Marketing Analysis NESPRESSO UK 2014 Nespresso: A unique route to market through Ultra-premiumisation Analysing Nespresso success through marketing researches 1 - PESTEL-DG ANALYSIS 2 - PORTER ANALYSIS 3 - INTERNAL ANALYSIS - Tangible resources - Intangibles resources - Human resources - Capabilities - Core competences - Value Chain 4 - STP - RECOMMENDATION

1. Melanie Montet
Margaux Del Valle
MBM INSEEC 2013-2014
Marine Escande

2. PLAN
Introduction
3
I. External analysis
I.1 PESTEL-DG analysis
I.2 Porter analysis
3
6
II. Internal analysis
II.1 Tangibles resources
II.2 Intangibles resources
II.3 Human resources
II.4 Capabilities
II.5 Core competences
II.6 Value Chain analysis
9
10
10
10
11
11
III. STP – Recommendation
III.1 Segmentation
III.2 Targeting
III.3 Positioning
III.4 Recommendations
13
13
14
15
Conclusion
16
Sources
17

3. Introduction
When it comes to coffee, each person tends to have its own preference, that’s
one of the reasons of the coffee market’s vastness. Today, people have the choice
to drink: instant coffee, ground coffee, coffee beans, or even coffee pods. The way
they consume coffee has shifted from an in-home coffee to a take-away one from
a chain. In the chart above, you can see the main actors in the coffee market. We
chose to focus on the UK coffee pods market but some of the information will be on
an international level.
I.Internal analysis
I.1 PESTEL-DG analysis
Political:
The UK government can be considered steady, as it did not incur drastical
changes during the last years. The UK is a very liberal country. The Britain’s corporation
tax rate was reduced from 24% to 20%. The government showed its will to reinforce
the coffee market development. The Royal Society of Art and BBC iCan launched
the «coffee shop challenge» with Starbucks, Costa and Caffé Nero to remodernise
UK traditional coffee houses.
Economical:
However the government’s stability, the political aspect is marked by
important economical issues like the economic crisis since 2008 and the cost cutting
plan decided by David Cameron. The UK deficit is supposed to reach 6,1% of GDP
in 2013. The country has also lost its Top AAA credit rating for the first time since 1978.
The UK coffee pods market value is estimated to be £56M in 2013. In the past six
years, the market has doubled and knew a 7,5% growth between 2011 and 2012.
3

4. Sociocultural:
Coffee, so trendy
Barista is the new job, and everybody tries to become a coffee expert by
experimenting latte art. Britons like the coffee so much so they created two festivals:
The UK coffee week and the London coffee festival. Coffee is now a pure passion.
The consumption has shifted from an energising drink to a degustation moment.
Fresh and transparent
Due to the numerous health issues like obesity and other food scandals,
people changed their behaviour. A lot of consumer associations were created to
warn and inform people: the British Coffee Association.They tend to eat healthier
and therefore to consume fresher products. They also tend, when price allow them,
to prefer artisanal and more ethical products. They are looking for brand that are
transparent on their way of manufacturing goods.
Less in-home space => More coffee shops
The number of human being on earth is increasing at a tremendous pace,
which is creating a living space’s reduction phenomenon. Therefore, houses are
becoming smaller and rent higher, people need to work more to pay. As a matter
of fact they spend less time at home. They’re always on the move and tend to
frequent more coffee shops. Nowadays, coffee shops are an extension of houses
and offices.
Loyalty
Even if the consumers tend to be more and more fickle, they still seem to
care about loyalty program when it comes to coffee. As a lot people have difficulty
to make ends meet, they’re looking for CRM program that will reward them easily
(discounts, free services…).
Technologic:
Digital has largely been developed during the last years. It is an opportunity
for brands to lower communication investment and be more eco-friendly.
Today, people tend to be hyperconnected thanks to their mobile, tablet or computer.
On average, UK citizen spend 37 hours online on their computer and 64% of UK
citizens have a smartphone (ComScore Digital Trends 2013).
Internet shopping is also a huge trend and the M-Commerce is also growing
at a fast pace. Today, there are multiple methods to buy online: Fingerprint on the
iPhone, paying with a tweet, Paypal or even contactless payment.
Environmental:
Sustainable energy is developing. Firms now need to implement eco-friendly
innovations like hybrid cars, solar panels or wind power. They also need to implement
new recycling methods especially in the coffee pods market. Finally, they can also
design reusable and greener cups and pods, create a composting policy or even
modify their machines to include water-saving technology.
4

5. Legal:
There are two main features in the legal part. Firstly, the GM policy is being
modified. Scotland and Wales have a GM-free policy, but not the rest of the UK.
Nevertheless this feature may change as David Cameron made public statements
to support GM-crops. The other aspect is the food safety through Food Standards
Agency control and mandatory labelling.
Demographic:
According to the Office of National Statistics, the UK population is estimated
to 63,7M people in mid 2012. The population is really cosmopolite, 11,3% of it were
foreign-born in 2010.
Ageing population
The UK population is ageing. As a matter of fact brands need to understand
this trend to find new strategies. The Nespresso brand tried to launch a new machine
specialized on tea for the older generation, but it was a failure as the just applied
the Nespresso model. Special-T wasn’t designed for older generation but to attract
new young consumers.
Y Generation
Not only the behaviour of the ageing generation is changing, but also the
one from the Y generation. They are ultra-fickle, in search of headspace availability
and instant gratification. They are the “Starbucks children” generation, as you spot
them everyday with a coffee cup in their hand, on their way to work.
5

6. Income
Thanks to this chart showing the regional gross disposable household income
per person in the UK, in 2011, we remark the income inequality between regions.
Without any surprise the wealthiest area was London and the South of the UK, the
Northern part had a similar development, whereas the center is poorer with a lower
GHDI per person.
Global:
To end this PESTEL-DG analysis, the coffee market has to cope with a lot of
organisations around the world. Coffee providers have to deal with the OECD recent
tax reforms, with the International Coffee Organisation and finally the World Trade
Organisation.
I.2 Porter analysis
Rival firms
The coffee market is a very strategic and attractive market. Everyday, 70
million coffee cups are drunk. 74% of UK citizens drink coffee everyday, a potential
of 46,6 million consumers for Nespresso. 48% of these coffee drinkers consume pods.
In 2011, consumer retails spend on coffee was £941M. The market is supposed to
grow to £7Bn turnover in 2015. Britons spent £56.1m on pods between February 2012
and 2013, up 45.1% year on year. Today, Nespresso owns 34% of market shares and is
the most known brand, yet Nescafe Dolce Gusto and Tassimo make the most sales.
It’s a highly competitive market with approximately 50 rivals that belong to specific
coffee markets:
6

7. Especially on the coffee pods market, there’s not much differentiation. All competitors
provide the same services. Senseo is creating machine and selling filter pods. They
have different basic ranges of product from coffee to tea and even hot chocolate.
Tassimo is also doing the same. Nespresso differentiates by focusing only on Grandcru and machines. It is the only brand to manufacture machines with 19 bars power,
the minimum limit to have a real espresso.
The fixed costs for competitors aren’t that high compared to Nespresso
ones. Indeed, Nespresso chose to have its own distribution channel with stores and
employees dedicated to coffee expertise. Concerning the economy of scale, it
is largely developed for all brands, as their production capabilities are enormous.
Excess capacity is an habit in coffee marketing, but tend to decrease with the Fair
Trade organisation work. And there’re a lot of exit barriers such as:
• Existing contract with customers
• Cost of exit
• Loss of bargaining power with different parts
• Loss of the shareholder confidence
Suppliers
There’re numerous suppliers and a high concentration but Nespresso chose
to build strong and long-lasting relationships with farmers from the rainforest alliance.
Supplier switching costs are really high.
New entrants
For now, the market isn’t saturated and competitors could easily join the
pods market, but the new entrants barriers are high. Initial investments are high
and there’re numerous norms and technical standards to cope with. Brands had
massively invested in advertising campaigns to build strong brand awareness.
There’s also one strong cultural barrier: tea culture. Finally, it makes no doubt that the
existing competitors would join to block a new entrant, consequently the expected
retaliation is strong.
Buyers
Tassimo and Senseo chose the traditional retail distribution channel. They are
present in numerous retail branches, sold online through own website and other
retailing e-platefroms like Amazon. For those brands, it’s somehow easier to reach
the consumer, but the drawback is also a stronger dependency to the retailers.
Nespresso created a unique path to sell its product. They built stores on famous areas,
sell online only through their website. The last distribution channel is the appliance
retail stores.
The price approach is also different from one competitor to another. Senseo
provides the cheapest machines 61£-150£, the cheapest pods £0,16, and have a
wide range (Hot chocolate, tea…). It’s the cost leader in the coffee pods market.
Tassimo is slightly more expensive but stay rational. The price of a machine is between
£100 and £130. Tassimo pods cost £0,25. They also have a wide range of products and
they operate their differentiation by doing partnerships with widely known brands
such as Costa or Kenco. Basically, they chose to ally their forces instead of fighting
each other on the coffee market. Nespresso is the most expensive system. The price
of a machine varies between £89 and £1500 (professional/Business machines). The
pods are much more expensive, on average between £0,29 and £0,30.
7

8. It’s three times more expensive than regular coffee and a kilogram of Nespresso
costs £60. Hence, it’s impossible for customers to use other brands in a Nespresso
machine. All of these elements created a vendor lock-in effect, which unable
customer to switch brand.
Substitutes
On average, all substitutes are expensive. Nowadays, even if we’re in crisis,
people still think that coffee is an affordable indulgence because before coffee
pods’creation, coffee was a cheap product. But for now, the trend is so strong that
the perceived added-valued exceeds the price, and consumers also have a strong
sense of belonging to the Nespresso community.
8

9. II. Internal analysis
II.1 Tangible resources
FINANCIAL: We know that Nespresso belongs to Nestlé Group, a very profitable
company, recognized by its leading position in the food market. In 2012, sales
increased up to 10.2% (92.2 billion CHF), the operating margin raised as well to
15.2%, when the net margin is around 11.4%. We observed a similar phenomenon
on the cash flow, which rose from 10 to 15.8 billion CHF between 2011 and 2012.
This company displays a net income of 10.7 billion CHF and its estimated, in value,
around 228 billion CHF.
Nestlé Coffee Specialities (NCS), an independent part of Nestlé, aims to
develop, produce and market the Nespresso System. Nestlé has increased sales to
+20% thanks to Nespresso’s.
PHYSICAL: Nespresso SA Head-office is based in Switzerland, as its three factories. They
are now investing 300 millions CHF to build the third one. The first factory represents
22.700 square meters and has 13 production lines, actives all the time.
300 Nespresso’s stores are present in 60 countries worldwide.
HUMAN: Over 8’300 employees around the world working for Nespresso, coming
from more than 90 nationalities. 70% of those employees are in direct contact with
Club Members. Most of the employees are delegate to customer’s relationship and
innovation.
II.2 Intangible resources
TECHNOLOGY: Nestlé changed the coffee value chain. They suggested great
innovation, based on Nestlé’s strong R&D capabilities and they made a new coffee
standard: the pre-dosed single portion espresso and easy serving espresso system.
Nestlé has accumulated experience on the coffee business, as they have been
present and leading the mass coffee market since 1938.
Nestlé had enough financial slack to finance the new venture. The Nespresso
System required the invention of a new coffee machine, with several particular
specificities. They deposed more than 1’700 patents until 2012. Engineers also found
a way to make the machine working only with the Nespresso’s pods.
Nespresso system is the only brand on the market allowing people to have
a real espresso, with a unique technology: 19 bars of pressure. However, Nespresso
System doesn’t permit to make chocolate, tea or coffees with milk.
REPUTATION: Nespresso has an AAA sustainable quality program, including Rainforest
Alliance Certification and a trust relationship with roasters. Nespresso is considered
as a luxury brand, which is the first time for a food brand. The reputation of this brand
comes also with its Club, which permit a sense of belonging for the customers and
allowed them to collaborate with Nespresso, the members of the club chose Georges
Clooney as the ambassador. This company is also very transparent. Regarding the
recycling, Nespresso tried to set some collection points for the pods and they also try
to reduce their overall carbon footprint.
9

10. CULTURE: Nespresso has set a new coffee culture. They also have different programs
for professionals, chefs or sommeliers. With the Club, they give premium products,
and offer to customer around-the-clock order-taking. Orders for Nespresso’s
capsules can be placed by toll-free, telephone, fax, mail and over the internet.
They offer prompt delivery of fresh coffee within two businesses days. They also
give personalized advices providing technical assistance. Clubs members can also
benefit from recipe suggestions, Nespresso accessories and special orders.
II.3 Human resources
SKILLS/KNOW HOW: Nespresso has a perfect knowledge of the coffee industry,
and a unique technology built over 27 years of in-house R&D. This new “coffee
standard” aimed to generated growth through a highly differentiated offering. This
company is responsible for every stage of the sourcing, production and sale of its
coffee. They also have a unique route-to-market, encompassing its e-commerce
platform, its exclusive boutiques and its dedicated Customer Relationships Centres
(call centres). Finally, their employees are described as coffee experts, oriented
to provide personal advices to each customer and they always received training
before integrating the company.
COMMUNICATION AND COLLABORATION Nespresso only picks few partners for
coffee suppliers and distribution and their capsules can only be found online or in
stores. This company is also very famous for its advertising with Georges Clooney,
and now with Morgan Freeman and Penelope Cruz. Nespresso is an official supplier
for some events (2014 ryder cup).
MOTIVATION: By developing its own commercial, distribution and personal policies
separated from Nestlé, NCS Company is more agile. According to a Nestlé senior
executive “the business was physically moved out of Nestlé so that it could establish
credibility and so that it didn’t have to fight against all the company’s rules. Nespresso
is so different from what the company does in its day-to-day business”. Knowing
that innovation in a large corporation like Nestlé was a complex process, Nestlé
top management felt that creating NCS was not enough to successfully market the
Nespresso System. They also made changes in Management: Nestlé Management
felt the need to bring someone from the outside, Jean-Paul Gaillard, with new ideas
to save Nespresso from an early death in 1988.
II.4 Capabilities
Here is six great capabilities for Nespresso:
1. Innovation: this company is always one step ahead in term of competitive
intelligence. They constantly offer new products or machines.
2. Leading: Nespresso can enjoy leadership, money, facilities, R&D development
knowledge, support, etc. At the same time, NCS is independent; as a result it’s
more agile.
3. Brand management: Nespresso is also recognized for the machines design
and capsules with specific forms and colours. Stores are designed as luxury
ones and are very famous and recognizable.
10

11. 4.Lifestyle: With advertising and The Club, Nespresso created a real lifestyle.
Every ads are an occasion to talk about the brand related to famous actors
and their very specific slogan and music. Being a member of the Club creates
a sense of belonging. Moreover, Nespresso creates a strong bond to
professionals too, suggesting trainings.
5.Sales and Distribution: Nespresso created a unique route-to-market, with a
calling centre available all the time, a very efficient e-commerce platform
and their particular stores.
6.Knowledge: Nestlé, by Nescafé and now Nespresso has been on the coffee
market since several decades and are particularly aware of coffee market
features.
II.5 Core competences
1. Great coffee quality and deep coffee expertise
2. Drive for innovation, distinctive design and in-house R&D expertise
3. Passionate brand community with direct consumers relationships
4. Brand as a lifestyle
5. Unique business model/route-to-market and exclusive client services
6. Unique holistic approach to sustainable quality development
II.6 Value Chain Analysis
Primary activities
Inbound logistics: We don’t have access to this kind of information. Nespresso doesn’t
provide data on stock management, inventory or even on transportation means.
Operations: Three factories all located in Switzerland, a strategic central position to
cover all the market. No further information is given on packagings’ manufacturing.
Raw material and coffee are delivered in each of the factories to manufacture
pods. Nespresso factories don’t directly make the machines. A single firm also based
in Switzerland builds them. Nespresso just co-brands existing brand machines. No
further information on maintenance processes.
Services: Nespresso runs one of the most efficient CRM program called The Club.
This program allows people to call a dedicated number to benefit from a technical
diagnosis when the machine is broken. The manufacturer also guarantees the
machines. No further information on the spare parts management and on repair
services.
Outbound logistics: Nespresso has a owned railway system to transport goods
between factories, but that’s the only information available. No further information
on warehousing, order fulfilment or larger transportation.
11

12. Marketing & Sales:
Digital
• SEO/SEM: Via clear and efficient sitemap with different levels of menu allowing
Google crawlers to browse and provide relevent information. Little invests in Google
Adwords as their SEO is strongly efficient.
• Viral campaigns
• Dedicated online platforms
• Social Media: Facebook: 2,3M Fans, Twitter: 44’786 Followers, Instagram: 22’793
Followers,
• Mobile: Mobile website and a free application on Android/ iOS
TV
• Campaigns with multiple star endorsments + others
Influence/ PR
• One internationally famous ambassador = George Clooney
• Events
• Partnerships & sponsoring; Cannes and Bocuse d’Or
• Co-branding,
• CRM program with co-options
Print
• Newspaper ads & posters
• Nespresso magazine
• Direct marketing: Self tailored mailings & e-mailings
• Goodies
Support activities
Procurement: Nespresso has close relationships with its suppliers, but we have no
access to information on procedures for highest-quality raw material or parts.
Technology management: A Strong R&D department working everyday to perform
cutting edge products features. Nespresso not only do have one team for the whole
firm, but one team per factory. They also have developped skills to test the product
inside the firm. Nespresso used to own 1’700 patents, but they’re now available to
every rival.
They designed an added value CRM system which allow them to find and maintain
customers.
Support: For the moment Nespresso hasn’t designed an engineering support or any
types of self-documentation that could help a consumer to repair or improve its
machine.
Human resources management: 8’300 employees and the possibility of having a
training to become a coffee expert. Nespresso is also very organized firm thanks to
a strict organogram.
Infrastructure: No precise information provided on the infrastructure.
12

13. III. STP - Recommendation
III.1 Segmentation
III.2 Targeting
We identified four target groups. The main target group is the Coffee drinkers
and especially people between 24-80 yo drinking on average seven coffees per
week, looking for really good quality coffee and easy serving method. They want to
taste and discover new affordable, premium and easy coffees at home.
Our core target group gathers all the coffee Aficionados more precisely
people between 25-60 yo, drinking more than seven coffees a week. They consider
themselves almost as coffee experts, they both consider coffee as an energizer
and an indulgence. They’re SPC++, very active workers in search of headspace
availability, easiness and instant gratification. They want to enjoy the most premium
and easy-making coffee on a day-to-day basis, with services that make their lives
easier (Delivery…).
Nespresso is also a big actor on the B-to-B market and this is our secondary
target group, especially offices of firms in search of a more qualitative coffee,
hotels and restaurants, travel firms: First class in Airlines and Trains. They want to serve
premium coffee to their customers, benefiting of the worldwide quality reputation of
Nespresso
Last but not least, the influencer target group, which represents press journalists
Offline/Online, bloggers and vloggers can talk about a trendy and innovative
product/brand.
13

14. III.3 Positioning
4P Analysis
Product: Nespresso is offering a wide range of Machines, coffee Pods and services.
Place: Unique route-to-market with an owned distribution network.
Price: As Nespresso is a premium brand; the price policy has to follow that trend.
Machines are from £89/1530, pods are from £0,26-0,35. Nespresso also provide
constant promotion on the machine = Vendor lock-in effect.
Promotion: To promote the brand Nespresso has a huge communication plan as
advertising campaigns previously mentioned in the value chain.
Positioning:
A premium brand providing a highly qualitative
all-in-one offer
that allows people to consume
the best coffee at home.
Mapping
Thanks to that analyse Nespresso has different strategic options. The more adapted
seems to focus on differentiation:
• Creating highest quality « Grand Cru » coffees
• Creating long-lasting consumer relationships
• Creating sustainable business success
14

15. III.4 Recommendations
Machines:
• Create a smaller machine range including water-saving technology.
• Create machines pre-adjustable which could make coffee on itself at a precise
time, in the morning so as customers will be woken up by the smell of a fresh autoserved coffee.
• Implement a system to recycle spare parts and another one to get the broken
machines back to the firm to be recycled.
• Innovate through the creation of a machine that can have different additional
devices.
Services:
• Implement an easier collecting service for used pods => The delivery man would
take the used pods at every order.
• To underline this green approach we will sell branded green cups so as consumers
can have a take-away Nespresso.
• Deepen the experience in store to make an “at home” space for customers and
hybrid space to respond to our coffee shops competitors.
• Establish coffee workshops for our customers who want to become Coffee expert.
• Implement a new tab on the website to help people repairing their machines
thanks to an interactive FAQ or a video chat system.
CRM programs:
• Establish a sponsoring your friends with a Win-Win offer.
• Provide a new service in which interested people could try Nespresso machines
for one week for £5.
Possible integration:
Nespresso does not own the factories, which make the machines. So, we will invest
as much as possible in the firms, which make our machines, by buying some of the
production lines.
Improve the repair services with a tracking system that will allow people to check
the time when their machine will be available.
Development:
Nespresso stores are only in the big cities. We want to test Pop up stores in smaller
towns to check the profitability.
We will also invest in an eco-friendly delivery system with hybrid vehicles, or even
other kind of delivery means like bicycle.
15

16. Conclusion
Nespresso choose a differentiation strategy. Nespresso is not about coffee, it’s
about Grand Crus and Variations. The coffee is sold in case, and customers can’t see
any prices, those elements are references to Jewellery. There are no shelves in the
stores but entire wall to highlight the packaging quality. No classic retailing system,
but 300 stores are located in strategic points either premium or highly visited. No
salesman but coffee experts. No classic advertising, but premium ads with multiple
star endorsement and George Clooney as an Ambassador. The latest element is the
vendor lock-in effect. We could say that this approach looks like a premiumisation of
the brand but it’s not strong enough. Nespresso differentiates from the competitors
through an Ultra-premiumisation, as everything they do is tailored to suit the needs
of the customers.
To improve the growth rate Nespresso has several strategic options, from
investing more directly in the production of machines, to improving its services range
to deepen the experience.
16

17. Sources:
M&M&M’s Brainstorming
Website:
http://www.nespresso.com/uk/en/home
http://www.senseo.co.uk
http://www.tassimo.co.uk
http://www.starbucks.co.uk/
http://www.costa.co.uk/
http://www.hospitalityandcateringnews.com/
http://www.ico.org/
http://www.realcoffee.co.uk
http://www.britishcoffeeassociation.org
http://www.urban75.org/blog/a-look-inside-the-new-costa-coffee-brixton-roadbrixton-sw9/
http://www.nestle.fr/media/pressreleases/r%C3%A9sultats-annuels-2012-bonneperformance-%C3%A0-tous-les-niveaux-mod%C3%A8le-nestl%C3%A9-%C3%A0nouveau-r%C3%A9alis%C3%A9
Articles:
http://www.theguardian.com/lifeandstyle/wordofmouth/2013/apr/10/rise-coffee-pod-machines-nespresso
http://www.marketingweek.co.uk/quality-quest-keeps-coffee-sector-full-ofbeans/3033917.article
http://individual.troweprice.com/public/Retail/Planning-&-Research/Connections/
Coffee/How-Coffee-Is-Driving-Economic-Growth
http://www.independent.co.uk/life-style/food-and-drink/features/coffee-podswhy-we-all-want-what-george-clooney-is-having-8182487.html
http://blog.euromonitor.com/2013/05/thinking-again-the-future-of-coffee-pod-machines.html
http://news.bbc.co.uk/1/hi/magazine/4550669.stm
http://faculty.insead.edu/adner/Final%20Projects%20May%20June%2005/Nespresso.pdf
http://www.lesechos.fr/opinions/crible/0203043078603-nouveau-regime-612992.
php
http://www.strategies.fr/info/nespresso+france
http://www.rue89.com/2009/03/31/nespresso-cest-cher-dur-a-trouver-et-camarche
Reports/ Surveys:
http://www.euromonitor.com/coffee-in-the-united-kingdom/report
http://store.mintel.com/coffee-uk-april-2011?cookie_test=true
http://www.comscore.com/Insights/Blog/2013_Digital_Future_in_Focus_Series
http://www.statistics.gov.uk/hub/index.html
Labour force survey, Office for national statistics
http://oxygen.mintel.com/display/590103/
Video:
Arte: http://www.youtube.com/watch?v=-JJ10ibpYNc
17