Restoring Model Relevance: Nestlé Nespresso
There is a very interesting story in The Guardian about Nespresso, Nestlé's espresso machine with its colorful, elegant foil coffee capsules. The article traces the history of Nespresso from its innovative origins to its current situation, dubbed "trundling on" without the sophisticated boast of its early days. The author wonders if the branded Nespresso business can survive despite the fact that the brand is considered environmentally friendly and based on snob appeal.
Yes, Nespresso can be revitalized. The brand has to reconnect with the preferences, habits, lifestyles and values of the customers. Over the years, Nespresso continued to support a promise that had lost its relevance, and as we know, losing relevance is a formula for failure.
According to the article, Nespresso has made some critical missteps. In a rapidly changing world, speed in responding to new customer requests, problems and needs is critical to successful survival.
It is regrettable that Nespresso has problems, as the branded business is based on a strong vision that it should translate into sustainable profitable growth. Nespresso's original vision, formulated in 1975, was "… to build a world where espresso is available at home". To put that vision in a chronological context, it wasn't until the 1980s that Starbucks became Howard Schultz 'Starbucks. Today, as people watch life at home, Nespresso's vision may take on new relevance if only the brand could revive its 30 year track record. A viable and lively “plan to win” is essential.
A “plan to win” follows an 8-P structure: purpose, promise, people, product, location, price, advertising, performance. It's a roadmap for high quality sales growth. It is an alignment document that ensures a company is focused on making progress towards its north star. It is also helpful in defining the main problems Nespresso is facing.
Purpose and promise
Having a compelling, potential dream is fundamental to a branded business. A branded business vision articulates a future world in which your brand will win. It offers a common, accessible north star on which all employees concentrate.
Nespresso has defined a compelling North Star … a world where espresso is available at home. In this world, Nespresso promised an elite, globalized “club” lifestyle experience where members are part of a sophisticated, exclusive, global community of espresso lovers.
Nespresso had two visionaries. The first (original) visionary was Eric Favre, who came up with the idea for the product and the vision. Mr. Favre built the machine. He designed the way the hot water interacted with the coffee in the capsule. The second visionary was Jean-Paul Gaillard, who changed the Nespresso premise from a product to a luxurious way of life. His concept was to be the Chanel of coffee. The Guardian reports that there were "personality clashes" between the founding engineer and the artistic marketer for two years. There was competitiveness as to who should receive the praise for Nespresso's success.
Nespresso helped create a category of home appliances from scratch, with online membership and sales that tapped a particular emerging exotic coffee mood. Not a device, Nespresso has made espresso making at home a luxurious lifestyle choice. In its prime, Nespresso sales exceeded £ 500 million.
Nespresso kept its capsule patents protected. This ensured that Nespresso coffee pods were the only ones that could be used in the sleek machines. Keurig, its main competitor in the US, with its ubiquitous K-cups, is "open source" and many of America's most popular coffee brands and tastes can be used in Keurig machines.
Nespresso went to court to protect its patents but lost the cases in Europe in 1992. Eventually, third-party manufacturers began making Nespresso model capsules using non-Nespresso coffee grinders. This could have spoiled Nespresso's luxurious, sophisticated image.
Espresso is a drink that is enjoyed in small cups. In the US, coffee drinkers – especially morning coffee drinkers – unlike European countries use large cups or travel mugs and have gotten used to Starbuck's 16-ounce, 20-ounce, and now 30-ounce beverage containers. The USA is a Grande, Venti, Trenta nation. Car cup holders can accommodate large cups, not small espresso cups.
Although Nespresso eventually developed a larger size machine, the Vertuo, the branded business should have responded faster. Many US coffee drinkers were also unused to having espresso in the morning, preferring less bitter options. Starbucks' original blend is darker, but customers have all sorts of add-on options to add to the bitterness. And Starbucks K-Cups come in many different blends.
Nespresso focused on the globalization of taste. That worked at first. When people around the world began to reject global tastes for local / regional flavors and personalized coffee preparation, Nespresso's homogeneity became a threat. Nowadays, artisanal coffees are "luxury" or small quantities highly localized. Starbucks made coffee personalization accessible. Nespresso kept its uniform taste. As The Guardian quotes, Nespresso is referred to as the "microwave meal of coffee". Far from the Chanel of Coffee.
In the beginning, Nespresso capsules were ordered online. Monsieur Gaillard founded the online club. In order to promote the promise of luxury living, Monsieur Gaillard saw luxury retailing as a necessity. Nespresso's decision to open fancy retail stores may have made sense at the time, but it also contributed to its declining performance. The focus on luxury Nespresso boutiques may have stolen eyes and resources from profitable online retail. And businesses have suffered from coronavirus.
Originally, Nespresso was an international European brand with no presence in the USA. The small, dark espresso from Nespresso matched the European taste. In the US, Keurig was and is the reigning capsule-based coffee maker for the mass market. Keurig's K-cups fill many food shelves in the coffee aisle, and a variety of coffee brands use the K-cup capsule including Dunkin & # 39 ;, McDonald & # 39; s, Green Mountain, Starbucks, Cinnabon, Newman & # 39; s Own, Peet & # 39; s and Folgers and Café Bustelo.
To compete with Keurig, Nespresso made a cheaper coffee maker, but used behavioral science and the model of making money from the coffee pods. Nespresso charged more for the coffee pods than Keurig. Nespresso had a luxury image to maintain; Keurig is a mass market brand.
When Nespresso started the “way of life” promise, Monsieur Gaillard increased the price of the capsules by 50%. Today prices are similar. Currently, Nespresso Vertuo coffee pods cost around $ 1.20 each. At Target, original-size Nespresso pods cost an average of 50 to 90 cents. Keurig coffee pods have a similar cost structure: 58 cents to $ 1.33 for Organic Newman & # 39; s Own.
Nespresso has a negative image when it comes to sustainability. Worldwide, Millennials and their younger Gen-Z cohort are committed environmentalists. Multiple studies show that these younger customers won't buy unsustainable brands that are environmental nightmares. These younger generations are looking for branded companies with values that are comparable to their personal values.
Although Nespresso coffee pods are made almost entirely of aluminum and are 100% recyclable, Nespresso coffee pods use a small piece of plastic in their aluminum pods. This means the trays cannot be thrown into a standard trash can. Users who wish to recycle must make an effort to visit either a Nespresso store or another store that accepts empty Nespresso trays.
The Guardian cited information from Nestlé that 30% of Nespresso pods are recycled, while other data suggests that only 5% of Nespresso pods are recycled. Assuming the 30% figure is true, the Guardian tells us that this still means that approximately "12,600 tons of Nespresso capsules" end up in local landfills. Due to Nespresso's ecological response, there are now eco-friendly capsules that fit in Nespresso machines (Nespresso has not yet changed the materials of its capsules. Cost is one of the reasons. In the meantime, Nespresso will continue to suffer from the downturns from sustainable competitors, including Refillable Capsule Manufacturer.)
If you want to recycle your capsules now on the Nespresso website, you can get a bag and send the used capsules back to Nespresso via UPS. This requires a visit to a UPS office. Or, as always, Nespresso capsules can be returned to any Nespresso boutique.
In the early 2000s, when Nespresso decided to market the brand as a luxury lifestyle brand, Monsieur Gaillard told the press that Nespresso would become the “Chanel of Coffee,” a brand for people working in buildings with bouncers and valet parking Life. Nespresso wasn't a machine; It was a refined, cultured, classy and stylish way of life. George Clooney became the polite, sophisticated, simply elegant face of the brand, first internationally and then in the US.
The “luxury lifestyle” approach has worked for a while, but people are changing. Today this particularly elegant, sophisticated, tony lifestyle is no longer as popular as it used to be. As The Guardian reported, a Nespresso machine reflected an "urban chic". Now, with high-end artisanal coffees, a Nespresso machine is "… increasingly suggesting that you are not a serious coffee person" and you have an unhappy attitude towards sustainability.
Sticking to the refined, luxurious positioning that has gone out of style is hindering Nespresso. It is difficult to make Nespresso generally available. Luxury brands struggle with the paradox of rarity: exclusivity that is available everywhere. Some strategists believe that luxury cannot be luxury when it is abundantly available.
Nespresso underestimated the competition in the USA. As in the beer industry, coffee has become a highly competitive and fragmented beverage category. Nespresso is pressured by less expensive, competitive coffee capsules, high-end suppliers of small batches, handcrafted coffees, and extremely expensive professional coffee makers for the home.
The Guardian tells us that Nespresso's performance is currently in the mid-single digits, according to Nestlé.
However, don't underestimate Nespresso's size and brand strength. Nespresso is a huge global branded business. According to the data quoted in The Guardian, Nespresso sells around 14 billion coffee pods every year – online and in its own Nespresso boutiques. Nespresso coffee pods can be found in many hotel rooms around the world: they make the brand known and give travelers the opportunity to have a good morning coffee without leaving their room or ordering room service.
Nespresso has a strong vision – "… to build a world where espresso was available at home". In our current situation of lockdown orders and the home lifestyle, this vision has gained momentum. Branded companies need to be constantly on the cutting edge in order to stay relevant in changing times. Of course, Nespresso is a brand that can recapture the atmosphere of excellent coffee at home. Now is the time to make better use of your vision.
Contribution to Branding Strategy Insider by: Larry Light, CEO of Arcature
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