Business 8th Edition by Marianne Jennings

Exercise 18

Business Strategy
Nestle and the Infant Formula and Product Marketing
Reprinted with permission from Marianne M. Jennings, Case Studies in Business Ethics, 5th ed., 2004.
While 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' 7 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, the then 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 promotion 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 Nestle, a major formula maker, under the title "Nestle Kills Babies" Nestle sued in 1975, which resulted in extensive media coverage.
In response to the bad publicity, manufacturers of infant formula representing about 75% 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 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% 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 Nestle 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 presidential administrations (Carter and 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 Nestle, which continued until the formula maker announced it would meet the WHO standards for infant formula marketing. Nestle created the Nestle Infant Formula Audit Commission (NIFAC) to demonstrate its commitment to and ensure its implementation of the WHO code.
In 1988, Nestle introduced a new infant formula, Good Start, through its subsidiary, Carnation. The industry leader, Abbott Laboratories, which held 54% of the market with its Similac brand, revealed Carnation's affiliation: "They are Nestlé," said Robert A. Schoellhorn, Abbott's chairman and CEO. Schoellhorn also disclosed that Nestle was the owner of Beech-Nut Nutrition Corporation, officers of which had been indicted and convicted (following one reversal) 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.
In 1990, with its infant formula market share at 2.8%, Carnation's president, Timm E 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 from formula manufacturers for research.
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 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% by 1990. The rate remains below 60%, 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 Nestle with its Carnation Good Start) were disadvantaged because long-time formula makers Abbott and Mead Johnson were well established through physicians. In 1993, Nestle filed an antitrust suit alleging a conspiracy among 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.
If you were a hospital administrator, What policy would you adopt on discharge packs?