Nespresso in the US Market
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Nespresso case analysis for a Channel Management course within IE Business School's Master in International Management marketing specialization. Delivered to Professor Fernando Cortinas and Professor Maria Teresa Aranzabal Harreguy.
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Nespresso in the US Market
- 1. in the US Market
- 2. Table of Contents 1. The brand 2. Coffee Consumption in the US 3. Nespresso vs. Competitors in the US 4. Nespresso’s Problem in the US 5. Distribution: Altneratives & Recommendation 6. Advertising: Altneratives & Recommendation 7. Additional Recommendations
- 3. 1. the brand
- 4. To cosmopolitan men and women who seek exclusivity, enjoy the finer things in life, and take pleasure in little everyday indulgences, is the brand of luxury home brewed coffee which makes consumers feel like they are having the perfect cup of coffee at home every single time because of its superior quality, elegant design, and unmatched in-store experience. Positioning Statement
- 5. Product • The “Armani of Coffee” • High quality home-brewed espresso • Machines: designed to look good, compact in size, easy to operate • Capsules: colorful with different coffee varieties (“grand cru”), + limited edition varieties • First time Nespresso buyers instantly become club members: relationship with brand
- 6. Price • Premium price reflective of premium positioning • Capsule price (low): $0.65 • Capsule price (high): $0.70 • Machine price (low): $179 • Machine price (high): $699
- 7. Place • 300+ Flagship boutiques in fashionable areas of major cities ‣ Design & premium positioning reflected in boutiques ‣ Boutiques offer entire experience for customers (aesthetics, excellent service...) • Select department stores • Online boutique: 180,000 visitors daily ➡Capsules could only be purchased in flagship stores & online
- 8. Promotion • All communications focused on brand’s luxury positioning & quality ‣ “the perfect cup of coffee, time after time, cup after cup” • Print ads in premium magazines, sponsor of prestigious events • TV ads in EU only; no TV ads in the USA ➡Still, consumers more likely to buy a machine after they had tested it
- 10. Coffee Consumption in the US: pre 1990s • Americans drank instant or filtered coffee at home • Purchased at supermarkets • Diners & restaurants served only filtered coffee ➡ Coffee was a commodity
- 11. Coffee Consumption in the US: post 1990s • Starbucks changed US coffee consumption, creating a cafe culture which never existed • Starbucks elevated coffee from a commodity to an everyday luxury • Americans acquired taste for higher quality coffee • Starbucks opened US market for other premium coffee brands
- 12. Tastes of American Coffee Drinkers • Prefer milk-based & sweeter beverages (lattes, mochas...) ➡ Nespresso only makes espresso! Consumers can only add fresh steamed milk themselves
- 13. Home Consumption of Coffee in the US • Home coffee consumption surged during 2008 crisis ➡ Americans shied away from cafes and moved to home consumption ➡ Demand for portioned home-brewed coffee increased • Capsule coffee market increased 66.1% (2011) ➡ This created shift in competitive landscape
- 14. 3. Nespresso vs. Competitors in the US
- 15. Nespresso in the US • First flagship opened in 2004 • Department stores that were trusted brands for US consumers ➡ Bloomingdale’s, Macy’s... • Reliance on organic growth through retail channel ➡ Advertising limited to infrequent print ads in regional magazines
- 16. US Capsule Market: Competitive Landscape 0 0.275 0.55 0.825 1.1 Nespresso Keurig Verismo Senseo Tassimo Price/Capsule (Low) Price/Capsule (High)
- 17. US Capsule Market: Competitive Landscape 0 175 350 525 700 Nespresso Keurig Verismo Senseo Tassimo Price/Machine (Low) Price/Machine (High)
- 18. 4. The Problem
- 19. US Capsule Market: Competitive Landscape • Nespresso’s competitors increased investment to capture more market ➡ Keurig, Lavazza, Flavia, Tassimo • Booming market attracted new entrants ➡ Starbucks introduced Verisimo, single serve espresso machine
- 20. US Capsule Market: Competitive Landscape • Nespresso lost patent ➡ Cheaper capsules compatible with Nespresso machine • Lower quality, simpler, cheaper machines that could use powdered/ condensed milk ➡ More convenient for US consumers who prefer milk-based coffee
- 21. To be Addressed 1.Should Nespresso find new channels through which to distribute? What criteria is most important? 2.Should Nespresso increase advertising budget and introduce TV commercials?
- 22. 5. What should do about distribution?
- 23. Option 1: Expand to Premium Supermarkets • Convenience: no need to go to flagship boutiques or select department stores • Potential market growth: exposure to more consumers alongside competitors PROs: CONs: • Damages brand image: no exclusivity, no premium image, no service, no “Nespresso experience” • No loyalty creation with customers (Nespresso club membership) • Price will seem too high vis a vis competitors in supermarket setting
- 24. Option 2: Stand Alone “Cafe Boutiques” in High End Malls, VIP Airport Lounges, Business Centers PROs: • Locations that make sense with premium brand image and right target CONs: • Difficult to sell Nespresso machines? • Convenient AND exclusive • Allows for trial & loyalty -> Consumers more likely to buy Nespresso after trying • Exposure to wider audience • Experience similar but not 100% the same as in Nespresso flagship boutique
- 25. Option 3: More Boutiques & Strengthen Online Store • Best environment to experience the Nespresso brand • Strengthened online channel could increase convenience and loyalty PROs: CONs: • Boutiques still not convenient after machine purchased: cheaper capsules available at supermarket • Limits number of consumers exposed to products and brand
- 26. Most Important Criteria for Nespresso Brand vs. 3 Options Criterio Assigned,Value Rank Weight Rank Weight Rank Weight Branding(Image 6 1 6 5 30 5 30 Convenience( 1 5 5 4 4 2 2 Exclusivity( 5 1 5 5 25 5 25 Service(Offering( 3 3 9 4 12 5 15 Potential(Growth( 2 5 10 2 4 2 4 Loyalty 4 3 12 4 16 5 20 47 91 96 Premium(Supermarket( Expansion Stand(Alone(Shops Open(More(Boutique( Shops
- 27. Recommendation: Stand Alone Cafe Boutiques + More Flagship Boutiques • Maintains the Nespresso experience • Maintains premium brand image ‣ aesthetics, service, quality, exclusivity • Stand alone boutiques encourage trial and create more exposure to new potential customers • Stand alone boutiques are more convenient locations for current customers ‣ reduces risk that clients go to supermarkets for other capsules
- 28. Recommendation: Enhance Online Experience • Online optimized for CONVENIENT + FREE delivery: your favorite capsules arrive at your home at the beginning of every month (subscription) ‣ improves “convenience” factor currently missing from Nespresso ‣ reduces risk that clients go to supermarkets for other capsules • Gifts, like limited edition capsules, with online purchases ‣ clients feel special and loyalty increases
- 29. 6. What should do about advertising?
- 30. Recommendation: Go For Advertising to create Awareness! • DON’T do ads to educate unfamiliar Americans on how to use machine ‣ 30 seconds are not enough! • DO ads that communicate high quality and premium image of brand ‣ Change perception of Americans taste for milk-based coffee to high quality espresso ‣ Become the “it” brand for capsule coffee to reduce competitor threat • Prints ads in premium magazines
- 31. Recommendation: Sponsor Premium Events & Luxury Stores • Best form of advertising is getting potential customers to try product • Sponsor premium events and give machine and capsules to luxury stores, hotels, etc. ‣ Exposure to the right target ‣ Allows for trial in an exclusive setting in line with brand image ‣ Trial increases probability of purchase
- 33. Enhance Nespresso Club Membership • Make membership benefits so irresistible that competitor capsules are not even an option ‣ Free delivery online ‣ Birthday gift ‣ First to receive limited edition capsules ‣ Discounts on large quantity capsule purchases ‣ Purchases = points = gifts ‣ Invitations to exclusive Nespresso events
- 34. Increase Price of Capsules to Reflect Higher Value/Quality 0 0.275 0.55 0.825 1.1 Nespresso Keurig Verismo Senseo Tassimo Price/Capsule (Low) Price/Capsule (High) Starbucks is a better well known brand in the US + higher price will make it seem like better value + quality. If Nespresso is the Armani of coffee, it must increase its price to reflect this premium image.