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Success Story of Nespresso

————————————————- Success Story Of an Innovation ————————————————- ————————————————- NESPRESSO ————————————————- What Else? ————————————————- ————————————————- ————————————————- ————————————————- ————————————————- ————————————————- ————————————————- ———————————————— Submitted By: Khadija Ait Ouhanni ————————————————- Hassan Radi ————————————————- To: Professor Amine Bennis ————————————————- ————————————————- ————————————————- Al Akhawayn University-Fall 2010 Important innovations in the coffee market The last innovation in the coffee market was the soluble coffee in the 50s. Concerning the coffee machines, it was the invention of the Espresso Coffee machine in 1901 by Luigi Bezzera.

In the 70s, Nestle decided to target a premium segment by launching a strategic innovation, an innovation that would not basically impact the consumer’s habits (it doesn’t change the number of coffee they drink per day), but that would completely destroy the skills and assets of the already established actors in the market. Indeed, it was the first radical innovation in the coffee market since Bezzera. From 1970 to 1985, 15 years of research * In 1970, Nestle’s Research and Development department invents the capsule containing freshly ground coffee and its pressurized coffee extraction process.

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More precisely, it was the engineer Eric Favre who invented the concept of coffee capsules. * In 1976, Nestec, the Nestle Group’s development centre, files the first patent application for the process. * 1986, the launch of the system * In 1986, the Nespresso SA company, wholly owned by the Nestle Group, is founded in Vevey. In partnership with Swiss manufacturer, Turmix, it launches the Nespresso system in the office coffee sectors of Switzerland and Italy. Capsule production is centralised at Nestle’s factory in Orbe, Switzerland. The initial strategy fails!

At first, Nespresso targeted the Business Market (B-to-B), particularly companies that have coffee machines installed in offices and hallways for their employees, and restaurants. Three countries were chosen to launch the product: Switzerland, Italy and Japan. The production of machines (which is not the job of Nestle) was given to the Swiss company Turmix who was also in charge of selling the capsules of coffee. However, sales were disappointing: only 875 machines were sold the first year; and there was no increase of sales the following year. Nestle was worried about the future of its innovation.

Stop or not to stop? That was the question Many market researches were done and opinions diverged. The challenge was to identify the problem: is it the marketing strategy that failed or the whole concept itself? Eventually, Nestle decided to give one last chance to this product that was supposed to revolutionize the coffee industry. They hired a new CEO, Jean-Paul Gaillard, who decided to completely modify the marketing strategy. A new strategy: focusing on individuals and on the direct sales of the capsules The B-to-B market was abandoned and the customers market was penetrated.

Nestle also moved to new countries starting with the USA, then France, Germany and so forth. Licenses to produce Nespresso machines were given to different companies depending on the country. However, the sale of coffee capsules was exclusive. Customers can only buy these capsules in the Nespresso Shops, or order them by phone, Internet, or fax. It was the start of a new era: that of portioned coffee with the highest quality. * The concept of the coffee capsule Nespresso coffee varieties are packaged in exclusive, hermetically sealed aluminum capsules.

The capsule protects the freshly ground coffee from air, light and moisture, preventing oxidization and preserving even the most volatile aromas. It is covered on the inside with a protective film to prevent any contact between the coffee and the metal. Each capsule contains the exact measure of freshly roasted and ground coffee to prepare a single cup, providing consistent results with no wastage. While opened bags of roast or roast and ground coffee quickly go stale, the freshness of each single-portion Nespresso capsule remains intact, meaning an end to throwing away half-used coffee bags. The Nespresso smart machine and extraction system The smartly designed and easy to use Nespresso machines are specifically developed to complement and enhance the aroma, cream and flavor of Nespresso, cup after cup. Nespresso machines boast an intriguing combination of cutting-edge, stylish design with the highest degree of functionality. The Nespresso extraction system operates only once the ideal water pressure of 11 to 15 bars is reached inside the capsule. Then the capsule is perforated at several points by the exclusive, built-in opening and filtration system.

A jet of instantly heated fresh water penetrates the capsule and flows through all of the ground coffee at once, allowing Nespresso’s superior extraction of all the precious, volatile coffee aromas at optimal pressure to produce incomparable body and taste enhanced by smooth cream. A good espresso/coffee must also be prepared at a precisely calibrated temperature. Too hot and the coffee will burn, too low and the coffee aromas will not be optimally extracted. Accordingly, Nespresso machines feature a thermoblock: a high precision system controlled by a thermostat to regulate the water temperature.

This element ensures that the water is brought to an ideal temperature (83°C – 88°C), guaranteeing the espresso’s taste and the formation of cream. For those who prefer their coffee with milk like a Cappuccino/Caffe Latte can find Nespresso machines with a special steam nozzle for steam frothing. Milk is poured into a separate unit and a rubber tube is inserted and draws milk into the heating and frothing device of the machine, which then delivers the perfectly frothed milk straight into the cup.

Most importantly for home users, Nespresso machines offer a system that is extremely clean and simple to use. Thanks to the self-contained capsules, there is no need to measure out ground coffee or pour away used coffee granules * Product Diversification Nespresso offers fourteen, exclusive premium quality coffees of varying flavour profiles and body. Twelve Nespresso varieties are available all year-round. These Grands Crus are subtly blended from coffees of different origins to bring out their best characteristics, with each variety offering a unique personality.

The colour of the capsule differentiates each of the nine Espresso varieties: Ristretto, Arpeggio, Roma, Capriccio, Livanto, Cosi, Volluto, Decaffeinato Intenso and Decaffeinato as well as the three Lungo varieties: Vivalto, Finezzo and Decaffeinato Lungo. Since the freshness of each individually sealed capsule is guaranteed for up to 12 months for both the Espresso and Lungo varieties, coffee lovers are able to keep a selection of different varieties on hand. In addition, two rare coffee varieties are offered to customers for limited periods every year.

Special Club (in the Autumn) and Limited Edition (in the Spring) varieties are single origin or blended from highly selective coffee harvests chosen for the exceptional character of their vintage or the extraordinary personality of their aroma. * Brand Image Coffee was not considered as a luxury product. Still, Nespresso succeeded in repositioning the drinking of coffee as a prestigious experience in the consumer mind and managed to sell coffee for a price ten times more expensive than the existing brands. Nespresso does not respond to a physical need only, but it satisfies a much higher level of needs: self-esteem, luxury, and prestige.

Nespresso also inaugurates every year all around the world its luxury shops to sell capsules and coffee machines. In fact, the innovation brought by Nespresso is not limited to the product or to the machines only; it is the whole sales system and individual experience that are innovated. Those prestigious shops aim to give customers a concrete image of the luxurious reputation they want to communicate through their ads and price and brand positioning. In order to reinforce their image, Nespresso Capsules are only available in Nespresso stores, online, or via phone and fax orders. Nespresso personalized services Another important factor behind the impressive success of Nespresso is the direct marketing and relationship marketing. In fact, the creation of the Nespresso club is one of the strengths of the brand. The Nespresso club was created to offer an exclusive service distinguishing itself from the competition while being consistent with its premium positioning. The club calls customers to ensure that their post-purchasing attitude is positive and that their level of satisfaction is at its maximum.

An average of 1600 class is made every month in order to assist customers in different situations such as welcome new customers, handle complaints, monitor repairs, and investigate on why some customers stopped their consumption of the product. Contrary on what one might think, these calls are really appreciated by customers because they feel unique and prestigious. Providing consistent premium service and finding new ways to delight Nespresso Club Members are also driving forces for Nespresso. Nespresso coffee capsules and accessories are available around the world through the Nespresso Club.

Open 24 hours a day, seven days a week, the Nespresso Club offers members personalized service. As a centre for expertise on the coffee varieties and the system, including advice on machine use and maintenance, it serves as a direct link with consumers while providing valuable feedback from members. Nespresso Clubs guarantee fast and secure delivery within 48 hours of coffee and accessories ordered via mail, the Internet or by toll-free telephone and fax numbers. Number of Nespresso Club Members * Key factors to success: Nespresso Trilogy

Nespresso has revolutionized the way of preparing coffee to deliver the ultimate coffee experience for each one of life’s moments of indulgence. According to Gerhard Berssenbrugge, the president and CEO of Nestle Nespresso, the key factors to the success of the company are a combination of three elements that form what he calls “Nespresso Trilogy”: 1. High quality selected coffee: Hermetically-sealed, iconic capsules with the large variety of Grand Cru ground coffees, 2. Smart machines in elegant design: the state-of-the-art, easy-to-use, sleek-looking coffee machines, 3.

Unequaled customer service: the Nespresso Club that offers unmatched personal service. This strategy enabled Nespresso to impose itself in the coffee market as a strong competitor and even a threat to the numerous actors already present. Their well-defined strategy ensured them a great success even if they make customers pay ten times more for coffee. And through selling directly to the customers, they have a large marginal benefit on the sales and a close control over their distribution channels. Today, Nespresso is the leader of the Espresso Coffee machines with approximately 1. Billion Euros in 2008. The sale of capsules also increased by 30% in 2008, reaching the objectives, two years earlier than the forecasts. * Advertising: George Clooney what else? Nespresso hired the American actor George Clooney for the ads and he is the one who pronounces the Slogan “what else? ” A slogan that challenges competitors and gives the customers the feeling of superiority and control – the image conveyed by Clooney as well- The choice of this actor demonstrates again the purpose of Nespresso to position itself in the luxury world.

The new strategy is a success! Back to B-to-B Market After the success of the new strategy in the Customer market, Nespresso went back to the Business market in which the company failed at first. They Launched the Nespresso Professional system in 1996 to provide convenient machine solutions and premium-portioned coffee to small or medium sized businesses, to the premium hotel and restaurant sector and to many airline companies. Future Challenges: the coffee capsules War is coming!

The man behind the success of Nespresso, Jean-Paul Gaillard, started his own company “ethical coffee corporation” and launched the first Nespresso-compatible biodegradable coffee capsules (Unlike Nespresso capsules made out of aluminum) for 20% less. In fact, Nespresso innovation is safeguarded by 1700 patents that protect every detail of the system enabling Nespresso to defend its monopoly. Jean-Paul Gaillard as ex CEO of Nespresso knew everything about these patents and was the first one to find a way to divert the patents and invent a product that would really compete with Nespresso capsules.

Today, they have over 3 billion orders and Jean-Paul Gaillard seems to be over confident about the success of his brand. He announced in the French Newspaper “la Tribune”: “ there was a time where Boeing had 80% of the market share. It is not the case today anymore. It will be the same for Nespresso”. Moreover, Gaillard has large and diversified distribution channels: his capsules are invading the market, available everywhere and in all supermarkets. In France, they are commercialized under the name “Casino”. Nespresso What else? Casino…!!


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