NESPRESSO

Introduction

Launched 30 years ago, Nespresso is a subsidiary of Nestlé and one of the worldwide leaders of coffee market. The brand became very famous thanks to the coffee maker based on capsules. More than a simple coffee, Nespresso managed to create litterally a “Nespresso experience” by its innovative concept. All this case long we are going to analyze the company and is strategies throughout the SWOT, the positioning, the targeting ant to finish the marketing mix of the brand.

SWOT analysis:

External analysis:

Opportunities Threats

Coffee becomes one of the most popular drinks in the world. More than 1.5 billion cups are drunk, every day, worldwide. Huge market.

Coffee is facing stiff competition from other soft drinks. Hard competition on this sector.

«going out for a coffee » has become synonymous with informal meetings or social occasions.

The advertising campaigns that have been developed by the soft drinks companies, have communication budgets significantly higher than those of the coffee companies.

Over the last 30 years, one can observe that non-alcoholic soft drinks have become much more successful.

Current trends which emphasise paying attention to one's well-being and health tend to favour the consumption of so-called healthy drinks which are beneficial for the body such as fruit juices and mineral waters.

New types of coffee consumption are developing notably via the success of American-style coffee bars such as Starbucks.

Traditional offerings on this market are losing ground.

Sales in terms of value progressed slightly as a result of the increased popularity of fair trade coffee and capsules (Nespresso, Tassimo, Senseo, etc.), both of which have a strong growth potential.

Prices for end users have increased significantly.

Some of the consumers are ready to pay more for a more upmarket coffee.

The hard discount channel is increasing its influence on this market.

Capsules have proved popular with coffee

enthusiasts of all ages, and it is therefore not surprising that Nespresso see this segment as a strategic growth opportunity.

The dynamism in this market has obviously been accompanied by a significant rise in the number of specific machines sold for the capsules segment.

The roasted coffee market has also seen significantly improved performances for fair trade products.

There is also increasing awareness of issues associated with fair trade and sustainable development.Customers are extremely responsive to promotional offers on coffee.

Consumers are more and more demanding about the quality of their coffee.

Consumers also expect an increasing ease-of-use in relation to coffee.

Consumers are increasingly taking ethical issues into account in relation to their consumption of coffee, and hence the fair trade coffee segment has grown strongly.

Internal analysis:

Strengths Weaknesses

The coffee industry has recorded record profits every year since 2001.

coffee consumption among young people has declined significantly

Coffee is the most traded commodity in value on world markets with the exception of oil.

Over the last 10 years world prices for coffee have fallen steadily, reaching a low of 44 US cents per pound of Arabica in 2002.

The coffee market in France is worth 1.105 billion euros and represented 143 089 tonnes in 2006

The sale price of coffee that goes back to the producer is minimal once all the middlemen have taken their cuts. Some of these intermediaries are renowned for singularly unscrupulous business practices.

The capsules segment has increased by 57% in volume and 56% in value during 2005 in the mass retail channel. The market has grown by approximately 30% annually since 2005.

Coffee is mainly drunk in northern countries. Most of the producer countries drink, considerably less, both in quantity, and in quality, and frequently only instant coffee is available to them.

Machines from Nespresso can produce real espresso.

Capsules system is not environment-friendly.

Nespresso chain outlets are now competing with Italian brands Illy and Segrafredo or other players such as Starbucks Coffee and Colombus Coffee.

Customers are extremely sensitive to pricing.

Club Nespresso provides personalised advice 24 hours a day 7 days a week on coffee, how to use the product and maintain the machines. It is also a sales channel for ordering capsules, machines and accessories and guarantees delivery within 2 working days.

There is also a technical issues hotline which is open from 8am to 8pm on weekdays and from 9am to 7pm on Saturdays.

Technicians provide assistance with regard to machine returns, repairs, replacement machines and after-sales issues.

Nespresso prides itself on providing special services to companies which choose to install machines in their offices. Similar service is provided to hotels, restaurants, luxury goods stores and airlines who serve Nespresso to their customers.

They also provide personalised follow up for the customer. This depends on how much coffee the customer buys and reminder emails are sent when the company thinks the customer is likely to run out. Anyone who buys a Nespresso machine is automatically made a member of the Club. It is also possible to join the club directly through the website.

Diagnosis and advices:

Coffee industry is a very thriving one, it has a huge market with great opportunities. Coffee is the most popular drink in the world. This sector is very dynamic with famous and useful innovations such as the Capsules or Nespresso machines; both have a strong potential. Capsules and Nespresso machines are a strategic growth opportunity. Consumers pay more and more attention to quality of coffee and some are ready to pay higher price for a more up market coffee. They also expect a more ease to use relation to coffee. So, Nespresso has to keep on innovating to fulfill consumers’ needs. Analyzing consumers’ needs and aspirations in terms of coffee could be a great mean to achieve those objectives and adapt the offer to consumers needs.

Nespresso has to face a hard competition from the others soft drinks that have higher communication budgets. Moreover, the current trend for health and well being act in favor of so called healthy drinks such as fruit juice, smoothies and mineral water. So, Nespresso has to keep being competitive on the sector, it should increase the communication budgets and focus on the benefit on health of coffee.

Coffee business is renowned for unscrupulous business practices, so Nespresso has to improve its involvement in issues associated with fair trade and sustainable development. Brands must therefore deal with the paradoxes that exist in relation to consumer demand: they must market inexpensive yet high quality products that are easy to use and ethical.

Targeting and positioning

The target aimed by Nespresso is the consumers Top of the range.The customer typifies in between 28 and 49 years, he is urban, likes pleasing and is an art lover.The new target aimed by Nespresso at present is the young assets. Indeed according to the CEO of Nespresso it is the young assets which are going to allow making increase the equipment rate in coffee machines.Concerning the location of Nespresso it is a question down from Range with a policy of creaming.Indeed the price of coffee machine Nespresso is appreciably more brought up than a coffee machine Senseo (at least 50€).Of more Nespresso try to refer to its image top of the range luxury and class not only in its Coffee but also in his shops who are generally situated in the very rich streets of cities, but also in their association with Star like George Clooney or the participation in events as Rolland Garros, Of America Cup.The creation of the Club Nespresso adds a luxury touch to the concept.

Marketing Mix

Product:

Nespresso proposes 3 different types of products.The espresso machines: they are manufactured by 6 different companies and combine technological technology, simplicity of use and innovative design. There are 5 different ranges of machines available in different colours and able to deliver a sufficient pressure to make a true espresso which is not the case of all coffee machines (Senseo, Tassimo).

Nespresso also produces capsules which preserve all the aromas of the coffee and are available in a wide range of flavours (16 different flavours). These capsules can only be used with the coffee machines of Nespresso. Thus, the customers can choose the aromas of their coffee but can’t choose the brand and the price: they have to buy the Nespresso capsules.

Nespresso proposes accessories linked to the espresso machines and the capsules. The customer can buy several objects such as coffee sets, trays, storage racks for capsules and more sophisticated accessories. The espresso machines are even delivered with a set of cups especially designed for Nespresso.

Buying an espresso machine and capsules, the customer enters in a club which permits him to enjoy Nespresso services. The Nespresso Club offers advices about the coffee, the maintenance of the machines and permits the customers to order coffee machines and

capsules. The customers can enjoy these services in Nespresso shops, on Internet and by phone.

Place:

There are four different channels of distribution.

First, the espresso machines are distributed in electrical goods shops. The potential customers can only buy a coffee machine in this kind of shops, the capsules and the accessories are not distributed in these shops.

The customers can also buy espresso machines, capsules and accessories in the 15 Nespresso shops in France (42 around the world). These shops are the base of the experiential marketing strategy developed by Nespresso. All has been designed so that the customers make themselves comfortable: the atmosphere is warm, there are chairs… The potential customers can taste the different flavours of coffee, try the espresso machines and listen to the advices of specialised salesmen. The aim is that the customers see the purchase as a pleasant experience which will make them want to come back in the shop and buy other Nespresso products. These shops are a real show window for the brand, to show to the customers the “Nespresso’s drinker way of living”.

The coffee machines, the capsules and the accessories are also available on Internet and by phone thanks to the Nespresso services. However, these services are reserved to the members of the Nespresso club. Thus, the customers have to register trough the website and/or buy an espresso machine to enjoy Nespresso services and order capsules. Indeed, buying an espresso machines, the customer enters in the club which permits him to order capsules by phone and on Internet (the capsules are only distributed to the members of Nespresso club).

Price :

The capsule’s coffee proposed by Nespresso is a luxury product. So the price of the capsule is very high (0,31 Euros) : we can indeed notice that the price of the product is the higher of the market, three times higher than the retailer’s brands that are invading the coffee’s market. But Nespresso is also widely more expensive than some famous brand like Jacques Vabre for example whose capsule are sold at 0,13 Euros.

The Nespresso’s products are voluntarily more expensive because of the image of the product. Nespresso wants to give a luxury and upscale image to his products and play on the design and on the quality to justify the price. The Nespresso’s products are products which are bought by wealthy customers. The customers are ready to pay a higher price to have a different and high quality product, but also for a very good customer’ services (with the club) and a very personalized relation with the firm.

Promotion : The last advertising campaign on Nespresso was a real success. The advertisement shows the actor George Clooney in different situation and saying the slogan which is now famous: “Nespresso, What Else? “. The communication was huge for this campaign and the results are impressive: according to surveys, this campaign has a 66% of knowing and 85% of appreciating of the coffee’s customers. This was really memorable for the customers and the popularity of the product knows an incredible increase. George Clooney is a very adapted for the product: his image and his style are very close to the product and Nespresso’s customers. And he is a consumer of this famous coffee. This is the first all-public advertising’s campaign of Nespresso which aim to have a most important popularity in the public. The previous campaign and communication was more elitist and aim to reach a reduce target.

Nespresso communicates on the fact that they offer a lifestyle with the product and a new image to the customers. If they buy the product, they enter in the “club”, which looks like a group of privileged people, they are just living something different. The advertising campaign is also created to start a buzz. He is announced like a date where people will be impatient to discover the new spot. The release of the advertising is always a real event.Nespresso communicates also in sponsoring boats on famous sea’s race like for example ‘la coupe de l’America”. It is always a communication which is respectful of the image of Nespresso. They use their image only in upper communication and in communication representative of their customers.

They also decide to promote a more sustainable and ethic image. They associate their image and create some product Nespresso faire trade and sustainable development. They just want to correct their image because their capsules for the coffee are more polluting than the competitors and have a bad effect on the earth. They also want to associate their image to this because their upper-class customers are more interested in this ethic aspect than others customers. In fact, it is a trendy way of consumption for wealthy people. They want to share the same values than their customers.

They also develop very interesting sales promotion: Nespresso knows that their coffee maker works only with their capsule. So they make promotion on the coffee maker to make people buy it and customers who have already buy it at a low price are oblige to buy Nespresso capsule and that’s why the coffee maker is not really expensive. They play on the exclusivity of the capsule Nespresso on the coffee maker.

The direct marketing make between Nespresso and the customers: Nespresso makes a one to one relationship with every customer which is member of the club Nespresso. The first advertising campaign of Nespresso was on this club. Nespresso is doing direct marketing in order that the customer feels that he is a privileged and has all the attention of the firm. The service is come with a newsletter to inform the customer about the evolution of the firm (not advertising) and a reminder of order calculated on the frequency of purchase. This is possible because Nespresso has a lot of information about their customers and know what their habits are and what they like.

Conclusion

Throughout this study case we try to explain the key elements of Nespresso’s strategy. The brand knew how to take the good opportunities to grow and develop itself by creating a real feeling of belonging and an important loyalty of its customers. This is a very good model.

However, at these times of people awareness about global and environmental issues, the brand should maybe think more of others solution, these capsules being a real disaster for the environment. Even if they worked a lot on it, their solving is still not satisfying for a lot of people. At these times of fair trade and sustainable development, what could happen if a brand gives the image (wrong or right) to do not be very interested in the global issues ?