Nespresso Co. Analysis
INDEX PART 1 I. NESPRESSO: AN INNOVATION OF PROCESS AND OF BUSINESS MODEL a. Nespresso, a brand of Nestle group b.
An innovation of product i. High quality Coffee ii. Designed Coffee machines iii. The Club iv. The Boutique Concept c. An Innovation of Business model in the Coffee Industry: II. COUNTRY CLIMATE d. Cultural Environment v. Art vi. Architecture vii. Literature viii. Music ix. Media x. Science e. Social environment xi. Labor law xii. Social protection xiii. Swiss work permits xiv. Hofstede’s model applied to Switzerland f. Economic environment xv.
Economic indicators g. Political Environment xvi. General Background xvii. Political structure xviii. Policy issues xix. Foreign policy III. ADVERTISING REGULATION I. NESPRESSO: AN INNOVATION OF PROCESS AND OF BUSINESS MODEL a. Nespresso, a brand of Nestle group Nestle is one of the largest food and Nutrition Company in the world, and global leader in the “mass market coffee”. The firm’s strategy is mainly based on innovation. Always looking for new market to enter in or new product to develop, Nestle has a position of pioneer in almost the food and nutrition market.
The main objective of this strategy is to be, and stay, in the leadership position and benefit from the first mover advantages. The coffee market is a remarkable example of this aspect of Nestle’s strategy. Nestle was the first to propose instant coffee and this particular product brought the company to the position of leader on the mass coffee market. The second success of Nestle in the coffee market is the launching of Nespresso, a subsidiary company (but with almost a complete autonomy) specialized in Espresso.
The initial strategy of Nespresso, launched in Italy, Switzerland and Japan, was to focus on the professional market (Business to Business) and target the restaurants and bureaus in order to sell machines and capsules. This orientation was a total failure and Nespresso had to rethink its strategy. That is why they developed a new business model based on a BtoC luxury, innovative and unique experience strategy that revolutionized the consumption of Coffee. Indeed, Nespresso is a success thanks to its double innovation: An innovation of product and an innovation of Business model. b. An innovation of product
The real innovation of Nespresso is portioned out coffee. Using a Nespresso machine, you can make an Espresso from special capsules containing high quality coffee. However, the company not only sells high quality and design machines or capsules, its sells a concept. Buying a Nespresso machine allows you to enter the Club Nespresso, where people do not “drink” coffee, but they taste it, they savour it. The image of privilege is characteristic of the luxury market, and that is what Nespresso is going for: a luxury product and image. This aspect is noticeable when you take a look at the designs.
Nespresso’s machines, logo and boutiques are designed by a design agency (Future Brand Paris), following two orders: perfection of the forms and ambivalence (in order to send this message of privilege). Therefore, Nespresso is selling a combination of three elements: the machine, the capsule, and the club Nespresso. i. High quality Coffee More than 16 grands Crus are available from Espressos to Decaffeinatos, Lungos and Pure Origine. We can notice the use of the word “crus” in Nespresso website communication – that is usually used for wines – which indicates the will to promote Nespresso Coffee as a luxury product. i. Designed Coffee machines Offering timeless designs, high technology functions and user-friendliness, every detail has been carefully considered to provide the consumer with the ultimate experience. iii. The Club The Nespresso club is dedicated to providing the ultimate coffee experience for its members. It offers several benefits: Quick and fast order (phone or internet), an efficient service assistance for your machine, you can benefit from the services of coffee specialists who will make you taste new flavours and also have all the News about the brand in exclusivity.
Nespresso has succeeded in creating a real experience and a real brand community belonging among the Nespresso clubs members thanks to all this benefits and thanks to exclusive accessories and items such as the Nespresso magazine that creates a real luxury system of values around the brand. iv. The Boutique Concept The luxury universe of Nespresso is physically symbolized by the Nespresso Boutique Concept that invites consumers to experience the unique world of Nespresso in modern and stylish Boutiques.
In this warm, comfortable and cosy area, the club members can discover the premium blend coffees, limited edition varieties, all the machines and accessories and also benefit from personalized advice provided by coffee specialists. c. An Innovation of Business model in the Coffee Industry: The concept developed by Nespresso is protected by 70 patents (for machines, capsules and the service). The first ones expire in 2012, until then, the company as a complete monopoly. Nespresso is giving licenses to several industrial companies (such as Krups, Magimix, Alessi and Saeco in France) in order to produce the machines in exchange for royalties.
The machines are then sold in malls, and all kinds of store selling household electrical applicants (Darty, Boulanger in France). However, the distribution of the capsules is completely different. The capsules are only sold in “confidential” boutiques dedicated to Nespresso. Moreover, capsules and machines form an integrated system. In fact, when a customer buys a machine, he then can only use Nespresso capsules. So even if the sales of the machines only represent 4% of the company’s turn over (compare to 96% for the sale of capsules), they play key roles in Nespresso’s global strategy.
This integrated system work exactly as the ones we observe in the printer market. II. COUNTRY CLIMATE a. Cultural Environment The regionalism in Switzerland makes it very difficult to speak only one language. They are influenced by Germany, Italy and France. Furthermore, the Rhaeto-Romanic culture in the eastern mountains of Switzerland is robust. i. Art The Folk Art still exists because organizations all over the country strive to preserve it. It includes fields like music, dance, poetry, wood carving and embroidery (usually showed on traditional clothing).
In addition, there are some forms of arts that are only kept in the mountains, like Yodeling (a type of singing) or accordion (music instrument) or even alphorn (a music instrument which is more popular but only in some areas). The melodies of folk music vary between regions. In particular, the Alpine Folk culture is characterized by very expressive dances. Some small musical ensembles are practiced in mountains area, usually in the French speaking part of Switzerland. Moreover, there is the Visual Art: in the 16th century, Protestantism had a strong influence on it in Switzerland.
Some painters became very famous like Alberto Giacometti, Jean Tinguely and Paul Klee. Finally, the artistic Dada movement was created in Switzerland in the 1910’s. ii. Architecture Swiss people have a strong architectural tradition. We can found the Romanesque style of the 12th century in cathedrals (like in Basel, Sion, Chur, Geneva and Lausanne) and on castles or fortresses. There are also some cathedrals in Gothic style (in Schaffenhausen, Zug and Zurich) and in Baroque style (Einiedeln and St. Gallen). iii. Literature
Switzerland produced worldwide renowned writers, like Jean-Jacques Rousseau (Geneva), Jacob Burckhardt (Basel), Germaine de Stael (her house was a center of European Literature in 18th century), Gottfried Keller, Conrad Ferdinand Meyer, Jeremias Gotthelf, Charles Ferdinand Ramuz and Hermann Hesse and Carl Spitteler (who both won a Nobel prize for their work). iv. Music Switzerland has not really a musical tradition, except some composers, in the 20th century, like Arthur Honegger, Othmar Schoeck and Franck Martin. In Lucerne there is the Lucerne Festival of International Music and, in Montreux, the Montreux Jazz Festival. . Media The most important regional media in Switzerland is newspapers; some of them are renowned for their thorough coverage of international issues, like « Neue Zurcher Zeitung » (Zurich) and « Le Temps » (Geneva). Television has a great role too in the modern culture lifestyle in the country. The national public broadcaster is SRG SSR. It offers three networks, one for each language spoken (German, Italian and French). vi. Science There has been a long tradition of Swiss scientists since Paracelsus who introduced the field of chemistry into medicine in the 16th century.
The Bernoulli family is known for their contribution to mathematics. Leonard Euler is another famous mathematician. Horace-Benedict de Saussure was a naturalist and pioneer in Alpine studies. In the Federal Institute of Technology in Zurich there were a lot of Nobel Prices. Finally, Albert Einstein, who was born in Germany, moved to Switzerland and became a Swiss citizen. b. Social environment i. Labor law While the European Union implemented a strong regulation regarding employer/employee relationship, the labor law in Switzerland is few regulated and is more oriented in favor of the employers.
For instance, the termination legislation is not detailed: there must be a “cause” but in case of a dispute between an employer and an employee, a judge in court will make a decision. Some rules about compensation in case of termination exist but they are not generous. On the other hand, sickness is not a reasonable cause for it, on a sliding scale which permits up to 180 days of sickness after six years of employment. Furthermore, employers can impose an up to three weeks non-competition agreement to their employees. Even if overtime is allowed, the maximum work-week is 45 hours; however, this limit does not apply to managers.
In addition, a minimum of four weeks’ vacation is required per year. As far as maternity leave is concerned, return to work is only possible after 6 to 8 weeks. Nevertheless, Switzerland is progressively influenced by the EU social environment. ii. Social protection Resident individuals and individuals with gainful activity in Switzerland have to contribute to the Federal Old Age and Disability Insurance plan and to the federal unemployment insurance plan. Today, the contribution to the Federal Old Age and Disability Insurance plan is half paid by the employer and half by the employees and amounts to 12. % of total employee remuneration. The unemployment contributions represent 2. 2% of total employee remuneration on an annual basis. In addition, in most cantons, health and hospitalization insurance is mandatory. As a result, some companies propose to contribute to their employees’ health insurance or they implement group-insurance models for them. Moreover, Switzerland is one of the OECD countries which have the highest unemployment benefits: it offers to unemployed people more than 70% of average earnings. As a consequence, Swiss low-paid people lose more money by going back to work than being unemployed. iii.
Swiss work permits The available residence and work permits are the ‘120-day’ permit, the class A, B or C permits, the fiscal deal permit and the political refugee permit. Except the ‘120-day’, other permits are subject to quotas. However, agreements signed with the European Union are progressively implementing EU freedom-of-movement rules which may finally enable EU citizens to by-pass the quota permit system. iv. Hofstede’s model applied to Switzerland In the frame of the Hofstede model, the highest cultural dimension of the Swiss population is its Masculinity (MAS) at a value of 70 compared to a European average of 59.
This implies that there is a strong difference from a gender perspective and that men are very competitive. The second highest Hofstede dimension in Switzerland is Individualism (IDV) whose level is at 68, compared to a European average of 61. Therefore, the Swiss inhabitants are characterized by their individualism: if they care about themselves and their family, they are not prone to interfere in others’ life. This cultural aspect is in adequacy with the non-commitment of Switzerland to the European Union. The lowest cultural characteristic of Switzerland is Power Distance (PD) at 34 compared to a European level of 45.
This demonstrates that in the Swiss culture the power tends to be equally distributed among all the members of the society. c. Economic environment Switzerland is one of the world’s most stable economies. In fact, its policy of long-term monetary security and political stability has made it a safe haven for investors, creating an economy that is increasingly dependent on a steady tide of foreign investment. Because of the country’s small size and high labor specialization, industry and trade are the keys to Switzerland’s economic livelihood.
The highly qualified labor force is performing highly skilled work. The main areas include micro technology, hi-tech, biotechnology and pharmaceuticals, as well as banking and insurance know-how. The service sector now employs the greatest number of people. Swiss companies are extremely competitive in world markets. In some branches, more than 90% of goods and services are exported. The best-known export items are watches, chocolate and cheese, but in fact mechanical and electrical engineering and chemicals together account for over half Swiss export revenues.
The largest company is Nestle, the biggest food company in the world. It has around 278,000 employees, about 97% of them outside Switzerland (2009). In 2010, 15 Swiss firms, including the pharmaceutical giant Novartis (No. 160) featured on the “Fortune Global 500”, an annual ranking of the 500 most powerful corporations which is compiled by the eponymous American business magazine. Switzerland is also known as a financial centre; it is a central pillar of the Swiss economy, generating over 11% of Swiss GDP. The most important players are banks, followed by insurers.
Switzerland has achieved one of the highest per capita incomes in the world with low unemployment rates and a low budget deficit. Swiss wages are higher than in the rest of Europe because of the cost of living. Statistics released by the European Union in 2002 showed that Switzerland was the third most expensive country in Europe, after Norway and Iceland. The Swiss pay particularly high prices for meat, cooking oil, fish and vegetables. Switzerland is not integrated in the European Union but signed Bilateral Agreements with the EU. It has its own money: the Swiss Franc.
As a part of the European continent, its main exports and imports partners are European Union members: France, Germany, Netherlands, Italy, UK, Austria and Spain. Switzerland does also trade with the US. In 2009, 59. 7% of exports went to EU countries, and 78% of the imports came from EU states. That entails interdependence with those countries’ economies, which are part of the biggest economies and unions in the world. For instance, Switzerland suffered from the worldwide financial crash and economic recession in the early 2000s and in 2008.
Switzerland’s economy only grew 2. 8% in 2010 because of this 2009 recession. The age of unlimited economic growth in Switzerland is over. Fear of unemployment has been one of the main concerns of the Swiss for several years. Switzerland is concerned that economic activity should have as little impact as possible on the environment. Its energy and transport policies aim to be environmentally friendly. i. Economic indicators GDP – official exchange rate| $522. 4 billion (2009 est. )| GDP – real growth rate| 2. 8% (2010 est. )|
Labor force | 4. 13 million (2009 est. )| Unemployment rate | 3. 9% (2010 est. )| Population below poverty line| 7. 4% (2009 est. )| Investment (gross fixed) | 19. 9% of GDP (2009 est. )| Budget – revenues| $192. 1 billion| Budget – expenditures| $194. 2 billion| Public debt| 39. 6% of GDP (2010 est. )| Inflation rate (consumer prices) | 0. 7% (2010 est. )| Current account balance | $49. 35 billion (2010 est. )| Exports | $235. 2 billion (2010 est. )| Imports | $220. 4 billion (2010 est. )| Debt – external| $1. 19 trillion (30 June 2010)|
Stock of direct foreign investment – at home | $514 billion (31 December 2010 est. )| Stock of direct foreign investment – abroad| $814. 6 billion (31 December 2010 est. )| d. Political Environment i. General Background In 1848, Switzerland became a modern federal state, and its official name is Swiss Confederation. Switzerland’s form of state is federal republic and comprises 26 semi-autonomous cantons and half-cantons. The government consists of seven members, whom are elected by the Bicameral Federal Assembly, and the government members work as president in turns.
Also, the Swiss people have rights to influence poetical concerns with the help of the highly developed system of direct democracy, which is strongly supported by the federal constitution. Moreover, the neutral position taken by Switzerland in the world allows it to act a vital humanitarian role in the global affairs and to perform as an arbitrator between conflicting parties. ii. Political structure Based on the constitution of 1848 with revisions in 1874 and 2000, Switzerland formed its own legal system, which is viewed as a highly effective system in the world. National legislature Bicameral Federal Assembly, the parliament of Switzerland, comprises National Council of 200 seats and Council of States of 46 seats. While both of National Council and Council of States are elected directly, whereas the number of seats from each canton in the National Council is assigned in accordance to the size of the population. Moreover, if any code passed by both chambers that revised the constitution, it has to be submitted to a public vote. In Switzerland, as in all democratic countries, citizens elect representatives to act on their own behalf.
Also, Switzerland gives its citizens the chance to take a direct participation in decision-making. Compared with other countries and places giving citizens important roles in decision making, such as Italy and several states in US, the direct democracy in Swiss legal system is regarded as the most extensive one in the world. Generally, provided the 100,000 signatures to petition for a referendum, the Swiss citizens can initiate changes to the constitution in order to either propose their own legislation or oppose certain legislation existed in the current legal system. State legislature Switzerland is divided into 23 cantons, three of which are divided into half-cantons. Each of the 26 cantons and half-cantons has a parliament, elected by universal vote, and a government, the organization of which varies. The federal president is in charge of all 26 states. The president is selected among the members of the Bicameral Federal Assembly by rotates annually. iii. Policy issues The current hot spots of policy issues in Switzerland include fiscal stability, economic recovery, and reform of the state social security schemes.
Besides, the severe appreciation of the Swiss franc forced the central bank in Switzerland to tend to adopt exchange rate following euro. The Swiss government believes further trade liberalization of the economy will remain a significant goal in the future. Also, the foreign policy will focus on the relationship with the EU, with the purpose of achieving more opportunity in the global business world. iv. Foreign policy As the world moves forward, Switzerland both formulates corresponding foreign policies and modifies the policies already approved to face its emerging challenges.
Therefore, the government has defined the foreign policy objectives to regulate the foreign policies, including peaceful coexistence of people of all nations, respect for and promotion of human rights, environmental sustainability, representing the interests of Swiss businesses abroad, alleviating need and poverty in the world. III. ADVERTISING REGULATION a. General Regulation in Advertising Almost all of countries have a series of advertising laws to regulate business activities. Advertising may potential drives and persuades consumers into commercial transactions that they may not receive the promised value of products.
Therefore, in many countries, government enacts advertising law to control false and deceptive advertising and protects consumers’ right to know that they are getting all necessary information the product should have. Legislation department has the responsibility to regulate the advertising market in terms of control comparative advertising, protect consumers’ right, as well as protect public interest which devotes to prohibit misleading, exaggerate advertising. Some European countries also carry out Market Surveillance which aims to establish authorities to be responsible for market surveillance.
These authorities should have the necessary resources and powers to supervise any business activities that involve unfair consequences. For example, surveillance authorities have the responsibility to check whether a product is qualified for applicable safety requirements. If not, actions should be taken to make the product compliant; otherwise, sanctions will be conducted. b. Switzerland Regulation in Advertising Specifically to Switzerland, although it is not a member of the European Union to follow European Law, the country itself has a relatively restrict advertising regulations on media communication, especially television advertising.
The most important law regulating advertising is the Federal Law against Unfair Competition (Bundesgesetz uber den unlauteren Wettbewerb (UWG) prohibiting any unlawful behavior or business conduct that betray the principle of good faith. The Swiss advertising industry has adopted its own professional ethics in the principles of the Swiss Commission for Integrity of Advertising. The country conducts the Act against Unfair competition which particularly emphasizes on consumer protection. “Art 3 Lit. Lit. ” of this Act regulates unfair and aggressive competition advertising and should avoid influence on consumer’s buying decisions to buy products or services. In addition, this Act regulates duration of advertising and interruption of programs, tele-shopping, sponsorship, self-promotion, product placement, and so on related to television advertising. For example, this regulation prohibits any advertising involves religious or political advertising, incorrect, misleading advertising, subliminal advertising, and surreptitious advertising.
Tele-shopping presents a direct communication platform to sending out messages containing direct offers for sales of goods to consumers, therefore, the Act only allows 1 hour a day for either private or public broadcasters. Plus, encourage teenagers to contract for the sales of goods or services are not allowed. Furthermore, the Act also mentions about the presence of products in a television programs. It is not allowed to present a special focus on certain products or promotion of the products during a TV program; otherwise, it can be treated as surreptitious advertising.
INDEX PART 2 I. NESPRESSO : ITS INTERNATIONAL EXPANSION II. COUNTRY CLIMATE OF MEXICO h. Cultural Environment i. Language ii. Family Values iii. « Machismo » iv. Meal habits v. Religion vi. Coffee habits vii. Hofstede model i. Social environment i. Overview ii. Demographics iii. Income distribution iv. Education level v. Hierarchical society j. Economic environment i. Overview ii. Trade and international partnerships iii. Foreign Investment iv. Agriculture and focus on coffee k. Political Environment i. General Background ii. Political structure iii.
Policy issues iv. Foreign policy III. ADVERTISING REGULATION IN MEXICO I. NESPRESSO : ITS INTERNATIONAL EXPANSION Nespresso always aimed at being an international brand. When Nespresso started, the strategy was to focus on the professional market by marketing restaurants and offices (Business to Business). They launched their machines and capsules in Japan, Italy and Switzerland. In fact, the brand did not just launch its products on the domestic market to see if the business model was effective, they immediately acted at an international level.
This strategy was a failure and Nespresso changed its business model in 1988. From then on, Nespresso has been focusing on the public market (Business to Consumer) by restraining the distribution of their products to their own boutiques. Again, they directly launch their products with their new strategy in France, Italy, Switzerland, United States and Japan. Now the brand is present and successful in more than 50 countries all around the world. We are now going to focus on Mexico. Nespresso is already present in Mexico since 2008 and the brand opened seven stores in the city of Mexico DF.
Here is the youtube link of the opening of one of these stores in Mexico DF: http://www. youtube. com/watch? v=ZDSqINiIfeA II. COUNTRY CLIMATE OF MEXICO a. Cultural Environment i. Language Due to the Spanish control of Mexico, the main and official language in Mexico is Spanish, but Mexico is also a home to a great amount of indigenous languages, spoken by 5. 4% of the population. Eighty percent of the Mexicans who speak a Native American language also speak Spanish. Approximately, more than 100 Native American languages are still used in Mexico.
Among all of these Native American Languages, Nahuatl, the most important and popular one, is the primary language of more than one million Mexicans and it is spoken by almost one-fourth of all the Native Americans in the country. This language is followed by Maya spoken by 14% of Native Americans, and by Mixteco and Zapateco that are both spoken by 7% of the Native Americans. ii. Family Values. The family is a vital factor of the social environment: it is regarded as a significant element in the social structure by the Mexico’s government. The extended family, providing the stability, is as important as the nuclear family.
Mexican people are willing to do whatever they can to help their family members. Following the traditions, fathers are the head, and the decision-maker in the majority of the Mexican families. Mothers who are respectful are usually their husband’s secondary. iii. « Machismo » Machismo means masculinity. From a Mexican perspective, to make remarks to a woman is considered normal and is not harassment. The Mexican men believe that nothing must be allowed to tarnish their image as a man. They are very proud of being a man and, if you hurt this, they can get very aggressive because they think that it is their right. v. Meal habits Due to the diversity and richness of cultural environment, people in Mexico are fond of great eating and drinking: this is a common characteristic in Mexican society. As known to all, Mexican cuisine plays an important role in world cuisine system and it represents the country’s image. The most popular ingredients of Mexico food are beans, rice, corn, tomatoes, papayas, vanilla, and peppers. In addition, Mexican people have a great variety of drinks: the most popular one is tequila but they also drink a lot of soft drinks and beers.
Mexicans usually have a light breakfast that includes coffee and/or a fruit before they leave to go to work or school. Then, halfway through the morning, they have a tortilla or a bread roll. The « comida » is the most important meal of the day and it is served between 2 and 4 pm. It has three or four courses, soup, rice or pasta, meat accompanied with tortilla and refried beans and dessert. Dinner is served between 8 and 10 pm and they usually have sweet rolls, coffee and milk. They mostly eat outdoors. v. Religion The main religion in Mexico is Roman Catholicism.
After the Spanish conquest, the Mexicans really accepted the catholic religion with its beliefs and practices but they did it on the basis of their pre-Hispanic religious beliefs. For instance, the Virgin Guadalupe was associated with the pagan goddes Tonantzin. As a result, their Catholicism is usually described as syncretism. The Catholic beliefs pervade the life of every ordinary Mexican because the Catholic Church has been a powerful institution in the Mexican history. Its relation with the state has been very tense. We can see that in the last decades the Protestant religion has been very present in the South of Mexico. vi.
Coffee habits Worldwide speaking, the consumption of coffee is growing significantly due to the technical innovation that reduces the processing time. Also, with the advance of telecommunication, the distributors also get benefit from buying quantities on a “just in time” basis. From a traditional point of view, coffee is considered as a commodity in many developing countries, especially in Latin America. Unlike developed countries where coffee drinking and cafe places are growing rapidly in high demand, the coffee drinking habits in Mexico grow relatively slowly due, in particular, to the underdeveloped social infrastructures.
The Mexicans have a way to drink coffee which is kind of unique: they like to add a small amount of cinnamon to the ground coffee before brewing it, so that it adds a distinct flavor and reduces the acidity. Some do put cinnamon sticks and brown sugar in it but for example, in Veracruz, they usually drink instant coffee that they call « Americano ». The very Mexican thing about coffee is that they like it flavored atole. Atole is a kind of watery form of corn pudding that you can drink. They have Atole of a lot of ingredients (vanilla, chocolate, etc…).
Based on above analysis and the insight of change in Mexico society, companies and business organizations should focus on attracting more customers with higher purchasing power who are eager for better products and services. Additionally, providing aggressive advertising enhancing family values and interactive communications to consumers in Mexico is also very vital because it may have a potential to acquire more than 100 million untargeted consumers. vii. Hofstede model Mexico is similar to many Latin countries when Hofstede’s Dimensions are compared and analyzed.
Mexico’s highest Hofstede Dimension is Uncertainty Avoidance (UAI) (82), indicating the society’s low level of tolerance for uncertainty. In an effort to minimize or reduce this level of uncertainty, strict rules, laws, policies, and regulations are adopted and implemented. The ultimate goal of this population is to control everything in order to eliminate or avoid the unexpected. As a result of this high Uncertainty Avoidance characteristic, the society does not readily accept change and is very risk adverse. This is a real challenge for a brand as Nespresso which is a new concept of coffee consumption.
Mexico has a low Individualism (IDV) ranking (30), but is slightly higher than other Latin countries with an average 21. The score on this Dimension indicates the society is Collectivist as compared to Individualist. This is manifest in a close long-term commitment to the member ‘group’, be that a family, extended family, or extended relationships. Loyalty in a collectivist culture is paramount, and over-rides most other societal rules and regulations. The society fosters strong relationships where everyone takes responsibility for fellow members of their group
Mexico has the second highest Masculinity (MAS) ranking in Latin America (69). This indicates the country experiences a higher degree of gender differentiation of roles. The male dominates a significant portion of the society and power structure. This situation generates a female population that becomes more assertive and competitive, although not at the level of the male population. Another dimension in which Mexico ranks higher than other Latin neighbors is Power Distance (PDI) with a rank of 81, compared to an average of 70.
This is indicative of a high level of inequality of power and wealth within the society. This condition is not necessarily subverted upon the population, but rather accepted by the culture as a whole. This is a “good point” for Nespresso who position itself as a luxury brand because the healthy and powerful part of the population can see in Nespresso a way to show and affirm their superior social status. b. Social environment i. Overview The social environment in Mexico is very complex and polarized in terms of income distribution, social status, and education level throughout the country.
In late 1990s, the Mexican economy has started to emerge because of the commercial liberalization with a rising class of affluent elite which contrasts to majority of poor people in both rural and urban areas. The major social condition in Mexico accounts for a rapid increasing in population with an inequitable income distribution. The recent decrease in the rate of mortality as well as in the rate of fertility contribute to shape an older population in Mexico which, in turns, impacts the future demands in consumption, employment, education as well as other social indicators.
According to Global Consumer Survey 2009 of the consultancy Accenture, “Mexicans are facing a state of volatility, which approximately half of consumers in Mexico are not satisfied with services and products they received right now and expect to high quality products and service. ” In addition, an additional study reveals that 29% of merchants are not satisfied with their current suppliers and they are favor of looking for high-quality innovated products and services with wider varieties of options. ii. Demographics * Population
As shown in the latest census conducted in 2010, Mexico’s Population is 112,336,538, becoming the most populous Spanish-speaking country in the world and the eleventh most populous country in the world. Moreover, the Mexican population grows at 1. 102%. * Age structure The age structure is as followed: – 0-14 years: 28. 2% (male 16,395,974/female 15,714,182); – 15-64 years: 65. 2% (male 35,842,495/female 38,309,528); – 65 years and over: 6. 6% (male 3,348,495/female 4,113,552) (2011 est. ). * Urbanization 78% of total population is urbanized (2010) and the annual rate of urbanization is 1. % (2010-15 est. ). It is interesting that Mexico City is the second-largest urban agglomeration in the Western Hemisphere, after Sao Paulo (Brazil), but before New York-Newark (US). iii. Income distribution Mexico has been regarded as a highly unequal country for a long period. Mexico has the second highest level of income inequality in the globe, becoming one of the 20 countries with the highest degree of inequality. The Figure 1 shows data on Mexico’s gini coefficient, which is a measure to evaluate the level of undistributed income, from 1950 to 2004.
As shown in the Figure 1, although Mexico reduced inequality in a great extent during the 1960s and 1970s, Mexico has not solved the problem of unequal distribution of income since the 1980s. Moreover, Mexico has the highest level of relative poverty in the Organization for Economic Co-operation and Development (OECD). Compared with average level in the OECD, one in every ten people being poor, the Mexico has higher percentage, one in five. This means that virtually 50% of Mexicans cannot live with its current income. The figures 2 and 3 below show the movement of the gini coefficients of urban nd rural areas respectively in Mexico from 1994 to 2006. The inequality of income in urban areas of Mexico has steadily declined since 1994. Furthermore, the inequality in rural areas experienced an increasing trend from 1994 to 2000, and then declined since 2000 to the 1994 levels. Moreover, the significance of unequal income distribution in both urban and rural areas are approximately the same. iv. Education level According to the analysis of data, Mexico’s government amount of expenditure in the field of education is $28 billion every year, as much as 4. 8% of GDP, which ranks the 69th in the world compared with other countries.
The Mexican education system is divided into four levels, preschool, compulsory basic education, upper secondary education, and higher education. Among the four levels of education system, the government is only officially responsible for providing compulsory basic education. The whole system enrolls nearly 31 million students, 86% of population aged three to 25. The literacy rate is 91. 4%. The key issues in Mexican education system is insufficient enrollments and high dropout rates above the primary level, insufficient supply of upper secondary schools, and low student achievement levels. v. Hierarchical society
The Mexican society are highly stratified and vertically structured. The hierarchical relationships are emphasized in the Mexican society. The people in the Mexico would like to respect authority and power, and follow those who are above them for guidance and decision making. It is interesting that the rankings are important in Mexico, and therefore those having more authority should be treated with respect. The belief of hierarchy makes it important to know the chain of hierarchy in your surroundings, and Mexicans know about how each individual fits into each hierarchy, such as family, friends or business. . Economic environment i. Overview Mexico is the second largest national economy in Latin America. It is assessed by the World Bank as an upper-middle-income country. Poverty is a serious Mexican issue as around 47% of the population lived below the poverty line in 2008. As a consequence, since 2002, the Mexican Government has implemented a social assistance program called Oportunidades to address the worrying problems of poverty; this program replaced the previous program Progresa created in 1997.
In 1983, Mexico was a highly inward-oriented economy with a government that was outspoken in its criticism of multinational companies. However, after years of stagnant economic activity and high inflation in Mexico, the government liberalized the trade sector in 1985 which led to the resumption of economic growth. Since the devaluation of the peso in 1994, macroeconomic indicators have improved: for instance, inflation and public sector deficits are now under control. Nevertheless, in 2009, the economy experienced its deepest recession since the 1930s: Mexican gross domestic product (GDP) tightened by 6. %. This recession was mainly due to weaker exports to the United States, to a reduction in oil revenues, to the consequences of H1N1 influenza on tourism and to lower remittances investment from abroad. In fact, Mexico is largely dependent on the money sent home by the millions of migrant workers in the US: remittances average per year stands at around U. S. $21 billion. A major part of remittances is used for immediate consumption (food, housing, health care, education) but some of them permit the implementation of shared projects and the improvement of infrastructure.
In 2010, Mexico’s economy created 730,348 jobs. According to Bloomberg’s forecast, the Mexican growth will slow to between 3 percent and 4 percent in 2011 after a growth of 5. 1 percent in 2010. The underlying reason is that Mexico’s economic fate is closely tied to that of the United States. However, Mexico’s central bank reaffirmed its willingness to cut interest rates if the global economy further deteriorates. The average Mexico’s unemployment rate from 2000 until 2010 was 3. 45 percent reaching an historical high of 5. 93 percent in May of 2009 and a record low of 2. 2 percent in November of 2002. In September 2011, it was at 5. 26 %. According to data collected by Doing Business, “starting a business there requires 6 procedures, takes 9 days, costs 11. 2% of income per capita and requires paid-in minimum capital of 8. 4% of income per capita”. On the ease of starting a business, the Doing Business 2012 rank of Brazil is 75 out of 183 economies, compared to a 2011 rank of 66. This means Mexico lost 9 places in one year. Finally, the average Doing Business 2012 rank of Mexico is 53 out of 183 economies, compared to a 2011 rank of 54.
This means Mexico wins 1 place in one year. ii. Trade and international partnerships As an export-oriented economy, more than 90% of Mexican trade is under free trade agreements (FTA). In fact, Mexico’s trade is shaped by 44 FTA; among them, there are the ones with the United States and Canada through the NAFTA (North American Free Trade Agreement) since 1994, with the European Union since 1999, and with Japan since 2004. Mexico is the United States’ second-largest export market and third-largest trading partner. A large part of U. S. xports to Mexico is electronic equipment, motor vehicle parts and chemicals. Trade issues are mainly settled through direct negotiations between the two countries, via World Trade Organization (WTO) or via the formal dispute settlement procedures of NAFTA. Foreign direct investment (FDI) in Mexico for 2009 was $14. 4 billion, and it decreased of 51% from the previous year. Almost a half of FDI comes from the U. S. (Bureau of Western Hemisphere Affairs). iii. Foreign Investment The Mexican amount of foreign direct investment (FDI) in 2009 was $14. 4 billion, i. e. decline in 51% from the previous year. 45% comes from the U. S. which was once again the largest foreign investor in Mexico of reported FDI ($6. 4 billion FDI from the U. S. ). The decrease of this figure can be mainly attributed to the 2008 and 2009 economic slowdown in the United States. iv. Agriculture and focus on coffee Only 11% of Mexico’s land area is cultivable and only less than 3% of it is irrigated. Mexico’s most revenue-producing crops are corn, tomatoes, sugar cane, dry beans and avocados but Mexico also takes advantage of its production of beef, poultry, pork, and dairy products.
The Mexican agriculture has benefitted from the implementation of NAFTA but structural inefficiencies continue to represent a hindrance to improvements in productivity and living standards for many famers in the agricultural sector. In fact, the Mexican agricultural landscape is largely characterized by small-scale producers, a lack of infrastructure, inadequate supplies of credit, a communal land structure for many producers and a large subsistence rural population that is not part of the formal economy. This is the reason hy the number of Mexican farmers is decreasing as they see more opportunities in the industrial sector and in cities. In addition, at the beginning of 2011, the Mexican agriculture had to face rough climate conditions: Mexico, and in particular, the northwestern state of Sinaloa, known as the “Bread Basket of Mexico”, was hit by unusually cold temperatures in January and February. In total, this is more than 1. 5 million acres of corn, vegetable, citrus and other crops that were either damaged or destroyed in Sinaloa, representing a preliminary economic loss of approximately one billion dollars.
The cold weather also hit the 2010-2011 harvest of coffee. Mexico is the world’s seventh largest coffee producer after Brazil, Vietnam, Indonesia, Colombia, India and Ethiopia and it constitutes one of the leading suppliers of organic, shade-grown coffee. The country has 480,000 coffee growers; most of them are working on small parcels of land of less than 5 hectares in size. Coffee growers are mainly located in Chiapas, Veracruz and Oaxaca for a production of 268,000 metric tons a year.
If the Mexican coffee consumption per person is rising – it has doubled since 2000, it remains low at about half the equivalent consumption of the coffee-growing Central American nations. Therefore, 62% of the coffee harvest is still exported, generating $400 million annually. d. Political Environment i. General Background Mexico is a federal presidential representative democratic republic based on a congressional system. It comprises thirty-one states and a Federal District, the capital city. The president of Mexico is both head of state and head of government, and of a multi-party system.
The federal government represents the United Mexican States and is divided into three branches: executive, legislative and judicial, as established by the Political Constitution of the United Mexican States, published in 1917. ii. Political structure The executive power is exercised by the executive branch, which is headed by the President and his advisers, secretaries independent of the legislature. Legislative power is represented by the Congress, a two-chamber legislature comprising the Senate and the Chamber of Deputies.
Judicial power is exercised by the judiciary, consisting of different institutions such as the Supreme Court of Justice of the Nation, the Council of the Federal Judiciary and the tribunals. Political parties must be registered in the Federal Electoral Institute (IFE) and must obtain at least 2% of votes in the federal elections to be kept in their registry. Although in 2010 there were 7 different parties the three most important are National Action Party (PAN), the Party of the Democratic Revolution (PRD) and Institutional Revolutionary Party (PRI).
Political parties are allowed to form alliances or coalitions to nominate candidates for any particular election. iii. Policy issues Drug-traffic, narco-related activities and police corruption are a major concern in Mexico. More than 30,000 people have been killed by drug violence since 2006. The current president Felipe Calderon made abating drug-trafficking one of the top priorities of his administration. There has been a tendency to increase the militarization. Mexican Army was deployed to cities where drug cartels operate.
This action has been heavily criticized, even by the National Human Rights Comission, but unprecedented results have been obtained fighting against drug carterls and reducing violence. In October 2007, the president Calderon and US president George W. Bush announced the Merida Initiative a historic plan of law enforcement cooperation between the two countries. This initiative tries to confront criminal organizations whose illicit actions undermine public safety, erode the rule of law, and threaten the national security of the United States. In 2008, Congress approved an initial $400 million for Mexico. v. Foreign policy Mexico takes part in many international organizations such as: the United Nations, the Organization of American States, the organization of Ibero-American States, the OPANAL and the Rio Group. Mexico has also presence in major economic groups: G8+5 and G-20. Nowadays, Mexico’s largest trading partner is the United States which is one of the most relevant players in the world of affairs. On the other hand, Mexico has given support to the Cuban government since 1969, the Sandinista Revolution in Nicaragua and leftist revolutionary groups in El Salvador during 1980. III.
ADVERTISING REGULATIONS IN MEXICO Advertising in Mexico is highly regulated: there are at least seven federal laws, five federal regulations and a variety of Mexican official standards. In addition to that, state laws and regulations are applied to advertising. The most important law regarding advertising is the Federal Law for Protection of Consumers (FLPC). Article 32 of FLPC establishes that an advertisement has to be truthful and verifiable. It also must not contain any text, dialogue, sounds, images, marks, geographical indications or other indications which could induce consumers into error or confusion.
Consumers must not be misled as to the qualities and characteristics of an advertised product or service; or into thinking that such a product or service is better than one offered by a competitor when this is not the case. Comparative advertising is allowed if the information is not deceptive or abusive. “Deceptive” or “abusive” descriptions are described as inducing consumers into error or confusion due to the inexact, false, exaggerated, artificial or tendentious form in which the information is presented. The advertiser need not include any reference to the registration status of a trademark or patent used in an advertisement.
In order to have the trademark, the company has to provide information about: * The kind of media used to advertise the mark in Mexico and, if applicable, in foreign countries; * The timescale for use of the mark in advertising in Mexico and, if applicable, in foreign countries; * The financial amount invested in advertising the mark in Mexico and in foreign countries during the previous three years. The Consumers Federal Bureau is the regulatory body charged with examining alleged breaches of the FLPC. Where an dvertisement is found to be infringing, the bureau can: * Order the infringing party to stop using the advertisement; • Order the infringing party to alter the advertisement to prevent further breach; • Impose a fine from $332. 52 and up to $1,064,044. 07 Mexican Currency. Wrong comparative advertising entails unfair competition and refers to the trademark infringement provisions set out in Paragraph X of Article 213the Industrial Property Law. Underage consumers and other susceptible groups of the society are under special protection in Mexican law.
On the 10th of August of 1990, Mexico ratified the United Nations Convention on the Rights of the Child. Article 1 of the Convention defines a child as a person below the age of 18. Article 17(e) obligates member states to ‘encourage the development of appropriate guidelines for the protection of the child from information and material injurious to his or her wellbeing’. Local regulations also contain specific information regarding to the marketing of alcohol and tobacco for children, the use of crude language and sexual content in advertising.
Children’s advertising must not offend national or family values, or encourage hazardous or harmful activities. The three government bodies primarily responsible for the regulation of children’s advertising are the Ministry of the Interior, the Attorney General for Consumer Protection, and the Ministry of Health. The Federal Law on Radio and Television makes compulsory the approval by the Ministry of The Interior of all radio and television advertising. Advertisers must avoid: * Statements that promote racial discrimination or that denigrate or offend national heroes or religious beliefs. Statements that promote criminal acts, violence or vice. * The use of offensive language. * Advertisements that are contrary to public morality or values. * Statements or images that promote the consumption of alcohol, tobacco or illegal drugs. * Statements that may cause public alarm or panic. Federal Law on Radio and Television also provides that children’s programs can be transmitted at any hour. Television and radio advertising must never exceed 18% of the total time of transmission.
The Federal Health code extremely restricts the advertising of pharmaceutical products and harmful substances like alcohol, tobacco or pharmaceutical products: * Alcohol and tobacco may never be advertised during television or radio programs broadcast during time periods reserved for broadcasting suitable for all audiences (from 5 am to 8 pm); alcohol advertisements may not be broadcast before 10 pm. * Alcohol and tobacco products may never be given to minors. Children may not be used to sponsor activities relating to consumers under the age of 25 years. Alcohol and tobacco may not be promoted through raffles, contests or collectables intended for children. * Alcohol and tobacco advertising may not use models under the age of 25 years and must never show actual consumption of the product. * Tobacco billboards may not be located within 200 m of elementary or high schools, hospitals, public parks, sports or family centers. * Alcohol and tobacco advertising may never be shown in movie theatres during showings of movies that might be viewed by an underage audience. Alcohol and tobacco advertisements may not appear in elementary or high school materials of any kind, such as notebooks, rulers or books intended for school-age children. * Pharmaceutical products of any kind may not be advertised through cartoons that might encourage consumption by children. * Free samples of medication may not be distributed to underage consumers. We can conclude that our brand Nespresso is not going to be over restricted regarding its advertising campaign as it is not an alcoholic, tobacco, pharmaceutical or child product.
Nevertheless, Nespresso will have to be really attentive to the trademarks and the Intellectual Property Law and Rights. It will also be necessary to work closely on the radio and television programming. INDEX PART 3 I. COMMUNICATION STRATEGY l. Evolution of Communication Strategies m. International Promotion n. The Nespresso Club o. Events II. INTERNATIONAL STANDARDIZED ADVERTISING STRATEGIES a. TV Advertisings b. Prints c. Social Media Strategy III. RECOMMENDATIONS Since the implementation of its new positioning on the Business to Customer market in 1988, Nespresso has developed a very coherent and strong communication strategy.
In fact, every single event Nespresso launched (a new product, a new store, a new event or a new advertising) makes sense, strengthens its strategy and promotes its luxury positioning. Nothing is a coincidence. For instance, on November 7th of 2011, Nespresso opened its first store in an airport: the Orly Airport in France. The stake was not about the opening of a new store in France or of a first store in an airport; it was about providing a new service to its clients by making them get Nespresso capsules easier.
Indeed, in its communication report, Nespresso mentioned that this store does not aim at targeting new potential customers but at offering an additional service to the members of its community. In this part, we will focus on the characteristics of the international promotion of Nespresso. I. COMMUNICATION STRATEGY a. Evolution of communication strategies Nespresso’s success in a great extent depends on the communication strategies Nespresso took in its whole developing stages.
Nespresso actively get to know what the customers’ demands and expectations are through various researches and investigations in different countries. Besides, aiming at these various demands and expectations, Nespresso determined diversified communication strategies according to the brand’s different phases in life cycle, such as imitation phase, developing phase, and maturity phase. Due to the effective adoption of these communication strategies, the existing customers’ loyalty increase steadily, and an increasing number of potential customers switch to new customers as well.
Moreover, as the Nespresso developed and expanded, Nespresso’s managers pervasively applied the most effective communication strategies in the global markets, with special adjustment in different countries’ markets. As following stated, Nespresso applied several communication strategies during the development of Nespresso from beginning to the current period. Nespresso consequently started to select communication strategies of word of mouth in local boutique, word of mouth in outside boutiques, passive TV advertisements and prints, and other social media. * Word of mouth in Nespresso local boutiques
A key area of consolidation of brand image and reputation is the cultivation of customer loyalty. It is not surprising that more than half of all new Nespresso club members firstly try the brand through the existing customers. Hence, word of mouth is regarded as the brand’s strongest communication strategy by Nespresso’s maagers. The concept of boutique is Nespresso’s invitation to experience the unique world of Nespresso in its modern and stylish boutiques. In the boutiques, the customers also can have retail experience to satisfy customers’ every desire.
As well, Nespresso tries to offers customers a sense of timelessness in the Carpe Diem Lounge. Initially, Nespresso used the communication strategy of word of mouth to emphasize its simultaneous opening in Switzerland, France, Italy, Japan and USA in 1988. Through application of this communication strategy, Nespresso successfully diffuse the knowledge of brand and provide introduction of different products. Also, through this direct and fast communication way, Nespresso can efficiently recognize customers’ reflections and demands, and then correspondingly make adjustments to the current marketing strategies or change promotion ways. Massive TV commercials, other prints and social media After successful application of communication strategies of word of mouth in local and outside boutiques, Nespresso decided to promote its products and publicize its brand image in certain boarder ways. Therefore, Nespresso decided to take massive TV commercial strategies, and select George Clooney as the spoke person of the brand. Also, it was smart that Nespresso did not blast its way onto TV from the initiation, which is taking risk of “George over-kill”. However, let early adopters enjoy their findings first, and then expanded the campaign more broadly.
Moreover, the choice of George Clooney is based on his screen and off-stage image. The facts of marketing satisfactory prove Nespresso’s choice is right. Through the application of the massive TV commercials, the customers’ identification of Nespresso’s brand and products are increasing in a great extent. Besides the TV advertisement commercials are developed, the massive social media and prints are used as communication strategies in the current age, such as Facebook, twitter and related magazines. b. International Promotion of Nespresso * Communication strategy
The first characteristic of the Nespresso’s global communication strategy is its process: indeed, Nespresso decided to involve the members of its club community within the decision-making process like the choice of the star to embody the brand. The second characteristic of the Nespresso’s global communication strategy is the fact that it is always at the image the brand: luxury and grandiose. Indeed, Nespresso only associate itself with brands which have the same positioning. For example, in March 2009, the Haussmann Printemps building in Paris was covered by a tarp because the front of the building was renovating.
Nespresso chose this unique and large tarp as an advertising board to promote its machine Nespresso CitiZ. In France, the Haussmann Printemps is a symbol of the French high bourgeoisie. The two below pictures illustrate this unique campaign: The last characteristic of the Nespresso’s global communication strategy is its strong visual impact based on pride on notoriety. It is to the point, catchy and easily memorable. * Standardized advertising strategy According to Harvard’s Theodore Levitt, the needs and desires of consumers round the world are growing ever more homogenized implementing a large and unique market. This theory leads some international brands, like Nespresso, to adopt a standardized approach for its advertising. The first element which demonstrates this standardized strategy is the fact that most of the Nespresso TV commercials are in English, with subtitles in a foreign language (usually French or Spanish): – Nespresso Cab Driver with Spanish subtitles: http://www. youtube. com/watch? v=E4ImQSU7Kdo; – Nespresso Cab Driver with French subtitles: http://www. youtube. com/watch? =lK8SVWSmTQA. Furthermore, as the brand’s worldwide success is based on the creation of a unique Nespresso experience; its international advertising precisely illustrates this experience’s concept. This is the reason why most of the Nespresso’s commercials take place in the same atmosphere, a Nespresso’s store and enhance the same idea of “a high-standard brand”. To highlight this vision based on quality and high standards, Nespresso chose in 2005 to bring in the celebrity George Clooney in its ads; in 2008, John Malkovich was also featured in one of its commercials.
Celebrities in Nespresso’s commercials are a key international element; this is the reason why selected celebrities are international ones. In addition, the visual aspect of most of the commercials is similar. The colors are the one of the brand and the scene with the last drop of coffee fallen in the cup is in most ads (picture on the left side). Nespresso also invented what could be called the “Nespresso” original soundtrack. In fact, in all Nespresso’s commercials the same soundtrack is playing.
Therefore, the TV campaign developed by Nespresso was received with such enthusiasm far and wide that it really contributed to the worldwide success of the brand. In fact, sales significantly increased after its first commercial “What Else? ” with George Clooney. Last but not least, we identified two kinds of TV ads: on one hand, the “George Clooney saga” which aims at promoting the brand itself; on the other hand, the ads that aim at promoting the Nespresso products in which George Clooney is not featured. The following link is an example of the second kind: http://www. youtube. om/watch? v=29a2v041uZ0&feature=related. It is from April of 2011. If Nespresso developed global standardized strategy advertising, we noticed some small local adaptations. In fact, the last image of the TV commercials is the logo of Nespresso with its slogan “coffee, body and soul”. The language of the slogan is in the same language as the one of the subtitles. Below are two pictures with the French and the Spanish slogan. We can also wonder if this standardized advertising strategy is relevant for Nespresso as Switzerland and Mexico are two very different countries.
We chose to study some commercials in Switzerland and Mexico of the brand Nescafe to see if this lack of adaptation is an error or not. Nescafe is a brand of instant coffee made by Nestle; it manufactures and sells many different products worldwide. Therefore, Nespresso and Nescafe do belong to the same category