’s intentions or products attacks the very foundation of its business. Therefore, it should have responded to reinforce consumer trust in the company.

There are several stakeholders in this crisis and no one comes out a winner. The government has failed to regulate and monitor safety standards in sync with the market. It lacks expertise, resources, and motivation to protect consumers. The country has yet to produce a truly effective, independent and credible initiative aimed at consumer welfare. This gap is appalling given the large size of our vulnerable consumer base.

Finally, for too long, companies have played fast and loose with the Indian consumer. It would be a mistake to believe that this crisis is a one-off event. The Indian middle-class has evolved to expect higher standards and we are likely to see more such disclosures and activism in future.

The writer is an associate professor of marketing at the Indian School of Business

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