Nestl: The Infant Formula Controversy

Global Marketing (MKT 690) Professor Godwin Ariguzo

Presented by: Jillian DeSousa Kerri Levesque Aziza Akilah Williams August 6th, 2008

Background
Nestl Company started off from a single mans idea, and developed into a giant corporation. Nestls headquarters are located in Switzerland, but the company maintains factories and operations in almost ever country in the world. The company has also been increasing in size each year. In addition to this increase, Nestl is also increasing its variety of product offerings. Nestls business strategy encourages product growth through innovation and renovation. This strategy has allowed the company to develop different products in various fields including baby food, dairy products, prepared foods and beverages to name a few.

The company has created Nestl Nutrition, a global business organization designed to strengthen the focus on their core nutrition business. Strengthening their leadership in this market is the key element of the companys corporate strategy. Further, Nestl Nutrition aims to deliver superior business performance by offering consumers trusted science based nutrition products and services. In regards to international strategy, Nestls competitive strategies are associated mainly with foreign direct investment in dairy and other food businesses. Nestl aims to balance sales between low risk, low growth countries of the developed world with high risk, potentially high growth markets such as Africa. Nestl also claims that it will not take unnecessary risks for the sake of growth and will follow and respect all applicable local laws in each of its markets. DeSousa, Levesque, Williams Page 2 of 21 August 6th, 2008

Nestl has much strength, such as being a low cost operator, and having a research and development team that will aid in product innovation. Also, Nestl has health-based products which are becoming more popular as consumers are becoming more health conscious, such as in the U.S. A threat to the company is that some of the markets that they are entering are already mature. For example, Danone, one of the top competitors, has already established a leadership position in the yogurt market. Other top competitors include ConAgra, Kraft Foods and General Mills.

Nestls goal is to maintain, preferably to increase its market share and sales volume in order to have stability in the market. (Nestl adopts a sales oriented pricing scheme). If Nestl has an increase in sales volume they will have an increase in market share. When Nestl maintains or increases its market share, their products will be more widely used by consumers. This will then increase share prices and stock, as Nestl will be seen as having a stable position when compared to competitors in the same market.

Problems and Issues

Problems with Marketing Techniques Nestls marketing tactics in promoting the use of infant formula in Third World countries wasnt moral. Nestl was not acting within the boundaries of moral standards. Every corporation must understand and realize the corporate ethics and responsibilities they should have. The problem was that Nestl used unqualified sales girls, the distribution of free samples, marketed to people who were incapable to fulfill the minimum

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requirements for giving formula safely to the baby, and the association of bottle-feeding with healthy babies to promote the use of infant formula to mothers who would have been better off breast-feeding their babies.

In many Third World countries there never should have been advertising and promotions for infant formula because it is not safe due to unsafe water supplies and the difficulties in keeping bottles sterile. Where water is unsafe babies are up to 25 times more likely to die if they are bottle-fed. The cost of the formulas is another problem for some Third World families costing them up to 1/3 of their familys weekly income. Back in 1974 when the infant formula controversy began, in Nigeria the cost of feeding a 3 month old infant was approximately 30% of the minimum urban wage (what the majority earn) and by the time the infant is 6 months, the cost would have risen to 47%. This is what led some mothers to dilute the mixture up to 3 times what it ought to be, it even led some to start using powdered milk which is not intended for infants, but is cheaper. This leads to dehydration, malnutrition and diarrhea, known as bottle baby disease. Instead of saving a lot of money and breast-feeding mothers were convinced by advertisements, doctors, nurses and midwives to use formula.

Formula milk companies were donating gift bags containing baby vitamins and formula to hospitals and midwives even after the EOC 51. Instead of midwives helping the babies latch on to the breast after birth like they were supposed to, they were giving out promotional gift bags. Unholy alliances existed between medical professionals and baby food companies. As a result of these alliances, the medical professionals helped

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promote baby food products while the baby food companies would provide gifts ranging from food to sponsored events and conferences. Doctors have been known to receive air conditioners and air fare to go places. Doctors were not explaining to mothers how they could work and breast-fed with support, rather they were encouraging them to use formula.

Advertisements and posters used idealistic imagery, often showing white children rather than the ethnicity of that country, suggesting that bottle-feeding is the modern, western way, therefore the right way of doing things. There were slogans used in Nestls ads and labeling such as 100% complete nutrition and Now even closer to mothers milk, misleading mothers to thinking formula is as good, almost as good, or even better than their own milk. People in places like the Philippines were known to claim from advertisements that formulas have vitamins which allow the baby to catch up faster with things being taught to them, grow faster, and become more intelligent, even geniuses.

Other Problems One of the major problems is that the marketing practices of infant formula manufacturers, physician dominated medical systems, and the relationship between industry and health professionals has resulted in widespread misinformation about breast-feeding, false claims of the equivalence between breast milk and artificial substitutes, and the devaluing of womens knowledge about breast-feeding in general. All of Nestls infant feeding products did provide instruction leaflets in the main languages of the country where they were sold including simple line drawings to

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illustrate the method of preparing the feed. Nestl did not take into consideration that most Third World mothers are illiterate and the four simple line drawings by themselves are meaningless. Nestls Mother Book instructions on bottle-feeding began with Wash your hands thoroughly with soap each time you have to prepare a meal for baby. Nestl didnt take into consideration that many households in the Third World had no washing facilities at all nor had an indoor kitchen.

Nestl Issues Since the Infant Formula Controversy Even though the link between bottle-feeding and infant diseases and deaths was brought to public attention in the early 1960s, it was not until the publication of the pamphlet, The Baby Killer, that the infant formula controversy gained prominence. The pamphlet was written by Mike Muller and became available in March 1974. It raised awareness about the problem of how the baby formula was being marketed resulting in thousands of infant deaths. War on Want, a London based activist group concerned with hunger and poverty and other problems of the Third World. The pamphlet claimed that Third World babies were dying because their mothers were feeding them infant formula that was being marketed by multinationals such as Nestl of Switzerland and United Kingdoms Cow and Gate. The aftermath of the publication led to an international crisis for Nestl. Nestl mismanaged the crisis while NGOs got public support for their position by cleverly and skillfully handling the controversy.

The issue moved into a new phase when the Third World Action Group (TWAG) translated the pamphlet in German in Switzerland and published a 32-page version in

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May 1974 with a new title, Nestl Totet Babys (Nestl Kills Babies). Nestl had a fast response to this, but not a very good one; they sued all those involved with the translation and publication of the booklet. The judge found the 30 members of TWAG guilty of libel. Nestl did win its lawsuit but they lost their public relations battle at the same time. At the end of The Berne Trial the judges closing statement is, If Nestl S.A. wants to be spared the accusations of immoral and unethical conduct, it will need to change its advertising practices.

The first Nestl boycott in 1977 led by Infant Formula Action Coalition (INFACT) had a large impact on Nestls revenues. Their products were boycotted in the U.S. to end the promotion of infant formula. This was a small part of the major problem which is to improve total infant nutrition throughout the Third World that must be resolved on a global basis if the health of babies in the developing nations is to be improved. The boycott against Nestls products and eventually those of the infant formula manufacturers generated the largest support of consumer movement in North American and its impact is still being felt in the industry, governments, and citizens action groups around the world. The Nestl boycott became one of the most successful consumer boycotts in history lasting 7 years, it ended in 1984 after talks with Nestl, WHO, UNICEF and Muskie Commission Activist groups. It was the largest nonunion boycott in history with over 100 organizations in 65 countries. It cost Nestl as much as $5.8 million in lost revenue.

U.S. Senate hearings, chaired by Edward M. Kennedy, further damaged Nestls

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reputation and suggested the need for international consensus. Senator Kennedy asked the World Health Organization to convene an international conference on infant health and nutrition. Another problem was the disagreements between governments, the industry, health experts, legal experts and citizen groups over key issues of the code, like differences between educational advertising and promotional advertising, distinctions between fee samples and free supplies, and distinguishing between legitimate support for health service and inappropriate incentives to win brand loyalty. Nestl should have paid more attention to the Protein Advisory Group (PAG) issued statement 23 which outlined the responsibilities of governments, pediatricians and the infant formula industry. They should have also given more attention to PAG asking manufacturers to look to marketing practices and product labeling. Nestl did perform an internal audit and concluded that the only charge necessary was greater emphasis on the primacy of breast feeding in its advertisements.

Nestl shouldnt have decided that the Muskie Commission fulfilled its mandate and let it dissolve. During the 1978 Congressional Hearings, a Nestl Brazilian operations manager, Ballarian, claimed that the boycott and the campaign against the infant formula companies were really an attack on the free worlds economic system, led by a worldwide church organization with the stated purpose of undermining the free enterprise system. This was a mistake for Ballarian to speak out like this, and it didnt make Nestl look good as far as public relations.

By late 1980s Nestl along with other baby food companies had diverted some of the

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marketing budget from public promotion to expanding the tactic of placing large quantities of free or low cost milk in maternity facilities. Due to the inadequacy of medical training of breastfeeding management, health officials used the supplies for routine bottle feeding of newborns, which sabotaged the successful establishment of breast-feeding.

It wasnt until 1996 that Nestl stopped providing health institutions with free supply of infant formula in many parts of the world, but the practice still remained in some regions, such as the Middle East in response to government requests for such free supplies. In 1993 Baby Milk Action launched a campaign on the issue that the labels on Nestl products in Malawi were not written in the national language. In 1994 the Government of Malawi asked Nestl to label products in Chchewa the national language. Nestl didnt agree to take action until four years later in 1997, after it was raised from the floor of the Shareholders AGM.

Perspectives
Nestl Nestl approached its product sales and marketing activities in developing countries the same way that it did in developed, more affluent countries. The consumers behaviors, patterns, and needs were not the same. Nestl faced a lot of scrutiny and even had boycotts to deal with because their approach in less developed nations. There were environmental issues, like the availability of only polluted water to mix the powdered formula with. There were cultural issues like the fact that many women in these DeSousa, Levesque, Williams Page 9 of 21 August 6th, 2008

countries were with their babies all day as they didnt have a job or career to attend to. They didnt account for the economic issues impacting the nations. Nestl needed a systematic approach to identify what about their products needed adaption.

World Health Organization (WHO) Due to the efforts of such groups as the Infant Formula Action Coalition and the International Nestl Boycott Committee, the growing awareness among public health officials eventually resulted in the adoption of an infant formula marketing code by the World Health Assembly in 1981, with the United States one of a handful of countries casting a negative vote. The World Health Organization is charged with responsibility for monitoring the implementation of the Code, frequently called the WHO Code. Its terms restrict the promotion of infant formula and set out requirements for labeling all infant formula products. It is less restrictive than regulations regarding prescription drugs, for example, but it does forbid advertising of infant formula to the general public or the employment of "milk nurses" to promote formula use among expectant mothers. It is intended to serve as a model for codes to be adopted by nations as well as a guide for company activities.

Third World Organizations (TWO) An illustrative term being used here to reflect a group of organizations and committees that accused Nestl of unethical and socially irresponsible behavior. TWO believed that Nestl's actions were socially irresponsible and unethical. One of the their arguments was that the consumers perceived the quality of the product as high, and were using

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this over breast feeding, when in fact breast feeding was a more healthy approach. The TWO felt Nestl was being unethical by promoting their product as a better choice over breastfeeding, as the consumers in these developing nations were educated enough to make well informed decisions. Another of the TWO's agreements was that in some countries, only polluted water was available therefore mothers would have to use contaminated water for mixing the formula, ultimately passing the bacteria and diseases on to the baby. Selling a product that has to be mixed with water when no healthy water source available is socially irresponsible.

Knowledge
When Nestl first entered these developing countries they didnt have a multi-domestic market orientation. They didnt tailor their products or marketing activities to the culture of the nations they were entering. They sold the formula in the developing countries as they did in the US and other more developed nations. Only about 10% of products sold in developing nations can be sold without any changes, meaning that companies planning on entering these types of nations must do extensive research (including diffusion research) to determine what adaption, if any, to their products and marketing strategies has to occur in order to be successful.

In the United States and other more developed countries, formula does conform to the values and behavior patterns of mothers. Many moms work and do not have more than 6 weeks at home with their baby. While they could pump milk and bottle feed the baby later, this takes a lot of time. Most working mothers dont have free time to sit around DeSousa, Levesque, Williams Page 11 of 21 August 6th, 2008

doing this. Often women turn to formula at the point they have to go back to work. In a society where women dont work or they have 1-2 years at home with their children breast feeding is more of an option. In less developed countries where many moms dont work, dont have much money, and stay home with their children all day, nursing is a necessity and formula feeding is more of a luxury. Marketers act as change agents any time they introduce an innovative idea or product. Nestls entrance into the Third World markets and the advertising messages they delivered started influencing the minds and behaviors of the mothers. They brought about culture change in societies as women were shifting towards feeding their children infant formula instead of breast milk. Since Nestl was a change agent they had even more responsibility when it came to the development of those societies. Prior to entering the market, Nestls plan should have included an assessment as to their best marketing approach given the market. To determine whether the marketing approach and promotions were socially responsible or ethical, look to the three ethical principles: utilitarian ethics, rights of the parties, and justice or fairness. Nestl's actions did not optimize the benefits for all constituents. While their sales in Third World countries benefited increased their profits, babies receiving the formula weren't more susceptible to getting sick and being malnourished. Nestl's actions didn't reflect fairness or respect the rights of all parties involved. They marketed their infant formula powder mix to societies that only had contaminated water at their disposal. They promoted their products in a way as to infer that healthy western children drink formula. For these reasons and others, Nestls actions did demonstrate some unethical behavior, unintended or not.

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Behaving in a socially responsible way is something that will take a significant amount of resources for a MNC that has operations in various countries. The international marketer will have to understand all of the different societies. Acting socially responsible quite possibly could mean different things in different markets. Therefore, the businesses actions may be ethical in one country while the same actions and decisions are considered unethical in another.

Businesses can not make all of their decisions based upon the operating nation's existing laws. This is true because in some cases local laws don't exist and in some markets certain behaviors are condoned while in others it is frowned upon. Since laws were developed based on historical behaviors that society felt were unethical and or socially irresponsible, businesses must operate at higher standards than dictated by the laws in order to be considered ethical.

Companies need to understand how the cultural influences are interwoven with the perceived value and importance a market places on their products. Products are a bundle of utilities that the consumer receives and the culture and values of the consumers plays a significant role in how important the product is to them. Prior to entering these Third World markets, Nestl should have thoroughly researched the society and culture to determine the extent of adaption required of their products in order to maximize the value of their products. Nestl may have been able to offer a different formula? If water pollution is a concern, they could sell only the ready-to-serve

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formula in that nation. Maybe changing the name and/or labeling of the package to better align themselves with the needs of the specific market would have been helpful.

Using the Product Component Model, the marketer can assess the impact of the factors affecting the acceptance of a product, focusing on three main components: the core component, the packaging component, and the support services component. These components consist of the whole bundle of utilities, including all tangible and intangible assets. In Nestl's case, the core component was the actual powdered formula, the packaging component included the bottle and the labeling, and the support services could have been viewed as providing nutrition to the children. After assessing these factors Nestl may have discovered that it should have converted from powder formula mix to premade formula, changing the core component. In regards to the packaging component, Nestl could have created labeling that would be understood by the common person in that society. This might mean having pictures in place of words, or clearly stating this is a second choice alternative to breast feeding. To add to the support services component, Nestl may have provided educational resources and or nurses to help ensure the countries are utilizing the formula in a healthy and safe way.

Actions and Recommendations

Increasing their Social Responsibility and Ethical Behaviors

Nestl needs to do what ever it can to reposition itself as a force of good.

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 Defense restrictions on commercial milk products will not necessarily promote more
breast-feeding because mothers may just feed their infants something else, so more needs to be done to promote breast-feeding and Nestl should find ways to help. UNICEF executive Director James Grant along with other health experts have estimated that as many as 1 million infant lives a year could be saved by the promotion of breastfeeding, others have estimated that 10 million cases a year of malnutrition and infectious disease are directly attributable to faulty bottle-feeding.

Nestl should find a way to become involved with the Baby-Friendly Hospital Initiative,
like sending in donations or even working with the organization to help.

Nestl should remain a member of Infant Food Manufactures (IFM). Nestl should keep its internal Nestl instructions to Nestl employees updated and
up to standards to avoid any more problems.

Nestl should continue their efforts on social responsibility by sponsoring events at

international medical and nutrition conferences, and events like celebrating the Canadian Year of the Family, and funding research on infant feeding.

Nestl should be careful with their pricing strategy and make sure they are selling their
products in third world countries for reasonable and affordable prices for the people, and they should maybe consider selling the products for even less in these places.

Nestl also needs to learn from its mistakes and not be so neglectful and they should
respond to issues in a reasonable amount of time, because when they dont they look irresponsible and careless.

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Recommendations Related to HIV With the increased risk of HIV infection being spread via a mothers' milk, Nestl has an opportunity as a market for formula indeed exists if breast milk isn't feasible. Reach out to the governments and the health agencies. Show them you have an international commitment to their country. Specific to the nation, how can Nestl help them fight in the battle of HIV/AIDS? Can they provide testing and free samples to those positive for HIV, as they did in one country? Maybe they can offer education on the benefits of breast feeding and the risks as well if the mother isnt healthy. For those not healthy provide them with education about formula and some samples.

If a mom is HIV positive she can pass it to the baby via conception, birth, and breastfeeding. You might be able to educate all of the people about HIV/AIDS so that further spreading can be limited. If using condoms is a possibility for the people, maybe provide them so that fewer women will contract HIV leading to fewer babies contracting it from their moms. Setting up clinics for preconception, prenatal, and post-partum check ups for the women providing them with the resources necessary to make informed decisions about their health and their babies well being.

Nestl should continue to offer testing and samples in less developing countries all the while knowing how and what issues that society is facing, ensuring these efforts will make matters better not worse. They should provide money and or prescriptions to help those moms and babies infected. They should work with the governments and health

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agencies to provide regular testing and condoms and education on contracting HIV/AIDS. Educate the women on diseases that can be passed on to children (conception, delivery, breast feeding). Educate moms/women on the benefits of breast feeding when a mom is healthy. Offer tests for moms to determine if breast feeding is the best option. If they are disease free, properly nourished, have enough water/food for moms so their milk supply is healthy and plentiful. Increase the OB/GYN use. Pay for doctor to provide checkups to the moms to help promote healthy pregnancy and newborns.

How Could Nestl Avoid These Accusations? One thing that Nestl could have done to have avoided the accusations of "killing Third World babies" and still market their product is to develop a (global) marketing campaign designed specific to the country, supporting breastfeeding and its benefits. Educate or fund the education of communities about breastfeeding. Market bottle feeding and formula as options to moms if they are sick, malnourished, or if the baby isnt gaining adequate weight. Offer testing for HIV and other contagious diseases that can be passed from a mom to her baby via breastfeeding.

Recommendations on Protecting Themselves from Future Attacks Learn and know the culture of the nation you are doing business in. They must ensure that their marketing strategies and advertisements fit in with the culture and promote the things specific to the society that are most important. Know if the country is sick. What is the rate of HIV and other infectious diseases and can they be contracted via breast

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milk? Know the culture of nations to best direct the marketing approach. A MNC must have various marketing strategies dependent upon the characteristics of the market. Some strategies may differ from region to region and only be able to use the same strategies for various countries and/or regions.

Work with the government and any national health organization (example in the US each state has a department of health). Identify their policies and beliefs. How can you sell your products and be/remain socially responsible. If you work with a nation and get their support you might be able to thwart attacks from the likes of the TWO. Know about the various world organizations for example WHO, and their stance on your products and the issues surrounding your products and the impact to their society of your products and marketing activities.

Nestle has to make every effort to market their products in a socially responsible way, which means different approaches in different societies. If malnourishment is a big issue, market the formula as supplemental, only to be used in addition to breast milk in order to ensure the baby gets all the nutrition required. In the US, the formula commercials state that breast feeding is preferred, and there is usually a statement in fine print at the bottom of the screen. The issue some have with this is they believe that the people aren't as educated in developing countries therefore they dont know or understand the importance of breast feeding. They dont have the same medical care as in more affluent, developed countries.

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Any products new to a social system are considered to be innovations. Obtaining knowledge about the diffusion of these products will help to determine a successful marketing strategy, guiding the communication of product information and attributes. This is where Nestl can ensure that their advertising and product labeling provide an accurate representation of the benefits and weaknesses in feeding formula to your infants. If they are aware that the product is going to be dispersed at a hospital upon delivery, they can provide thorough education to the medical professionals so that they clearly understand the product and its intended use, and can then share that info with the new mothers.

Justification
Nestl will favor continued sales rather than more restricted promotional methods, they have changed their practices sufficiently to warrant cancellation of the boycott. Further, Nestls efforts to comply will probably not result in greater protection of infants as competing companies will quickly fill the gaps, this would place Nestl at a competitive disadvantage that they may not be able to resist and will return to such practices. Also, new strategies to encourage hospitals and health professionals to implement the WHO Code will effectively control Nestl and its competitors. A strategy that seeks national adoption and enforcement of the WHO Code would be more reliable and fair to all companies than the current boycott method which depends on violations coming to the attention of leaders in affluent countries who can put forth commercial pressures on the offending company.

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Consequences
It is the businesss responsibility to perform an analysis paying careful attention to the possible negative implications the introduction of their product may have. Otherwise, the diffusion of their product can result in unplanned dysfunctional consequences to the society. It is the marketers responsibility to develop marketing programs that will both achieve product diffusion goals as well as avoid negative impacts to the culture. As in the Nestl case, its products had a negative impact on various cultures. The outcome resulted in the company demonstrating corporate social responsibility by ensuring that the best interests of mothers and babies are served by Nestl employees around the world.

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References

1. Cateora, Philip R., John L. Graham. International Marketing 13th ed. New York: 2007.

2. Nestl Boycott, http://en.wikipedia.org/wiki/Nestl%C3%A9_boycott 3. www.nestle.com 4. www.jstor.org 5. http://mutinationalmonitor.org 6. www.heritage.org 7. www.babymilkaction.org 8. www.babymilk.nestle.com 9. www.breastfeeding.com
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