Notesale: Turn your study into money

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In 2011 Nespresso found itself at a crossroads
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16 billion to over CHF3
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NESPRESSO:
• premium single-serve coffee brand of the multinational Swiss company Nestle
• margins believed to be among group’s highest
• 1986 new business unit Nestle Coffee Specialties NCS launched to develop Nespresso concept
• individually portioned aluminium capsules containing roast & ground coffees were partnered with specially designed
coffee machines
• inspiration from trip to Italy: wanted to replicate what baristas did
• idea: to guarantee best quality coffee in the shortest possible time > revolution of instantly-available coffee of high
quality

SIMPLE BUT REVOLUTIONARY IDEA > REVOLUTIONISED IN-HOME COFFEE CUP QUALITY:

• anyone could through the capsule+machine system create a perfect cup of espresso coffee 

+ once consumers had purchased the Nespresso machine, they were bound to buy Nespresso’s patented capsules

Revolution to make luxury the premium coffee
• create a preparation system that would enable discerning coffee consumers to prepare excellent quality coffee at home
• Challenge: to create a super-premium coffee and become the icon for the best coffee worldwide
• pioneered entirely new home use of portioned coffee
• by 2011 sold more than 20 billion of its proprietary aluminium coffee capsules direct to consumers
• CEO Richard Girardot
• firmly targeted at affluent consumers (price is more than 5 times higher typical)
PRICE: Premium Pricing Strategy
• more than five times the typical per-serving cost of a cup of home-made ground coffee ! most expensive
• luxury sector profit margins
• luxury product > price is higher of market > voluntary more expensive because of image of product
• want to give luxury/upscale image to products + play on design/quality to justify price
• customer prepared to pay higher price to have different/high quality product + customer service
• (value based pricing method)
COFFEE INDUSTRY:
• necessity product
• mature stage: individualised portion concept as vital means for rejuvenating mature coffee market
• growing consumer demand for high quality, gourmet coffee

• consumption shifted from energising drink to degustation moment: based around stylish/romantic Italian espresso
coffee experience
• coffee represents largest market by value
• choice to drink: instant coffee, ground coffee, coffee beans, coffee pods or go to bar, or take-away chain
• 75% of coffee is consumed at home
• people increasingly on the move > coffee shops
• by early 1980s, roast and ground coffee represented major share of coffee consumption worldwide
• in 2010, packaged single portions of coffee still represented only 8% of total coffee market in terms of volume & 25% in
terms of value ! one of fastest growing segments in coffee market (accounting for up to 40% of value of ground coffee
sales in European coffee market); one of fastest-growing ways to drink coffee
• people looking for more ethical products ( aluminium capsules attracted criticisms from environmentalists)

MARKET TRENDS: cafè/bistros opening up + success of gourmet and specialty coffee chains in US (Starbucks) led espresso
to be perceived as trendy, socially elite drink

[customers go out less often (austerity) > tap into tend to give them good coffee experience when they stay home]

NESTLE: world’s leading nutrition, health, wellness company

• world’s leading coffee producer in 2010: coffee business seen significant international expansion through global coffee
brand Nescafè ! worldwide market leader in soluble (instant) coffee

expertise in coffee/cocoa-powdered beverages was core competence

But, Nestlè had not been a player in roast and ground coffee:

To address this huge market, but aiming to differentiate itself from established firms: created Nespresso system
TARGET CUSTOMER SEGMENTS:
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BUSINESS: offices, hotels, airline companies, high-end event caterers, luxury boutiques

NESPRESSO TRILOGY: unique business model - 3 pillars
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innovative/smart/stylish machines: technically advanced, unparalleled ease-of-use, simplicity, distinctive
design, fundamentally transformed preparation and enjoyment of espresso-based drinks

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ch (Swiss start-up): offering empty capsules to be filled with coffee by buyer

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Cafè-Caps (South African company): compatible capsules

• No brand attacking the same market segment with similar technology + similar customer service, BUT:
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Senseo (Sara Lee): cheapest > COST LEADER

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Tassimo (Kraft Foods) > DIFFERENTIATION by doing partnerships with widely known brands

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Dolce Gusto (Nestle)

• Fully automatic coffee machines:
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Jura

• away-from-home sector

INNOVATION: 

- best service: welcomes coffee lovers and invite them into an exclusive relationship (Nespresso Club)

- smart machines

- optimum/maximum convenience

- variety + individual choice

- consistency: optimum coffee enjoyment

- best-in-cup quality

- iconic global brand

- unique path to sell/route-to-market: stores on famous areas, sell online through own website, around-the-clock ordertaking by toll-free, telephone, fax, mail, internet > prompt delivery within 2 business days + personalised advice and
technical assistance

- company responsible for every stage of sourcing, production, sale
BRANDING:
• every single detail reflects an iconic experience: perfection, pleasure, simplicity, aesthetics
• Colour palette: capsules made of coloured aluminium foil to distinguish variety of coffee inside
• design of machines: elegant, design awarded, user friendly, convenient
• luxury sector inspired graphic and visual design
• accessories
• Poly-sensorial marketing concept in boutiques
• Process: highly customer focused > direct consumer contact to maximise brand impact + assure high quality standards
• Nespresso Business Club
• Nespresso Club: creation and nurturing of personalised client relationships + database marketing + development of
tailored sales strategies, build on insight that consumers want to be part of luxury brands
• ‘bi-annual pleasure guide’ stylish magazine
• Promotion: old media (print+tv+outdoor), Nespresso magazine, celebrity endorsements, new media (social media, FB
presence, website), exclusively-sited boutiques (Regent Street), (sponsorships)! 360° mktg approach
• People: boutiques employees as true ambassador of brand’s image/reputation, thorough employee selection process
and intensive training, employees/management proud to be part of winning team
• build strong sense of belonging to Nespresso community
• make customers feel elite
• does limited edition special flavours

STRUCTURE:
• launched new business unit Nestle Coffee Specialties NCS: because realized it was completely new type of business +
operated very differently to Nestle’s existing businesses
• new unit would be able to move faster in seizing market opportunity in newly-created, individual-portion coffee
category
• hired an outsider: infusion of talent from outside company will result in different thinking to help propel innovation to
market
• separated from Nestlé to make it more agile, to establish credibility, so that it didn't have to fight against company’s
rules
• separated means largely avoided controversy that its parent company attracts
• business physically moved out of Nestlé headquarters (moved to its own office premises in Pully) to provide even higher
degree of autonomy > more agile
• to avoid widespread scepticism within Nestlè > demonstrates resilience
• product doesn’t fit Nestle’s business model of selling FMCG through supermarkets (≠ Nespresso involves producing +
selling coffee machines/capsules to machine owners)
• recruited outsider Jean-Paul Gaillard (former Philip Morris executive who catapulted Marlboro Classics clothing)
• company retains complete autonomy from Nescafè organization
• autonomous, globally managed business within Nestlè Group
• because Nespresso had developed a dedicated set of processes and culture that was completely different to Nescafé
• departure from most Nestlè lines of businesses targeted to mass market
• culture uniquely suited to affluent target segment that it aimed to serve (≠ Nescafè: mass
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espresso machines distributed in electrical goods shops
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Internet/phone reserved to Club members: around-the-clock order-taking; prompt delivery of fresh coffee within 2
business days, personalised advice! first direct marketing experiment within Nestlè organisation
NO SUPERMARKETS:

• no need to compete for shelf space 

• avoid crowded supermarket environment

• supermarket channel would transfer profitability of business away from Nespresso 

• length of channel: take up to 3 months for Nespresso capsules to arrive on store shelves > cut in half time remaining
until best-before expiry date ! quality could not be assured

! technical constraint turned into elegant marketing solution: Nespresso Club

EXPERIENTIAL MARKETING:

• provides great customer experience for its aspirational customers

• George Clooney: sets the tone for what Nespresso stands for

• Boutiques: showrooms assert its claim as a lifestyle product, removes stock from shop floor which becomes
museumsque, emporium for tasting/learning/making informed purchase, retail experience (tasting area, machine gallery,
The Club, accessory collection) > customers can live their Nespresso shopping experience into various experiential zones

• The Club screams exclusivity: benefit from quick&easy odering, learn more, fast access to coffee specialists for
questions, online Nespresso Magazine, being treated like a VIP when you are in boutique receive free espresso upon
arrival
ROLE OF BOUTIQUES:
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Consumer Relationship Experience: build consumer proximity, humanise brand, retention tool (privilege),
acquisition tool (demonstration)

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Espresso connoisseurs: want to experience most premium, easy-making coffee with services that make their lives easier
(delivery), consumers at the top of household market

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SECRETS TO NESPRESSO’S SUCCESS:
• created unique, difficult to imitate, internally consistent business model
• business model builds on unique, sustainable positioning that meets long-term tends in market (convenience, espresso
culture, digitization in distribution system)
• product (coffee + espresso machine) is perfectly aligned with positioning
• focuses on its core competences + outsources other activities / cooperates with partners

• mktg/distribution logic is perfectly aligned with positioning and product logic
• clearly defined + well-functioning profit formula
! idea to sell coffee in capsules has now been copied many times, but it is hard to copy entire system: business model 

! non-duplicable business model provides foundation for sustained success

BUSINESS MODEL INNOVATION – THEORY
• Porter: strategy is about being different, company’s value creation process needs to be distinct from its competitors,
needs to be more effective and more efficient
• product innovation no longer offers sufficient competitive advantage in differentiating successful companies:
competitors are quickly able to copy innovations
• Information and Communication Technologies offer unprecedented opportunities to rearrange value creation activities
in new/different ways > BUSINESS MODEL INNOVATION (Amazon, Apple; ING-DiBa)
• successful business model: coherence, uniqueness, fact that it is difficult to imitate
• Business Model defines way company generates value (value creation) and how it captures some of this value as profit
(value capture)
• customer value = customer’s willingness to pay for product/service
3 TYPES OF BUSINESS MODEL INNOVATION:
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innovation leads to higher willingness to pay because of higher value to customer
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