SUMMARY

Introduction, Nespresso is the subsidiary of nestle, it is the most powerful and

commercial business of the 21st century,
Background, in 1979 Nespresso introduce portioned coffee to the world, Nespresso allow
everyone to make barista style coffee easily, according to the Nielsen statistics 2015 the
portioned coffee is the fast and growing industry segment of global coffee industry, its
headquartered in Lausanne Switzerland, and sells its product in 64 countries, there were 450
nespresso owned boutique’s spread across 58 countries, initially company has 330 employees
and in 2015 it has 12000 employees, according to Bloomberg reporting the revenues
estimated in 2015 is 4.5 billion USD, nespresso does not manufacture machine, they buy
machines through manufacturing partners (siemens, Krups, Miele, Delonghi).
Business Phase 1, in 1979 nespresso technology creator Eric Favre pichted his approach to
nestle for coffe business line, the new concept was based on packaged single serving high
quality coffee through machine, the machine and pods were manufacturing by nestle and
target the office market as well as restaurant, nestle launched new product in switzerland and
japan but failed to number of fronts, they have performance problem and also quality control
over manufacturing, Nestle misjudge the market, the office found capsule cost is to expensive
and restaurant didn’t buy because of sound, look and traditional espresso machines with
quality coffee,
Business Phase 2, by 1986 nestle established nespresso as sepreate wholly owned company,
nestle removed Favre and installed Yannick lang, manufacturing issues were resolved by
outsourcing machine manufacturing to Eugster/frismag an established coffee machine
company, it’s a B2B company and lacked B2C channel, so nespresso sold as a joint venture
with coffee manufacturer, nespresso concentrated on manufacturing and selling pods, pods
sells were carried out through mail and telephone based sales centres. The problem with this
approach is sales channels, there were also errors and delays in pod ordering and fulfillment
process
Business Phase 3, in 1988 nestle brought jean-Paul Gillard a consumer product specialist,
under his leadership the company made strategic moves, he share manufacturing with many
companies, reducing risk and cost, nespresso tightened the relationship with grower also
expand pods distribution channels,
Key to successful business model, Bait and Hook divides an offer into two elements, the
machine and consumables, the model known as blade and razor model, next key of success is
distribution channels for two elements and optimize operations for these channels, in last few
years nespresso has expended its own distribution channel like physical stores, All such keys
were delivering a resilient, adaptive and sustainable edge,
Step one Coffee machines, Nespresso removes coffee machines from key activities and out
outsourcing to partners, machines were sold through retail channel, (home appliances stores,
general retailers)
Coffee, the coffee sold in Grand Crus are sold exclusively through nespresso-owned
channels, sales are direct and recurring long term,
Business Model Key #1, why two channels? Two-channel approach retail and direct, retail
channel serves two purposes first consumer access to the product and second product
placement within retail stores, the second purpose is to lock customer into nespresso pods
after investing it is difficult to switch to another product.
Step 3 infrastructure, pod production, the company produces 24 “Grand Crus” for home
consumers and 16 Crus for vertuoline product line target north American taste, Nespresso
launched positive cup strategy with three focusses, social welfare, aluminium sourcing, and
disposal resilience for climate change, also have AAA sustainable quality program for
growers to ensure the continued high quality coffee, and also in 2015 more than 80 percent of
coffee supplier were registered in the program.
Step 4 Infrastructure, brand, Marketing face of Nespresso is George Clooney, the cost of
branding, marketing and promotion is high, they select the stores very carefully to reflect the
company’s high-end luxury brand image and service quality,(similar to the apple store)
Step 5 Infrastructure, Fulfilment, Nespresso pioneered new business for nestle (B2C),
nespresso build distribution channels and solve fulfillment challenges (Logistics, scale ,
technology) it is very large and critical part for nespresso business model to maximize
margins,
Business model key#2: Authenticity, Nespresso markets a luxury brand image, it is critical
for the company to be authentic in the product and services it offers, nespresso requires to
emphasizes the consumption experience, focusing on innovation and design for its machines
that are easy to use
Business model key #3: B2C, traditionally coffee is the commodity business, coffee
producer and distributer sell through a retail or B2B channel do not deal directly with
consumers, companies like star bucks took the coffee service and wrap a distinctive
experience around it, the experience approach remains to service industry but nespresso
change that dynamic and provide ultimate experience of brista coffee at home and office.