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Nestl”s Nespresso

INTRODUCTION During the 70s, Nestle anticipates the growth of the market of the up-market coffee and is inspired by the original concept of the inventor of the espresso Luiggi Bezzera. The principle is simple: offer directly at home or to the office the quality of espressos served in the best Italian cafes. Based in 1986, Nespresso looked like pioneer on the market of the portioned out coffee and introduced a new tendency which will be adopted all over the world.

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And since the subsidiary of the international group Nestle did not stop surprising: more than 3 million customers worldwide, a growth superior to 30 % during 6 consecutive years and crossed for the first time the billion Swiss franc cap of turnover in 2006. The concept Nespresso leans on a trilogy: the best big vineyards of cafes, machines in espresso ingenious in the elegant design and finally, a service outstanding personalized customer. Nestle Nespresso S.

A, whose seat is to Paudex, in Switzerland, counts more than 2500 employees, markets directly its products with its consumers in more than 50 countries and manages more prestigious 160 shops situated in most big cities of the world Cafes contained in capsules Nespresso result from various regions of the world such as Brazil, Colombia, Costa Rica, Guatemala, Togo, Kenya and Ethiopia. Its range includes ‘espressos’, a range which samples in small cups (40 ml), and ‘lungos’, for the big cups (110 ml), without forgetting the editions limited by variety show of coffee produced in limited quantity and for a while given.

Nestle Nespresso limited company maintained, from its debuts, the narrow business connections with manufacturers of famous household electrical devices and carefully selected. Every partner hatches is responsible for the distribution, for the marketing, for the referencing in boutiques and the after-sales service of the machines of its own brand. At the moment, Nespresso accounts 10 partners for domestic custom’s machines with, offering various models of machines Nespresso. Machines and capsule Nespresso Professional are also available on the Internet site, www. nespressopro. om, as well as through a network of importers and independent distributors, subsidiaries of Nestle Nespresso limited company and local structures of the Group Nestle. Today, the activities “except place of residence” of Nespresso represent 25 % of the turnover of the sales of portioned out coffee. And to seduce the consumers, Nespresso uses big means: place of boutiques, design of machines, glossy paper magazine, secondary purified… Nothing is left at random, everything is thought to evoke the refinement of the brand. The success of this company represents an interesting book case; a case of rare innovation.

That’s why we chose Nespresso. In the present work, we shall approach first of all the history of Nespresso since its launch until our days. In a second time we shall speak about the marketing analysis of the company as well as about main competitors. After the study of the strategy, we shall enclose this report by recommendations. 1. 0 BACKGROUND TO COMPANY: Strategy’s history In the 70s, the Research and development services of Nestle turn to an integrated system: a machine receiving doses ‘encapsulated ‘of coffee, every dose corresponding to a cup of coffee of 50 cc.

They invent the capsule of coffee freshly ground and its concept of extraction of the coffee under pressure. Nestle, world leader of the coffee “mass market” gets ready to attack the segment of up-market ” premium coffee ” thanks to this technical innovation say. A first patent of the process is registered in 1976 by the centre of development of the Group Nestle. It is only in 1986 that the marketing begins. First of all, by the creation of the company Nespresso S. A, the wholly-owned subsidiary of the group Nestle to Vevey.

Then Nespresso dashes by targeting the Business to Business market, particularly that of offices and restaurants. The company opted for Switzerland, Italy and Japan as country of starting up of its activity of marketing. Turmix, a Swiss company, took charge of the production of machines. Nespresso bought the capsules of coffee from Nestle, the machines to Turmix and dedicated itself to its marketing in association with a Swiss distributor ‘ Sobal ‘. But the success is not there: sales do not exceed 875 machines first year and it will not be better next year.

We are in 1988, Nespresso begins to wonder about the efficiency of its strategy and in order to boost the company, appoints a new general manager: Jean-Paul Gaillard who decides to change all the strategy. He asks on one year of respite and a marketing budget of 1. 6 millions. His purpose: make of the ‘capsules percolator’ a luxury. Nespresso thus decides to transfer to the private individuals, and chooses to replace the word “capsule” to speak about “vineyards “like wine and about “limited series “.

As for the distribution, it will be exclusive and direct for the capsules of coffee by introducing the concept of “Club Nespresso” which will allow its members to buy that by mail, telephone and fax (internet recently). Year 1989, the new strategy is launched in Switzerland. JP. Gaillard made a test, in 1990, on the market of the United States by changing variety of coffee to adapt itself better to the customs of the American consumers. At the end of the year the club counted already 7700 members. In 1991, The Nespresso system is introduced in France, in Belgium in Germany and In the Netherlands.

And in 1994, Nespresso penetrated into the market of airline companies (First and business class) with its new machine ‘Nespresso Aviation System’. Present in 15 countries in 1995, Nespresso granted licenses of production to the other manufacturers in a precise purpose: the improvement of the performances, the convenience of use as well as the design. Nespresso S. A blew its 10 candles of success, in 1996, with 3 500 selling points and 180 000 members. Targeted the sector of restaurants and hotels in Belgium and in France and went in Great Britain, in Malaysia, in Singapore and to Taiwan.

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In 1998, it expands its field of action thanks to a new Web site completely dedicated to the members of the club so offering the possibility of ordering on-line 24 hours a day, and 7 days a week. This distribution channel also provides a personalized service, advices on blends of coffee and the maintenance of machines. In 2002, the production capacity of capsules is multiplied by 4 to answer the future growth and the orders placed on Internet know an increase of 94 % during year. The deals on Internet represent then 30 % of the turnover of the company.

After 5 years of research and development, Nespresso launches in 2003 the first machine Nespresso Concept Automatique which allows the preparation of capuccino. Other important point: the company goes into the sustainable development by trying to combine quality of selected vineyards of coffee and condition of production according to the rules of the sustainable development with its program AAA Sustainable Quality. It was a good initiative, especially after the different criticisms that the company received.

Notably as regards to the capsule Nespresso which is in aluminum, hence pollution and a spending of energy, not compatible with the brand image and the ‘Natural image’. Given that the success of Nespresso and the unitary daily consumption, this problem of the lack of recycling presents a big blackhead at the same moment on the ecological plan and of the image. In 2005, the sales of the coffee machine Nespresso Essenza contribute to make of Nespresso the European leader of machines in ‘espresso’.

Then in 2006, Nespresso does not hesitate to engage the actor George Clooney further to the choice made by the members of the club among a list of celebrities which they had subjected them. The use of this actor as media vector aims above all at consolidating the positioning of Nespresso as a sophisticated brand and up-market. Nespresso’s figures: World Turnover 2007: 1 034 600 000 milliards Number of stores: 160 Number of clients: 3, 6 millions Number of machines sold in the world: 1, 4 millions

Number of capsules sold in the world: 2, 3 billions Market share 2007 of the espresso market: 26, 7 % 2. 0 MARKETING ANALYSIS 2. 1 MARKET TRENDS Coffee’s consumption Source: National Coffee Drinking trends study Coffee is the most popular beverage worldwide. In 2008, 17% of the adult population consumed this gourmet drink everyday, compared with 14% in 2007. What is more, positive health messages drove the consumption Espresso’s market (2008) Type| Market shares| Individual coffee pods/portioned coffee| 57%|

Traditional| 19%| Filter combined| 12%| Automatic| 10%| Espresso without pump| 2%| As we can see, this market is essentially characterised by individual coffee pods’ sales. Types of most popular home espresso machines Espresso pump machine (Nespresso’s): automatic pump to create the perfect amount of water pressure (usually the most expensive) Lever or piston machine: manual or human powered pump to create the pressure it needs to make espresso. The quality of the coffee can vary, as it depends on human power.

Steam powered machine: works by heating water and using steam power to create the pressure needed (usually the cheapest and often the worst quality) Moka pot espresso machine: works by boiling water in the bottom of the pot, creating steam and then forcing that steam through the coffee and into the top portion of the pot. Overall, trends are favourable concerning the espresso’s consumption. Thanks to positive messages about coffee and health, people are slowly changing their mind. The sector is developing well, creating opportunities.

More and more people buy home espresso machines and this trend will certainly follow its growth. 2. 2. TARGET AND POSITIONING The target | Types| Characteristics| B to C| * Members of Nespresso Club * Prospects| * From 35 to 60 * AB| B to B| * Hotels & restaurants * Luxury retailers * Companies * Airline companies| * Sponsors et partnership with events organizers * Conference rooms * Welcome rooms * Hotels, restaurants and cafes * Airlines * SME * Big companies| Needs in B to C| Needs in B to B| To consume differently but in a better way * Need to be pleased and to dream * To search for new sensations * Innovative products * High quality products * To believe in key values of the company * To create a ceremonial atmosphere around the coffee’s tasting as if it was a high quality win * Recognition through the Nespresso Club * To access the best coffee of the actual market| * Innovative and up-market products => brand image * High quality products to offer to customers or associates * Value of exception emitted by the Nespresso brand * To give to the company or to the event a modern, innovative and dynamic image through an up-market brand * To offer a delightful moment * Recognition trough the Business coffee solution| Actually, Nespresso’s typical customer is either a person linked to the statue conveyed by the brand and attached to the quality of the service, or a hedonist attached to the quality of the product. Positioning Nespresso’s positioning is up-market, in terms of quality and service. The brand is the worldwide leader of the up-market coffee. Nespresso aims at profitability per unit and their return on investment rather than volumes. This is the reason why the brand targets a niche with high prices. 2. 3. ENVIRONMENT 2. . 1 PEST Analysis Key points| P| * The smoking ban: impact on coffee machines’ sales| E| * A luxurious machine for a high purchasing power| S| * Coffee can be considered as a social habit| T| * Implementation of the latest new technologies| Politic The only interesting political aspect in this case is the smoking ban. Indeed, this law has created a change of atmosphere in all public premises where people were used to have a coffee. Several pubs and cafes have been affected. Some smokers have preferred to have their coffee at home and to make it taste as good as cafes’ ones, they invested in high quality coffee machines. Economy

Coffee’s market is characterised by very strong prices’ fluctuations. Like in every market, coffee’s price is regulated by the ratio between the quantity of coffee available and the amount of people who want to consume some (in fact, this amount represents the quantity coffee merchants need to buy). If the quantity of available coffee exceeds needs of coffee merchants, coffee’s price decreases. Conversely, if there isn’t enough coffee to satisfy demand, the price increases. In this way, this international prices’ instability may, at any time, increase or decrease volumes of supply or demand. But the world’s actual economic situation influences those fluctuations.

Indeed, recession affects everyone and it is leading to new behaviours and new consumption strategies. Nowadays, coffee’s supply overtakes demand. However, people targeted by companies like Nespresso are usually wealthy. This is the reason why sells of ‘luxurious’ coffee machines have increased for a couple of years. Social According to market trends, coffee is the most popular beverage worldwide with over 400 billion cups consumed each year. It usually refers to social and family gatherings. Coffee is also associated with ‘white collar’ jobs and office workers. Nowadays, coffee breaks at work are considered as social habits as they are pleasant ways to chat and relax.

However, young people and elderly people restrict coffee’s consumption. Indeed, young people usually prefer soft drinks and seniors care about their health. Technology Coffee’s market is characterised by high technologies. Each coffee merchant is looking for the latest technology in terms of capsules and coffee machines; 19 Bar pressure pump, automatic and programmable coffee quantity, capsule container, cup-warming side plates, electronic control of the level in the water tank are examples of inevitable new technologies found in modern coffee machines. However, most of these new products don’t correspond to actual environmental criteria. 2. 3. 2 SWOT Analysis ————————————————-

STRENGTHS * Diversification: in parallel with its activities in the ‘home’ sector, Nespresso extended to ‘out-of-home’ segment (hotels, restaurants, cafes, aviation, SME) * Up- market positioning * Fame and brand image: high quality coffee perceived by the customer as a luxury product * Personalized marketing: Nespresso Clubs (luxurious shops which represent Nespresso’s universe) and website * Own capsules: avoid competition and reduce distribution costs * Constant innovation: to maintain its brand image, Nespresso deals with sector’s leaders such as Krups, Miele or Siemens * Growth higher than 30% per year * Knowledge: an exclusive accessories range of high quality * Experimented sales force| ————————————————- WEAKNESSES * Limited target: from 35 years old with a high purchasing power * Mono-use of the coffee machine * Ethic and practical issues concerning capsules * High competition with lower prices and good quality equipment * Limited distribution: only through the Internet, by phone or in Nespresso shops| ————————————————- THREATS * Competitors: numerous and strong * Capsules’ patent comes to an end in 2012: if competitors reduce capsules’ price, huge margins realized at the moment won’t endure anymore * Multi-use coffee machines: people like to have many options (hot chocolate, tea…) * Negative environmental image| ————————————————- OPPORTUNITIES * Development on American and Chinese markets * Opening of new shops * B to B * The young’s market| Thanks to its positioning, Nespresso’s sales increase a lot every year since the company’s creation. Indeed, Nespresso wants its coffee and its coffee machines to be considered as luxurious products. However, even if they’re meant to target a niche, more and more people buy those products. For example, during offers periods customers can afford the simplest coffee machine for only ? 50.

In fact, the company’s turnover is not based on machines sales (only 4%), they are more considered as a strategy. When Nespresso first set up, it offered free machines to companies. Once the customer has the coffee machine, he can only buy Nespresso’s capsules. On the one hand, this system represents the main strength of the company but on the other hand, it can be perceived as a weakness. Indeed, many people are not used to buy through the Internet for several different reasons and there aren’t enough shops. Moreover, Nespresso’s coffee is often too expensive for potential customers. But Nespresso has planned to open new shops all around the world in order to become more accessible.

The Nespresso Club is a good way to add a luxurious value to products. It creates a privileged relationship with customers. What is more, the experimented sales force of the company will be able to open up new products, new coffee machines and different kinds of coffees. 2. 4. COMMUNICATION ANALYSIS Direct marketing Through its whole communication, pleasure and quality is always at the heart of Nespresso’s strategy. Having a coffee isn’t an everyday act anymore; it became a real sensorial experience. To understand this deep experience proposed by the company, it is necessary to get first into a Nespresso shop. Indeed, this is where Nespresso’s communication starts.

In the shop, everything’s meant to create an unforgettable atmosphere characterized by luxury, peace and sensual pleasure. A very nice and smart employee welcomes potential customers. They directly feel comfortable and are happy to follow him/her to discover products. In this environment, each coffee machine looks like the perfect last element that will complete the decoration of the potential customer’s kitchen or living room. Moreover, a large range of tasting implements is nicely presented: cups, glasses, teaspoons, shakers, chocolates, sugars… and of course coffee. A vast number of coloured capsules are exposed, and obviously it is possible to taste them.

Once the coffee machine and capsules bought, customers become members of the Nespresso Club in the same way as Georges Clooney! Hoarding campaign Nespresso chose the American actor Georges Clooney to represent the brand. Through this choice, the company expresses the following message: drinking a Nespresso is kind of being like Georges; it means integrate the elite, access a higher rank. Advertisers use here an identification process: they push consumers to adopt some behaviour and some feelings from the person they would like to be. The aim of this campaign’s strategy is to impose Nespresso as a worldwide brand and to reinforce its icon statue.

Georges Clooney is The man who best represents Nespresso’s values, as he is sophisticated, chic and charming. Georges, as the brand’s ambassador, gives some legitimacy and some leadership to Nespresso. Actually, this campaign is based on two types of purchasing motivations. Coffee refers to a simple life’s pleasure but a Nespresso aims to be considered as a kind of ‘magic’ desire. This delightful idea of having a Nespresso at home is a hedonist motivation. On the other hand, advertisers use the fact that having a coffee has become a social habit so having a Nespresso machine is a good way to ‘show off’, as it can represent an extern sign of success. This is the auto-expression motivation. Visual analysis The logo

The N of Nespresso is made of curves, which brings dynamism to the word. This shape and warm colours refer to the idea of a nice coffee and to relaxation. We can also imagine an allusion to Italy. There is a direct relationship with yin and yang: that remembers equilibrium. Yin is associated with moon, which represents the feminine part of nature. Yang is associated with sun and represents the masculine part. The visual way Nespresso’s advertising is adapted to the European market. Indeed, the picture is meant to be red from the left to the right and from the top to the bottom. The lighting, the look and the hands position guide the audience to the slogan, then to the machine and to finish to the brand.

The main colour used is black; it remembers coffee. Georges Clooney is at the centre, he directly catches the attention. There is a hand-play and a look-play. His eyes are creating a delicious moment of impatience. The composition is simple, there are few movements; Georges is acting as a figure of authority. Concerning the slogan ‘Nespresso: What else? ’, the italic typeface remembers the idea of quickness when making a Nespresso. What is more, this short question refers to seduction, still according to the brand’s up-market position. Press relations * Communication relating to events Nespresso always organises an event when a new product is launched.

For example, the brand organised a big show in December 2007 at ‘Bon Marche’, Paris, to promote 2 new coffees. Nespresso is also an active partner in gastronomic events, such as the Bacuse d’Or competition and the selection of the World’s 50 best restaurants. * Press reviews The press reviews’ selection is strategic. Nespresso is present in some magazines, some newspapers, and in specialised reviews of information, strategy and opinion leader. * Press Once again, the choice of magazines is strategic. Nespresso’s ads are published in some magazines like feminine up-market, travels, sciences, decoration, news and economy. Most of Nespresso’s ads are double-page. Nespresso Magazine The brand has its own magazine. It targets all the members of the Nespresso Club. The magazine is published three times a year and distributed in about ten European countries. The magazine’s main topics are coffee and lifestyles. It is a 64 pages magazine with no more than 10 pages of ads for luxurious brands. * TV and Cinema In 2006, Nespresso started to broadcast TV spots of 10, 30 and 50 seconds. Thanks to Georges Clooney, this operation has been very successful. However, it is through its campaign destined to cinema that the brand caught all the attention (75% of memorisation against 15% for TV). 3. 0 COMPETITORS ANALYSIS

On the market of percolators we attend an increase in the number of partnerships between household appliances manufacturers and big food groups: * Kraft foods et Braun : TASSIMO * Nestle and leaders in the sector of espresso machines such as Krups: NESPRESSO * Philips and Sara Lee: SENSEO * Procter and Gamble, Black and Decker and Krups: HOME coffee * Kraft foods and Braun: TASSIMO 3. 1 TWO LEVELS OF COMPETITION Coffee market offers a lot of segments: powdered coffee, instant coffee, coffee beans, capsules…Each kind of products offer variants: Classical coffee, decaffeinated coffee, Arabica coffee… Domestic electrical appliances market offers various products: coffee pots, espressos, percolators… Concerting to capsules’ market, two kind of systems exist: * Closed proprietary systems: Nespresso, Tassimo, that is to say machines which only work with the brand’s capsules * Open Systems (easy serving espresso): De Longhi, all compatible brands. Coffee market:

Monodor, Swiss also, which sold 500 millions of capsules in 2006 in the world (against 2, 3 billions for Nespresso). The same design, the same complexions, the same naming with Italian consonance and the same rates as those of Nespresso. The leader of Monodor, Eric Favre, is the inventor of the concept of capsule used by Nespresso. According to the last rumours, he would recently have signed a discreet agreement with Lavazza. Three times smaller with 227 million euros turnover and an annual growth of 10 %, Illy and its cafes-shops (since 2001) aim at the same clientele as at the Swiss roaster. We can sample the coffee in cups there drawn by the biggest designers or make it some purchases of capsules.

Hyper Espresso, the new Illy‘s machine already distributed in certain restaurants will be available for the general public via two new machines launched at the end of the year (approximately 250 and 390 euros). It will require only Illy plastic capsules. Selling price: 0, 39 euros each. Starbucks, leader of the retailing and the roasting of coffee with more than 10 000 stores distributed between North America, Latin America, Europe, the Middle East and peaceful region. Starbucks made 7, 8 billion dollars of turnover in 2006 and realized an annual growth of the sales of 20 %. The company launched in the United States compatible capsules with the system Tassimo (Kraft Foods), it also collaborates with the car manufacturer BMW and the manufacturer of coffee machines Saeco for the launch of a new machine in espresso, Sirena.

Luigi Lavazza is an Italian active company in the coffee market. At the world level, Lavazza distributes approximately 1, 8 billion drinks a year. This company operates in the sector of the espresso in capsule for more than 15 years with the systems ESE, Espresso Point and, since 2004, Lavazza BLUE (Best Lavazza Ultimate Espresso). Lavazza is present in 80 countries and acquired an international fame. Today the sector “Professionals” of Lavazza represents 50 million euros. Domestic electrical appliances market Philips Senseo : Senseo is a coffee machine spring from an association between Philips and ‘Maison du Cafe’. The main asset of this coffee pot is its speed and simplicity of use.

We do not use any ground coffee in bag, but capsules, don’t need to measure anymore, similar for the water, it is measured meadow following the number of cups which we wish. Furthermore, the taste remains considerable and the froth gives one plus to the coffee natural. Key Factors of Success: Speed of use, simplicity of use, design, taste. Philips cucina : This second coffee-pot of Philips, is less popular than the Senseo. This is principally had to the fact that its use is totally different. No capsules, but ground coffee and filters. Less rapidity of use, but simplicity is always present. The principal asset of this machine is its design and its simplicity. Key Factors of Success: simplicity of use, design. De’longhi espresso : Another different coffee pot.

Here it is the same system of use that the previous one, but this coffeepot is more worn towards the quality and taste. Indeed, its main asset is the taste which it produces and its froth as well. Key Factors of Success: taste. Moulinex crystal, Moulinex cocoon : These two machines are similar; this is the reason why they are examined together. Work as the philips cucina, with ground coffee and filters as well. Their major assets are design and simplicity. However, they are common to many coffee pots. Key Factors of Success: simplicity of use, design. Tassimo: This is a machine which does at the same time filter coffee, espresso, cappuccino, chocolate and tea.

Its capsule, called ‘T-disc’ and patented, is endowed with a bar code which allows to recognize the drink and to adapt the preparation. A single button orders the use of the machine. Key Factors of Success: Speed and simplicity of use, design, taste, quality and practicality. 3. 2 FIVE PORTER’S FORCES Competitors The main Nespresso’s competitors are: Compagnies : Philips et Sara Lee in 2002 Target : general public Price : 69€ Capsules: 0,13-0,19€ and compatible with the others percolators Main competitor, Senseo established itself as the leader of capsules. The technology is simple and cheap, so easy to access, confirmed by the sale volume. We notice a big increase in + 37. 5% for Nespresso, and + 30% for Philips Senseo.

Senseo which is often directly criticised concerning the fact its offer is not a true coffee espresso, for lack of sufficient pressure, has just reacted with a kit espresso (carries filters & capsules) being able to adapt it on the machines which already exist. Its positioning is very generalist in comparison with Nespresso which promotes a up market brand image and which aims a certain clientele. Nespresso insists also on the quality of its coffee as being an exception coffee, and does not skimp on the means to assure to its clientele the better services and advices. Kraft foods and Braun : TASSIMO Target: all drinkers of hot drinks Price: 129,99€

Capsules : 0,22-0,28€ This is a machine which does at the same time filter coffee, espresso, cappuccino, chocolate and tea. Its capsule, called ‘T-disc’ and patented, is endowed with a bar code which allows to recognize the drink and to adapt the preparation. A single button orders the use of the machine. Since its launch in France in 2004 until at the end of 2006, more than two million systems of drinks Tassimo were sold in seven countries. Kraft Foods awaits of its brand Tassimo, a turnover of 200 millions of dollars this year. The threat of substitutes: Tea and infusion are markets with ‘well being references’ contrary to the coffee. Each year, 2. millions of metric tons of tea are produced in the world and about 1,200 billion cup of tea are drunk per year, hence 36,000 per second, which corresponds to an average annual consumption of 600 grams per year and per person. Soluble and other coffee varieties: the coffee market in capsules would not represent in 2006 that 3% in volume and 7% in value of the total quantity of consummate coffee in the world. But, nowadays the coffee market increase where sales stagnate. The power of suppliers: About coffee: the coffee market is characterized by fluctuations rather frequent because of the fact that it is governed by the offer and the request, which influences the coffee prices.

Example: In 2006, Starbucks had bought its grains about 36% above the course of the stock Market of New York. This American offensive constrained Nespresso to align itself. The Swiss business thus paid a premium of 33% in comparison with the average course of the stock Market. However, Nespresso has a partnership with a NGO working for durable farming. For the machines: Nespresso has partnerships with the machine builders. There are many brands in competition each other: Krups, Magimix, Siemens, Miele …That allows Nespresso to check easily the pressure of the suppliers. The power of customers: The customers have a strong pressure on the market because they have access to a diversified choice.

However, for the systems owners, the pressure is inverted, indeed, once the machine bought, the customer can only to use the corresponding capsules. In addition, the stagnation of the consumption of coffee gives to the customer a certain influence on the sector. Potential entrants : * Procter & Gamble * Kraft foods et Braun * Philips et Sara Lee * Salton * Monodor * Illy * Starbucks * Lavazaa The threat of the potential entrants is quite strong all the more so it is the matter of big groups such as Procter & Gamble or Salton. Concerning to competitive force, the pressure is even more important as a consequence of the presence of many competitors on this sector. Competitive Rivarly:

In this sector it is very pronounced as a consequence of the fact that there are several competitors which take strategies of growth and base themselves on the innovation technological of the products. The competitive pressure is strong considering to the variety of the products and the power of competitors. Some of them do not hesitate to produce open systems, that is to say, usable capsules with others machines. The market is attractive and does not really represent barriers to the entry, that’s a real potential. 3. 3 NESPRESSO COMPARED TO COMPETITORS MULTI-DRINKS CAPSULE VARIETY (COFFEE) MACHINES QUALITY (Power) ACCESSIBILITY CAPSULES PURCHASE POSITIONING (upmarket) COMPETITIVENESS MACHINES & CAPSULES PRICES BRANDS MATCHING

PRESENCE IN THE MARKET (Time) Nespresso Tassimo Senseo 4. 0 NESPRESSO’S STRATEGY Since its creation, Nespresso has experienced several policies and several strategies which were not always successful, until now. Indeed the current strategy of the company is a clever association of knowledge, creativity and innovation which transformed the firm in a real and particular concept. Nespresso is now one of the most known brands on the coffee market. 4. 1 CORPORATE STRATEGY 4. 1. 1 Differentiation Strategy To deeply understand the Nespresso’s corporate strategy, we based our reflection on the Generic Strategies analysis by M. Porter. | COMPETITIVE ADVANTAGE| Specific feature seen by the costumer| Low cost policy of the company| COMPETITVE SCOPE| Broad| DIFFERENTIATION| OVERALL COST LEADERSHIP| | Narrow| FOCUS/ NICHE STRATEGY| Analyzing the principal characteristics of Nespresso we can think that they use the Differentiation strategy. Indeed, the differentiation strategy implements other factors than the price in order to differentiate the product or service from the competitors. The Nespresso’s strategy is based on a high quality product and on a luxurious brand image. If you buy a Nespresso product you belong to the selective “Nespresso Club” which provides lots of personal advantages and personal status to the consumers who are ready to pay a high price.

The company offers a perfect espresso for hedonist and elitist people who reflect a special way of life: the more than 30 year old urban people with a high purchase power. Nespresso use the differentiation through the top with a high price and value: The “Virtuous Circle” of the differentiation through the top: Characteristics| Risks| * Intuition and Creativity * Innovation * Business * Partner and cooperative distribution network * Good brand image| * Difficulties to manage the additional cost due to the differentiation * Wrong perception from the costumer * Imitation of the differentiation factor * Lose the interest of the differentiation factor from the costumer|

We can easily link this model to the Nespresso concept: their creativity innovation and intuition are perceived by the rarity, the quality and the image of the range of capsules or machines they sell. It is perceived as well by the concept of “Club” and of belonging to a high community just drinking a delicious coffee which answers to their target using the esteem need of the Maslow’s hierarchy. Its distribution network is an entire part of its concept: luxurious places where consumers can join people sharing the same taste and feel the personal status Nespresso gives them. Concerning the brand image, Nespresso is now one of the most famous brands thanks to its clever communication and to the face of the company: George Clooney.

At the moment Nespresso keeps its competitive advantage and is still a reference in the high quality market. Consequently the firm is still avoiding the risks linked to this strategy which is the main reason of its incredible success. If we follow the Strategy Clock of Bowman, we can explain why the differentiation strategy succeeds so much. Indeed, the perceived added value sufficient to bear a premium price. The target buys not only an espresso machine but the whole culture of Nespresso which give them the possibility to join an elitist community and reach particular privileges. 4. 1. 2 Internal Growth Strategy The internal growth strategy of Nespresso is clear: Penetrate and spread.

The company currently wants to conquer new markets shares thanks to a strong marketing campaign at once “push”: cinema, television, billboards and “pull”: direct marketing, website, sponsoring, in order to become and stay the leader on the capsules coffee market. The firm established an internalization strategy. It has recently implemented some stores in the United States and in China. Nowadays, Nespresso is represented in more than 50 countries by 160 Nespresso boutiques in 2008. Two different kinds of internalization strategies are possible. The first one is the Multinational strategy: the organization’s activity is implemented in a new area and then modified according to the country’s specificities.

Nespresso is developing the Global strategy: it proposes on the whole area it covers a standard offer. Nevertheless, the international development of the brand succeeds thanks to a good knowledge of the coffee consumption habits which is very different in each country. According to that, it adapts its strategy to each new market, privileging sometimes the loyalty aspect of the concept and sometimes to conquer new costumers. 4. 1. 3 External Growth Strategy An external growth strategy could be defined by a merger and acquisition process, by an assortment of companies or by a partnership of different firms. Nespresso’s strategy is defined by the last one.

Indeed, the firm established strategic alliances with some famous companies as SIEMENS or TURMIX (KRUPS) to develop some of their activities like coffee machines. According to the contracts those companies have to respect the Nespresso’s criteria manufacturing design, refined and luxurious items. Nespresso cooperates as well with the RAINFOREST ALLIANCE, one of the most important ONG supporting agriculture in order to create the NESPRESSO AAA program which certifies the quality of their product. The objective of this program is to produce a high quality Green coffee according to the economics and social consequences for the local producer and to the environment’s respect. 4. 2 ACTIVITIES’ STRATEGIES Nespresso SA is one of the most efficient strategic business units of the Nestle group.

Therefore, despite the fact that the company owns several activities none is corresponding to a strategic business unit. Nevertheless, as we said the firm operates on different market segments thanks to 4 developed businesses: the sale of espresso machines, of coffee capsules, of accessories and the managing of many luxurious places around the world. In order to deeply understand the company strategy and to produce a complete study, we will present the different businesses Nespresso proposes and then its strategy applied for each of its market segment using those businesses. 4. 2. 1 Nespresso’s Businesses Presentation Espresso machines The espresso machines represent the main activity of the brand and generate the most important profit.

The company has created 40 models according to the different needs of the target. The machines are manufactured by partner companies as Siemens, Miele, Alessi, Koenig, Turmix, De’ Longhi, Magimix and Krups. They differentiate themselves by a unique design and a luxurious aspect which perfectly reflect the Nespresso’s image. As an example, the most famous machine is the MAGIMIX M110 sold for ? 116: New compact brewing unit technology, 19 bar pressure pump, thermoblock heating element, automatic and programmable coffee quantity and available in different colors: “What else”? Those machines represent a high technology inside a refined aesthetic.

Concerning the distribution network, it is a traditional one: we can find some machines in hypermarkets, mail order or in specialized shops. More than 18 000 points of sale have been counted. Coffee capsules The Nespresso’s range of coffee capsules is composed of 9 different blends from the decaffeinated to the strongest one. The espresso blends come from the finest coffee-producing countries: Brazil, Columbia, Costa Rica, Togo, Guatemala, Kenya and Ethiopia. Capsules cost ? 0. 25 each and customers can only find it on the Nespresso official website or in Nespresso boutiques. According to Daniel Lalonde, International Commercial Director, 24 capsules are sold each second somewhere in the world. Accessories

In order to perfectly complete their offer, Nespresso sells to its consumers all the accessories which are necessary to make their coffee break a design and elegant moment. A wide range of coffee cups from ? 8. 81 to ? 44. 04 each, sugar bowls, chocolate, items to heat the milk, recipe glasses, candles, Shaker, cappuccino kit, spoons, trays and more. Under the words “Presentation is everything” Nespresso makes its consumers understand that they cannot drink such a delicious coffee without sophistication. The Nespresso Boutiques The Nespresso boutiques and bars boutiques are the heart of the Nespresso communication strategy. They are allowed only to “Club members” and are the showcase of the brand. Consumers belong to the club as soon as they buy their first machine.

From this moment they are able to buy the capsules and the accessories and they benefit from a personal service for information or reclamations. Moreover they are able to enter the luxurious boutiques in order to taste new blends, buy some products or just enjoy their time in beautiful and refined spaces. Those boutiques generate about 25% of the company’s annual turnover in B to C. In order to create those elegant and design spaces the brand worked with the famous French architect Francis Krempp who realized the plan of the biggest boutiques. Each new boutique is strategically located in the most elegant and famous street of the biggest urban centers. We currently count about 160 boutiques and bars boutiques around the world. 4. 2. 2 Nespresso Markets Segment

The company operates on two different markets segment, the Nespresso Business to Consumers division for customers or Club members and the Nespresso Business to Business division for the out-of-home sector. In a very competitive environment, the brand is positioned as leadership and as the only distributor and owner of aluminum capsules and particular machines’ patents. The Nespresso’s challenge is that in 2012 the capsules and machines’ patents will become public giving to the competitors the possibility to create machines with the same technology and the corresponding capsules. Therefore, in the following part we will analyze the strategies that the company is currently using in order to keep its position on the market. Nespresso applies different strategies for each market segment. 4. 2. 2. 1 Nespresso Business to Consumer

In this section the target are the members of the Nespresso Club, the new costumers and the potential customers. Machines promotions and new customer strategy Nespresso aims to conquer new customers until 2012 proposing some promotions on machines at special occasions of the year. The brand wants to develop its consumer panel thanks to reductions for the new buyers, for the club members and for partnerships. The Partnership is the fact that a consumer “pushes” another person to buy a machine, and then the consumer gets a reduction. The club members are the best promotion support for Nespresso, indeed a consumer who talks about the brand to 10 people for example, gives it between 3 and 5 new potential customers.

Moreover, once the customer buys his first machine, he becomes a member and therefore he has to buy the capsules and enter in the Nespresso’s database. Differentiation strategy The Coffee: In order to keep its dynamic image, Nespresso markets, once a year and in a period of two months, two new coffees from a small production: Spring limited edition, autumn club edition and variations. Those very high quality coffees are punctual and limited offers which goal is to make the customers come into the Nespresso boutiques. Those products are very rare and consequently, it does represent a differentiation because Nespresso is the only brand which proposes a different offer from the classic range. Finally the variations are another kind of limited editions: it is a range of flavoured coffee.

Machines: In order to differentiate itself from the competitors, the company created a “pack machine” which contains an instructions file, 12 capsules and some promotional leaflets on accessories. Accessories: As a luxury brand Nespresso has different season’s collections of accessories: The Autumn/Winter collection and a Spring/Summer collection. The firm is the only one which creates its own accessories on the coffee market. Loyalty strategy The main strategy of the company in B to C is the loyalty strategy based on an important loyalty program: * The “Welcome in Nespresso” concept * The website * The “Nespresso Club” * The mailing and emailing campaigns * The phoning campaign called “Nursing” Newsletter in the monthly Nespresso magazine The “Welcome in Nespresso” concept: This loyalty program integrates on one year long the new customers thanks to discovery boxes or promotions. This strategy not only strengthens the Nespresso perception and its brand image it also allows it learning more about their consumers from the beginning, encourages members tasting different blends and buy accessories and generates important orders. The website www. nespresso. com: Useful loyalty tool, it generates about 37% of new members. Indeed the consumers can buy some items online and regularly check the new offers and promotions. The “Nespresso Club”: The main dvantage of this concept is to create a long term relationship with the consumer because he belongs to the brand club since his first purchase. He will regularly receive some mailings and emailing and therefore he will be in regular contact with Nespresso. Mailing and emailing When a new customer enters in the Nespresso’s database he often receives personalized mails about the club services, the accessories, machines and some satisfaction surveys. Nursing: Nespresso phones all new customers one month after their first order asking them about their opinion about the Grand Crus and the practicality of the machines. They also remind him the club services.

Public relations: As we said previously, the Nespresso magazine is delivered only to the best consumers of the brand. It is mainly about coffee but also about different subjects about the luxury sector. It is considered like a privilege for those who receive it. 4. 2. 2. 2 Nespresso Business Coffee Solutions This division of the firm targets companies from different sector: Offices, hotels and restaurants, luxury retails (luxury shops, spas…) and airlines companies. The B to B prospecting strategy Prospecting: Nespreso is currently prospecting new business customers using tools as a trying brochure or telephone number in order to fix an appointment to try a machine.

The objective of this strategy is in a first step to establish a contact with the potential business customer for a free try and in a second step to measure his potential and his needs. Try and contract: During the try session the aim is to introduce “Nespresso Professional”, inform the potential customer about the different products and services, create a first impression and engender the signature of the contract. Loyalty strategy: As the B to C loyalty strategy, the company that Nespresso is targeting will receive a welcoming pack, some phone calls (nursing) and a satisfaction survey. 4. 2. 2. 3 Market segments’ strategy conclusions On the whole we can say that the B to B division is now a mature segment where Nespresso mainly has to develop its relationships with its customers.

Nevertheless, despite the fact that the B to C division is well developed and well positioned on the market, the company still has to conquer market shares and customers around the world. Indeed the machine selling is a very important part of the Nespresso’s profit and needs to be increased. CONCLUSIONS AND RECOMMENDATIONS Unique Personalized Service High Design Machines High Quality Coffee In conclusion, according to the market trends and the Nespresso’s sales, the company is on a successful way. Success which began with its resources, indeed Nespresso owns decisive intangible resources which are its several patents, its relationships with high technology industries and quality coffee producers around the world and finally, its brand image.

They are completed by an inventive strategy management team: the firm’s main tangible resource. Those resources engender the Nespresso’s distinctive competencies: Ownership of high technology and design process, worldwide coffee supplying and an efficient differentiation strategy. The final result of the Nespresso’s competencies is the now famous trilogy of competitive advantages: That is how Nespresso became one of the most famous coffee brand and that despite high price products, sales exploded. The competition could be severe however each competitor has a different positioning which protects the company from directs competitors. All future consumers are conquered by the system and rapidly become a Nespresso Club member.

About the future of the company, it recently conducted a democratization strategy targeting younger customers creating the Essenza and Compact ranges. The reason is probably because their target is getting older which could become risky in long term speaking. The expansion of Nespresso Boutiques confirms that theory, the company is trying to catch the attention of a larger population. As we said the firm has to develop its machines sales as much as possible and young people seems to be a perfect potential target. In order to reach this aim Nespresso should develop its range of affordable machines keeping a dynamic and innovative feature but giving to younger people the access to the brand. Nevertheless, they should not target people under 25 in order to keep their high quality brand image.

Recently some competitors launched new technologies able to produce not only coffee but hot chocolate and tea as well. It could be an interesting evolution for the company, still in a view of getting the target larger. Indeed the tea market is full of potential with an increasing demand. Moreover, to attract young people Nespresso could create a special range of machines with a trendier aesthetic, keeping its refined design with a touch of dynamism. As final recommendation, Nespresso should find an alternative to the aluminum capsules which are in contradiction with the environmentally friendly and natural image that Nespresso desires to have. Indeed aluminum is known as a very polluting material.

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