How Nestle transformed its coffee business through innovation
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How Nestle transformed its coffee business through innovation
- 1. Innovation What? Why? Who? Types? Metrics? Case study
- 2. “The business has two and only these two basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.” ~Peter Drucker
- 5. For something to be called innovative, it has to be: 1) New/different and 2) Have value (commercialization)
- 7. Hard science + social science
- 8. Why does it matter?
- 10. Innovate cash stream DCF & NPV Do-nothing assumed cash Stream (common thinking in big corporations, RIM Do-nothing likely cash stream Blackberry as latest example)
- 12. Types?
- 13. Radical Incremental (disruptive)
- 16. How to create a movement as a leader in less than 3 minutes? http://www.youtube.com/watch?v=fW8am MCVAJQ
- 17. “Never doubt that a small group of thoughtful, committed people can change the world. In fact, it is the only thing that ever had.” ~Margaret Mead
- 19. 3 types of metric Process Input Output Resources put behind Time from PoC to FDP # of ideas ($, FTE) Breadth of ideas # of NP # of patents Pathway approach % of sales from NP ROI
- 20. Metrics recommendations •3 broad types •First vision & strategy, than metric •No magic metric •Choose few •Measure vs. competition •Get buy-in •Embed in performance review
- 21. Innovation What? Why? Who? Types? Metrics? Case study Question(s)?
- 23. Founded 1867 225.000 employees $70b sales 495 factories Risk averse ....but 4% growth target by new CEO
- 24. Coffee market in 90s Sales 30% Instant Roast & Ground 70%
- 25. Nestle coffee business in 1990’s •Present since 1938 •Owns instant coffee market (30% of total coffee market) •Wants presence in high- end coffee market
- 26. Coffee market in 90s Sales 30% Instant Roast & Ground 70% 95% filter 5% gourmet (mostly out of home)
- 27. 1974 - Simple outside, complex inside Simple outside, complex inside; 3 steps to making coffee: •Individualized taste •Simple steps to making coffee •3 steps technology: •Pre-wetting •Aeration •Extraction •Strong IP protection •Licensed machines to others
- 28. 1986 (12 years later)
- 29. 1987 failure launch in office sector in Italy Photo of Turmix, Italy, results
- 30. 1988 – Jean Paul Gaillard hired
- 31. Tiger team
- 32. New segment identified through observation
- 33. 1989 – step1: switch to high end household market
- 34. 1989 – Step 1: household strategy endorsed
- 35. Step 2: Broadening strategic partnerships
- 38. Distribution? Losing profits Supermarket=luxury? 3 months shelf-life
- 42. Rules of Nespresso club 24 hours ordering Personal advice Prompt delivery Calls replied within 3 rings Focus on training and experience
- 43. Nespresso club – raving success Sho w statistics from case study
- 44. Airway companies sign contract with Nespresso
- 45. Minimal advertising Loyal customer at the center
- 46. 1995 break-even 7 years since JPG arrival 21 years since acquiring technology
- 47. “Our problem is not a lack of good ideas – we have too many of them. The key is to be able to extract an idea, carry it forward in the organization and transform it onto the market.” ~CEO Nestle
- 48. Key take-aways
- 49. Innovation takes time and involves multiple failures
- 50. Leadership and team matter
- 51. Culture
- 52. Focus on core, partner on rest
- 53. Experiment
- 54. Observe
- 56. Innovation What? Why? Who? Types? Metrics? Case study Question(s)?
- 57. How would you define 3 years innovation vision for you and your team? THINK BIG! How will you know that you are achieving it?
Notes de l'éditeur
- Need to have common understanding on this qst. It was also the first qst asked during interviews w/ NP
- Many definitions, but all of the share two things.First piece is New/different, and that is what first comes to mind when thinking of innovation.But for innovation to be called innovation, market value is necessary.
- Invention – new, but no value now, maybe in futureInnovation – new, but also successful in the market
- Need to have common understanding on this qst. It was also the first qst asked during interviews w/ NP
- Need to have common understanding on this qst. It was also the first qst asked during interviews w/ NP
- Herceptin made us think of personalized medicine in a different way
- What are some of the examples?We will be talking about implementing these traits later on
- Need to have common understanding on this qst. It was also the first qst asked during interviews w/ NP
- There are many metrics, no magic metric. BCG recommends 3 broad types.Process- Sony launches new product every 20 minutesOutput – NVS – sales from new products
- We covered What? (Innovation vs. Invention) Why? (McKinsey growth) Who? Types? Metrics?Now time for a case study as a way to inspire us for thinking about the vision during break-out session
- We’ll talk a bit about Nespresso. I was always fascinated by the case, whiile veryone else was building better and faster machines or better and bigger coffee packages, Nespreasso reinvented the model, created Nespresso club, distinct brand, high quality product, and 40% profit margin
- This is how roughly market was split, with Nestle owning…
- Similar to pharma, from blockbuster model to specialty
- Out of 70% R&G, 95% was filter, 5% was gourmet coffee, mostly in away form home settings (bar, restaurant)
- Nestle buys technology for machine+capsules and protects it with patents. But for 12 years there was oppsition inside Nestle to dvelop and commerzialize this product.
- It took 12 years to start setting up Nespresso, as internal opposition was strong (Nespresso seen as caninbalizing instant coffee business)Nespresso is formed as a satellite company, 100% owned, outside of Nestle office, has its own distribution, processes, personal policiesIdea is to protect new idea from criticismMostly seen as threat to Nestle instant coffee business
- Machine partner Turmix, no money made on machine. Dismal results, 50% of machines sold, too expensive, sold through electrical appliances shops and supermarkets, focus on office sector.
- Experience in luxury goods from Marlboro classics, ambitious, entrepreneurial, no link to Nestle culture, strong personality
- “Tiger team” – willing to take risks, diverse backgroundsLang – strong will, always on the edge, takes risks, likes challenges, wins give him boost
- Trend – 35-45 yrs old premium coffee drinkers, at homeObserving
- Dismissed MR, said that MR relates to past and that radical innovation needs intuition and observation....JPG favored observing trends and customers directly, targeted 35-45 gourmet coffee drinker, young and affluent
- Lang promised 3x salesNestle approved PILOT only in Switzerland
- Between 1989 and 1993, several major strategic decisions to partner (previosuly only Turmix). Focus on capsules!!!Can we partner more with companies like Alere or companies focused on adherence, disease management programs etc...
- T there was one missing puzzle, which was
- Standard dogma – sell through supermarketsAlso, shelf life was only 3 m as it would take 3m for capsules to arrive to supermarkets in US
- Nespresso club was a revolutionary idea – direct distribution, turned 3m shelf life (technical challenge) to elegant marketing solution
- Hiring of course Geogge Clooney…
- …perfecting the art of retail experience and do direct marketing.
- 220k members by the end of 90s. Pionereed direct marketing, luxury coffee experience, creating loyalty and differentiation. Left machines to partners!!!
- How can we have loyal customer, create clubs??
- 7 years since Lang’s arrival21 years since acquiring technology1997 – 220.000 club members
- MR was to observe people, not read reports!
- Hiring of course Geogge Clooney…