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Nestle Case Study for Infant Formula

Although the merits and problems of breast-feeding versus using infant formula are debated in the United States and other developed countries, the issue is not so balanced in third world nations. Studies have demonstrated the difficulties and risks of bottle-feeding babies in such places. First, refrigeration is not generally available, so the formula, once it is mixed or opened (in the case of premixed types), cannot be stored properly. Second, the lack of purified water for mixing with the formula powder results in diarrhea or other diseases in formula-fed infants. Third, inadequate education and income, along with cultural differences, often lead to the dilution of formula and thus greatly reduced nutrition. Medical studies also suggest that regardless of the mother's nourishment, sanitation, and income level, an infant can be adequately nourished through breast-feeding. In spite of medical concerns about using their products in these countries, some infant formula manufacturers heavily promoted bottle-feeding. These promotions, which went largely unchecked through 1970, included billboards, radio jingles, and posters of healthy, happy infants, as well as baby books and formula samples distributed through the health care systems of various countries. Also, some firms used "milk nurses" as part of their promotions. Dressed in nurse uniforms, "milk nurses" were assigned to maternity wards by their companies and paid commissions to get new mothers to feed their babies formula. Mothers who did so soon discovered that lactation could not be achieved and the commitment to bottle-feeding was irreversible.
In the early 1970s, physicians working in nations where milk nurses were used began vocalizing their concerns. For example, Dr. Derrick Jelliffe, then the director of the Caribbean Food and Nutrition Institute, had the Protein-Calorie Advisory Group of the United Nations place infant formula promotion methods on its agenda for several of its meetings. Journalist Mike Muller first brought the issue to public awareness with a series of articles in the New Internationalist in the 1970s. He also wrote a pamphlet on the pro- motion of infant formulas called "The Baby Killer" which was published by a British charity, War on Want. The same pamphlet was published in Switzerland, the headquarters of Nestlé, a major formula maker, under the title "Nestlé Kills Babies." Nestlé sued in 1975, which resulted in extensive media coverage.
In response to the bad publicity, manufacturers of infant formula representing about 75 percent of the market formed the International Council of Infant Food Industries to establish standards for infant formula marketing. The new code banned the milk nurse commissions and required the milk nurses to have identification that would eliminate confusion about their "nurse" status. The code failed to curb advertising of formulas. In fact, distribution of samples increased. By 1977, groups in the United States began a boycott against formula makers over what Jelliffe called "comerciogenic malnutrition." One U.S. group, Infant Formula Action Coalition (INFACT), worked with the staff of U.S. Senator Edward Kennedy of Massachusetts to have hearings on the issue by the Senate Subcommittee on Health and Human Resources, which Kennedy chaired. The hearings produced evidence that 40 percent of the worldwide market for infant formula, which totaled $1.5 billion at the time, was in third world countries.
No regulations resulted, but Congress did tie certain forms of foreign aid to the development by recipient countries of programs to encourage breast-feeding. Boycotts against Nestlé products began in Switzerland in 1975 and in the United States in 1977. The boycotts and Senator Kennedy's involvement heightened media interest in the issue and led to the World Health Organization (WHO) debating the issue of infant formula marketing in 1979 and agreeing to draft a code to govern it. After four drafts and two U.S. presidential administrations (Jimmy Carter and Ronald Reagan), the 118 member nations of WHO finally voted on a code for infant formula marketing. The United States was the only nation to vote against it; the Reagan administration opposed the code being mandatory. In the end, WHO made the code a recommendation only, but the United States still refused to support it. The publicity on the vote fueled the boycott of Nestlé, which continued until the formula maker announced it would meet the WHO standards for infant formula marketing. Nestlé treated the Nestlé Infant Formula Audit Commission (NIFAC) to demonstrate its commitment to and ensure its implementation of the WHO code.
In 1988, Nestlé introduced a new infant formula, Good Start, through its subsidiary, Carnation. The Industry leader, Abbott Laboratories, which held 54 percent of the market with its Similac brand, revealed Carnation's affiliation: _They are Nestlé,_ said Robert A. Schoellhorn, Abbott's chairman and CEO.76 Schoellhorn also disclosed that Nestlé was the owner of Beech-Nut Nutrition Corporation, officers of which had been indicted and convicted (later reversed) for selling adulterated apple juice for babies. Carnation advertised Good Start in magazines and on television. The American Academy of Pediatrics (AAP) objected to this direct advertising, and grocers feared boycotts. The letters "H.A." came after the name "Good Start," indicating the formula was hypoallergenic. Touted as a medical breakthrough by Carnation, the formula was made from whey and advertised as ideal for babies who were colicky or could not tolerate milk-based formulas. Within four months of Good Start's introduction in November 1988, the FDA was investigating the formula because of six reported cases of vomiting due to the formula. Carnation then agreed not to label the formula hypoallergenic and to include a warning that milk-allergic babies should be given Good Start only with a doctor's approval and supervision.MG660 Ethics Paper Page 3
In 1990, with its infant formula market share at 2.8 percent, Carnation's president, Timm F. Crull, called on the AAP to "examine all marketing practices that might hinder breast-feeding." Crull specifically cited manufacturers practices of giving hospitals education and research grants, as well as free bottles, in exchange for having exclusive rights to supply the hospital with formula and to give free samples to mothers. He also called for scrutiny of the practice of paying pediatricians expenses to attend conferences on infant formulas. The AAP looked into prohibiting direct marketing of formula to mothers and physicians accepting cash awards for research from formula manufacturers.
The distribution of samples in third world countries continued during this time. Studies by the United Nations Children's Fund found that a million infants were dying every year because they were not breast-fed adequately. In many cases, the infant starved because the mother used free formula samples and could not buy more, while her own milk had dried up. In 1991, the International Association of Infant Food Manufacturers agreed to stop distributing infant formula samples by the end of 1992. In the United States in 1980, the surgeon general established a goal that the nation's breast-feeding rate be 75 percent by 1990. The rate remains below 60 percent, however, despite overwhelming evidence that breast milk reduces susceptibility to illness, especially ear infections and gastrointestinal illnesses. The AAP took a strong position that infant formula makers should not advertise to the public, but, as a result, new entrants into the market (such as Nestlé with its Carnation Good Start) were disadvantaged because long-time formula makers Abbott and Mead Johnson were well-established through physicians.

In 1993, Nestlé filed an antitrust suit alleging a conspiracy among the AAP, Abbott, and Mead Johnson. Some 200 U.S. hospitals have voluntarily stopped distributing discharge packs from formula makers to their maternity patients because they felt it important not to appear to be endorsing any products or acting as commercial agents. A study at Boston City Hospital showed that mothers who receive discharge packs are less likely to continue nursing, if they nurse at all. UNICEF and WHO offer "Baby Friendly" certification to maternity wards that take steps to eliminate discharge packs and formula samples.

1. If you had been an executive with Nestlé, would you have changed your marketing approach after the boycotts began?
2. Did Nestlé suffer long-term damage because of its third world marketing techniques?
3. How could a marketing plan address the concerns of the AAP and WHO?
4. Is anyone in the infant formula companies morally responsible for the deaths of infants described in the United Nations study? Is there a line that companies could draw that emerges in this case?
5. Is the moratorium on distributing free formula samples voluntary? Would your company comply?
6. If you were a hospital administrator, what policy would you adopt on discharge packs?
7. Should formula makers advertise directly to the public? What if their ads read, "Remember, breast is best"?

Solution Preview

1. If you had been an executive with Nestlé, would you have changed your marketing approach after the
boycotts began?

If I had been an executive with Nestle, I would have definitely changed my marketing approach for couple of reasons. First of all, I would have taken a different approach in order to ensure that Nestle does not indulge in any unethical practices and adheres to highest standards in ethical marketing. Secondly, I would take different approach to ensure that Nestle does not receive any bad and negative publicity due to such unethical marketing practices and its corporate image is not tarnished. I would have preferred to keep the brand away from any controversy in order to maintain the reputation and goodwill of the organization.

2. Did Nestlé suffer long-term damage because of its third world marketing techniques?

Yes, Nestle's reputation, goodwill and corporate image were negatively affected due to such marketing techniques. Due to such negative publicity, the longer term growth prospects for the product were definitely affected.

3. How could a ...

Solution Summary

This solution addresses case study questions related to Nestle's Infant Formula.

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