Group 4 Nespresso Case Final

Marketing Management Coach : Marcel Saucet

GROUP 4 : Yushi CHEN - Cindy CARIOT - Maxime CHEMELLO - Elsa CHATA - Christelle BUI

Introduction : Launched 30 years ago, Nespresso is a subsidiary of Nestlé and one of the world’s leader on the coffee market. The brand became famous through its coffee makers working with pods, it is also Nespresso who opened the coffee pod segment as it was the first company to launch coffee makers working with pods. Nespresso wanted to innovate by creating the “Nespresso experience”. In this case, we will analyze the company and its strategies through the SWOT.

SWOT analysis Internal diagnosis

External diagnosis

STRENGTHS

OPPORTUNITIES

A high visibility internationally: Nespresso, is part of Nestlé, which is one of the worldwide leader concerning consumer goods products: the turnover represents 58 billion euros, the company employs 250 000 people in 85 countries. So, Nespresso takes benefit from the visibility and the financial power of Nestlé. It enables Nespresso to have a better access to R&D and communication skills. Being part of the Nestlé Group helped Nespresso to become the European leader in the production of espresso machines. A high focus on the clients: One of the key factor of the success of Nespresso, it is that their strategy is based on their relationship with their clients. They listen carefully to the consumer needs and demands in order to promote fidelity within their clients. Excellence and high quality products are part of their strategy. Hence, the products have some particularity in order to enhance the unique aspect of Nespresso: - Very high quality products and a large range or aromas (12). - Airtight capsules in order to preserve the aroma. - Practical, convenient and designed machines to attract a large public. A wide range of services in order to improve customers’ satisfaction: - Personalized advises 24/24, 7/7 on coffee, its tasting and on machines maintenance.

The economical crisis doesn’t have enormous impact on coffee sales, so despite some decline, coffee is still one of the most worldwide popular beverage (approximately 1,5 billion cups consumed everyday) Coffee market in French is worth 1,105 billion euros, it still has potential to dig and grow Drinking coffee at work (e.g. coffee time) isn’t just about taking a break; it’s also a way to socialize with other people – it’s a western culture. And with the development of globalization, there is potential growth in developing countries such as China since people with different cultures come together. The year 2002 has seen an increase of prices because of the emergence of organic coffee, coffee of higher quality, etc. In coffee markets, the capsule segment is increasing rapidly since 1990 (e.g. In 2005, 57% in volume and 56% in value, then it increases 30% per year after that) In the capsule coffee market, there is hardly any existing producer can do as good hard capsule as Nespresso does, which means Nespresso can operate more in this field

- Deliveries are guaranteed within two working days, when customers order on the web site. - Personalization of the clients: each client is considered as a special member and feels unique when he receives his e-mail to tell him that he might run out capsules. Promotion As the concept of the Logo, the company wants to illustrate an image of perfection. This research of perfection is made through experiential marketing. -Stimulation of the senses through the theatralisation of the stores, which are arranged to create a convivial atmosphere, where people can meet to drink coffee. -Personalized services -Communication: choosing a star such as Georges Clooney to promote the brand is a really efficient promotion mean by the fact that Georges Clooney embody distinction, prestige, high quality, and high demand. A customer will think that if Georges Clooney drinks this coffee it is because it is very high quality product and he will think that he has at least one thing in common with a star: they drink the same coffee. An efficient R&D policy to promote innovation: Nespresso machines are combining, an attractive high design, a high practicality, and a high technology to make coffee Entry barrier on the market Even if, Senseo concentrate a big part of the market share. It is very hard for competitors to take market share for Nespresso because the brand deposited 1700 patents. Moreover, the brand is the only to make capsule which fit the machines, so when a customer buys a machine, he knows that he will have to buy only capsule from the brand. A distribution channel Nespresso first chose to distribute their products through B2B services. The brand is present in hotels, restaurants, luxury goods stores which improve the brand image of prestige.

Customers are ok with the price of capsule coffee/machine and willing to spend money if such quality and facility are worth paying

WEAKNESSES Target very elitist The target of Nespresso are people from 28 to 49 years old, getting a city life and being refined and hedonist. They are people that express their social status through their consumptions and they like to show themselves and what they get. The way that the brand taps the market is weak Indeed, its prices are too high (0.31 € the Nespresso Capsule, 20% more expensive than the other brands : 0.16€ for Casino) and there is any distribution of the coffee in the supermarkets and hypermarkets so it’s difficult for the consumer to supply himself. Production of trash The recycling centers of capsules are not large enough yet . Moreover there is now a problem of adaptation to the new responsible consumer, so the company has to develop its R & D solutions.

THREATS Coffee market is in a wide competition against soft drinks. In fact, the consumption of coffee has decreased significantly for 30 years with younger consumer and soft drinks consumption has raised. It can be explained by the high difference of communication budget between soft drinks and coffee, from 5 Billion for Coca-Cola to 100 Millions for Nespresso. The new focus on health and well-being is dangerous for Nespresso because Coffee is not considered as a healthy drink, so it is not recommended. Even if water and juicy drinks are healthier, coffee trends develop new coffee consumption. In France, even if the consumption of coffee has raised in value (+ 4.6% between 2005 and 2006), it has decreased in volume (Minus 1, 2% in volume, between 2005 and 2006). That could be a problem because coffee is a basic product so there is a high price competition. And consumers are extremely sensitive to prices.

Patents The protection of the Nespresso patents can be harmful to the company Traditional offering on coffee marking is losing grounds. The low-cost segment and the top of the range segment (capsules) only are dynamic and still rise. But these segments are very competitive in terms of innovation and communication. Capsules are not environmentally friendly because they can’t be recyclable. Coffee bars are very competitive too, such as Illy Café, Malongo, Ségafredo, Starbucks, Nespresso…

There is a consumer paradox: they want environmental and societal friendly products (it explains the growth of fair-trade segment) and they look after practical products. This case study has really helped us to understand the strategy of Nespresso. The brand has been able to take advantage of its strenghs and of the available opportunities. This included an attempt to offer its customers a real feeling of belonging to an elite group. Thanks to that, Nespresso’s customer are very loyal. This is very good model. However, there is a big threat for Nespresso, at these times of people awareness about global

environmental issues, the brand have to rethink its strategy towards ecology. Pods are a real catastrophe for the environment so they have to think about other solutions. Even if they try to come up with solutions, their solving like for example the fact that customers can bring their used pods in Nespresso shop is still not satisfying for a lot of people. Thus, to stay afloat in a very competitive environment, Nespresso must concentrate its efforts on environmental issues.

1) Strategy and marketing mix at Nespresso a)

Targets and Positioning

Target B to C: The main target of Nespresso are people from 28 to 49 years old, getting a city life and being refined and hedonist. They are people that express their social status through their consumptions and they like to show themselves and what they get. Target B to B: Hotels, restaurants, luxury shops, companies, airlines companies… Positioning : The key positioning of Nespresso is that the brand « propose to live a fabulous experience through a coffee tasting that linked pleasure, graceful and elegance”. Nespresso is the creator of the capsules concept. They want people to take part of Nespresso Club.

b)

Marketing Mix

Product

Nespresso products are synonym of high quality – not only about the high quality coffee or the machines, but also about after-sale service, which provides consumers more than just drinking coffee, but rather “the ultimate coffee experience”. It can be sensed from the logo of Nespresso – the “N” that represents the male/female balance, which also is a reminder of Chinese pattern of the perfect Yin/Yang. This is in coherent with the company strategy of offering unique product and experience in order to establish the premium brand image with coffee capsules and an extensive selection of machines. Apart from this inseparable pair of two items, provided by Nespresso is its accessories. Customers can choose their favorites from the three categories within a wide range of different features (e.g. colors, flavors, etc.) The Capsules The finest coffees in the world are blended, roasted and ground with the utmost skill in each Nespresso capsule that is made of aluminium. Customers can choose by aroma, intensity, and cup size as they want from The 16 Grands Crus in different colors. • ESPRESSOS: consists of 7 kinds of capsules (Ristretto, Arpeggio, Roma, Livanto, Capriccio, Volluto, and Cosi). These capsules with different aromas have the intensity level in the range of 1 to 10. For example, the intensity of Cosi is 3. • DECAFFEINATOS: consists of 3 kinds of capsules (Decaffeinato Intenso, Decaffeinato, Decaffeinato Lungo). As is shown by the name, this particular segment

contains no caffeine, but the process and skills used by Nespresso still preserve the entirely natural flavors. • LUNGOS: consists of 3 kinds of capsules (Fortissio Lungo, Vivalto Lungo, Finezzo Lungo). These three are served in Lungo cup (100ml). • PURE ORIGINE: consists of 3 kinds of capsules (Indriya from India, Rosabaya from Columbia, Dulsao from Brazil). What’s special about this range is the fact that there’s no mix with other aromas in each kind, so is to say that they are pure.

The process from the bean to the cup takes 9 stages: cultivation, harvesting, processing, transport, blending, roasting, grinding, capsule system and finally, decaffeination. Nespresso utilizes the unique technology and controls all stages of the production in order to ensure coffee of consistent quality, therefore to reach the strategic objects of the company. The Machines The Nespresso coffee machines are beautifully designed and easy to use. Also, customers are free to pick what they want from a wide range of machines since there are different colors and functions. • PIXIE: consists of 6 kinds of machines (KRUPS PIXIE – electric red, MAGIMIX PIXIE – electric lime, KRUPS PIXIE – electric indigo, MAGIMIX PIXIE – electric steel blue, KRUPS PIXIE – electric titanium, MAGIMIX PIXIE – electric aluminium). Ultra Compact Nespresso Brewing Unit with ergonomic capsule insertion and automatic ejection of used capsules. Machines of this range automatically switch off after last use, and exclusive to Nespresso Pixie, automatic illuminated water level detection.

ESSENZA: consists of 11 kinds of machines (KRUPS MANUAL – piano black, MAGIMIX MANUAL M100 – grey, KRUPS MANUAL AEROCCINO – piano black, MAGIMIX MANUAL AEROCCINO M100 – grey, MAGIMIX AUTOMATIC M100 – smooth silver, MAGIMIX AUTOMATIC AEROCCINO M100 – smooth silver, KRUPS AUTOMATIC – piano black, KRUPS AUTOMATIC AEROCCINO – piano black, MAGIMIX AUTOMATIC M100 – glam red, MAGIMIX AUTOMATIC AEROCCINO M100 – glam red, KRUPS AUTOMATIC – titanium). This range is featured with automatic volume control and used capsule container (12-14 capsules). It is a basic type of Nespresso. •

CitiZ: consists of 10 kinds of machines (KRUPS CITIZ – fire engine red, MAGIMIX CITIZ – limousine black, MAGIMIX CITIZ – retro white, MAGIMIX CITIZ – silver chrome, MAGIMIX CITIZ & MILK – silver chrome, KRUPS CITIZ – titan, KRUPS CITIZ – frosted Aluminium, MAGIMIX CITIZ & MILK – white, KRUPS CITIZ & MILK – fire engine red, MAGIMIX CITIZ & MILK – limousine black, KRUPS CITIZ & MILK – titan, KRUPS CITIZ & CO – grey, MAGIMIX CITIZ & CO – black limousine). The Nespresso Citiz & Milk coffee machines feature a Nespresso Aeroccino Plus on the same base, to froth and warm milk for lattes, cappuccinos and frappuccino. •

LATTISSIMA: consists of 6 kinds of machines (LATTISSIMA – red, LATTISSIMA – black, DELONGHI LATTISSIMA – gris tech, DELONGHI LATTISSIMA – premium, DELONGHI LATTISSIMA – chrome, DELONGHI LATTISSIMA – creamy white). LATTISSIMA uses premium Nespresso capsules for fuss free, consistently excellent expresso – perfect for people who want the time saving benefits of a capsule system without sacrificing the quality of the coffee. •

CUBE: this used to be one type of the machines, but now it is no longer available. All the Nespresso coffee machines are covered by 3 or 2 Year Guarantee, and it is worth pointing out that “the Nespresso coffee machines are the only machines that are capable of revealing the true character and rich aroma of the coffee contained in each capsule”, which is to say that Nespresso creates an exclusive market for its products with innovation and simplicity, and this is also from a view of comprehensive marketing perspective. •

Price

Comparative prices per cup (average of 7g of coffee per cup)

Ground pure Arabica coffee for traditional filter machines Type of coffee

Monoprix Carrefour Jacques Vabre Maison Du Coffee Alter Eco Malongo

Ground Ground Ground Ground Ground Ground

Arabica Arabica Arabica Arabica Arabica Arabica

Price per cup

packet packet packet packet packet Bio and fair trade packet from fair trade source

0.046 0.057 0.076 0.084 0.092 0.092

€ € € € € €

Coffee in doses Brand

Type of coffee

Price per cup

Monoprix Carrefour Jacques Vabre Maison Du Coffee Alter Eco L’or Dolce Gusto Tassimo Malongo Malongo Nespresso

Soft capsule Soft capsule Soft capsule Capsules Senseo Soft capsule Soft capsule Dose Capsules T disc Capsule 1,2,3 Spresso Capsule fair trade 1,2,3 Spresso Capsule

0.10 0.11 0.13 0.16 0.17 0.23 0.25 0.25 0.25 0.28 0.31

€ € € € € € € € € € €

As we can notice on the table, Nespresso offers the most expensive capsules on the market: from 0.31€ to 0.37€ for special products. The fact that the brand deposited the numerous patents, it is really hard for their competitors to reproduce capsules which fit the machine. So Nespresso is not threatened by the competitors and can take benefit form a situation of monopole. They don’t have to reduce their prices since they know that the customer will have to buy the Nespresso capsules if they want to use their machine and when a customer buys a Nespresso machine, he knows that anyway he will have to buy Nespresso capsules. Buying a Nespresso machine is choice of the customers which bonds him to be fidel and loyal to the brand. Moreover, through the promotion, the brand image conveys the idea that all Nespresso customers are exceptional and prestigious. To have an access to these special services, the customer will have to pay a spread. That is why, Nespresso practices a policy of high price and the customers agree to pay for it.

Place

Nespresso based its distribution channel on his Nespresso Club, its shops and its website: The Club: to join this club, you have to buy a machine. The club and the shop are the only two ways to buy capsules. The shop is a key factor of differentiation for Nespresso, it helps Nespresso to develop sales and to improve reputation. These shops are present in big cities (15 in France), they are design and elegant, inside we discover a real sensory experience and there is a personal service.

The sensory experience: warm atmosphere, chic, design, elegant, a perfect universe to sample and appreciate a coffee. The website: there is an online shop via Nespresso Club. The consumer discovers the Nespresso universe, all the product, the cleverness for a perfect tasting. Nespresso is in direct relation with the client all the time and it helps him to make his choice. The website is very experiential because it reminds the consumer every ambiance of Nespresso, each universe. It reminds also Nespresso shops with the design of the website. Nespresso uses direct distribution channels; they want a direct contact with the consumer during the sale. Two categories of product are different in their distribution channels: the capsules and the machines (and attachment). You can buy capsules only via: Internet and the website www.nespresso.com mostly for capsules, but 3 times on 4, consumer add an attachment. Phone: this is the most relevant example of direct sales. In Nespresso shops: this is a small distribution channel that looks like a gallery and always place far from supermarket. Fax Post Via the Nespresso Club You can buy machines only via: Same distribution channels as capsules Huge non-alimentary stores as Galerie Lafayette, le Bon Marché. GMS/GSS Nespresso uses mass retailers to sell their machines so as to: stay competitive To develop competition The consumer has to use Nespresso distribution channels For professionals, Nespresso offers one week free try of two Machines: the ES 100 and the ES500, and after they directly sale their machines. But for capsules even professionals have to buy these on Internet, and Nespresso creates a special place for them: the Nespresso professionals club

Promotion – Communication The "Grands Crus" Nespresso, an actor full of sex appeal and class but also global gray matter... The company Nespresso has distinguished itself with the quality of its products and its smart service but also thanks to aa very strong and organized communication strategy! Who is behind Nespresso and how the communication of the company works? Response. They use mainly three ways of promotion:

Television Displays Newspaper Media communication is a very powerful way to promote Nespresso products and its luxury image. It also allows the company to be close to a large number of it targets. Nowadays TV has shown to have a big influence on people, and the company achieves it goals by casting a famous actor who also has almost the same image as Nespresso. Moreover this ambassador, Georges Clooney has been chosen by the member of the Nespresso Club things that strengthens even more the idea of proximity with the customer. The brand promotes a luxurious and an elegant image. However, it doesn’t target the whole customers, Nespresso now tries to develop its image and get a reputation among the general public. The first operation in this direction was the advertising campaign with George Clooney (See some example of TV ads below). A huge success if we rely on the results obtained: Recognitionscore = 66% (standard 31%) Accreditation Score = 85% (standard 56%)

http://www.youtube.com/watch_popup?v=DfyeXrdZZ1o&vq=small http://www.youtube.com/watch_popup?v=UjtwCf5WWUU&vq=medium#t=114 Displays are also a very strong way to promote Nespresso everywhere: the stop bus, the bus, the Ad displays in town etc. The company chooses to target according to the cities and by frequency. The strategy could then be adapted according to the will of the company to attract new customers in some cities in which it feels like there is some potential. (See some example of Displays ad below)

Finally, magazines and press ads are very important to reach the upscale customers. Nespresso has also its own magazine that allows special customers to be aware of tendencies and of launching of new products of the company. (See some example of Nespresso magazine front page below)

Nespresso's positioning is very high. Not only does the packaging and the communication campaign help the differentiation but the identification of the customer to the brand and the products ensures a great loyalty from them. But Nespresso does not only use traditional channels of communication, it surf more and more on the trend of experiential marketing. With Nespresso, we do not just drink coffee: it is " Ultimate Coffee Experience". Experiential marketing, by taking into account the imagination, the feelings, the senses, can develop a strong relationship between the consumer and the brand. Nespresso has developed a part of its marketing surfing on this new trend. A philosophy that FutureBrand Paris, design agency owned by Interpublic group, has been declining for seven years in the overall communication strategy of the brand. In brief… •Visual impact : The products' design is simple, classy and modern. • Identification : Product quality, seduction of the ambassador. • Positioning Symbol: The luxury positioning is obvious through the quality with the price as a vector of evidence. • Information to the consumer : Exclusivity of sales in Nespresso shops or on the Nespresso website. Nespresso products are only compatible between each other.

c)

Recommendations

Nespresso is well known as a very good brand on the coffee market. In order to carry on being one of the world’s leader, it has to : - Base on the consumption trendies and on the consumer’s needs

-

Besides, one of the best strategies the company has to follow would be to innovate for every product and every campaign Communicate a lot in order to establish itself in front of clients as the best. Finally, Nespresso should widen its target but by still keeping its upscale positioning.

Sources http://visionary.wordpress.com/2007/03/13/nespresso-la-marque-qui-donne-l %E2%80%99exemple/ http://habitat.rdc.fr/2010/01/nespresso-les-rois-de-la-communication-de-luxe/ http://www.strategies.fr/actualites/marques/r42129W/nespresso-a-toute-vapeur.html