MARKETING

STRATEGY OF
NESTLE NESPRESSO

By
Manesh Manoj
706D
Vishnu
704D

Vijay

ACKNOWLEDGEMENT

This is the most satisfying yet the most difficult part of the project to writegratifying because printed words serve as attest ion, difficult because they fail to
convey the real influence others have had on ones life or work.
I would like to extend my heartiest thanks to the Management of my college
who provided me with necessities for the completion of the project.
I am deeply indebted to Dr. Kaup Mohamed and Prof. Dr. Paulson for the
inspiration inculcated in me and for their apt guidance.
Before I culminate I would like to extend my heartfelt gratitude to Mr. Pierre
Topalian, Operations Manager, Perfetto Trading Company (Nespresso).

INTRODUCTION
Nespresso is the brand name of Nestl Nespresso S.A., an operating unit of
the Nestl Group, based in Lausanne, Switzerland. Nespresso machines
brew espresso from coffee capsules, a type of pre-apportioned single-use container
of ground coffee and flavorings. The company sells its system of machines and
capsules worldwide, as well as the VertuoLine system in North America.
The dedicated espresso machine and coffee pod system, is now an important
part of the Nestl empire, with sales around USD 5 billion. It was not always so and
indeed Nespresso's history is one of sustained and often unsuccessful marketing
over a long period of time.
Eric Favre at the Nestl research lab filed the first patent in 1976, when
Nestl dominated the instant coffee market with Nescaf but was weak in the roast
and ground coffee sectors. Favre overcame various technical problems, but
attempts to enter the restaurant and office market were unsuccessful. In 1986,
Nestl set up Nespresso SA, an independent company, but sales were still
disappointing until Jean-Paul Gaillard was appointed CEO and changed the business
model :

Focus was shifted from offices to affluent households

Coffee was sold by direct mail as 'pods', capsules that could be
inserted into the coffee machines with a minimum of fuss and coffee
wastage.

The present Nespresso Leadership Team (NLT) takes care of the day to day
management of Nestl Nespresso SA. It is led by CEO Jean-Marc Duvoisin.

REVIEW OF LITERATURE
Since the beginning, Nespresso has transformed coffee culture and become
the reference for portioned coffee worldwide. With a focus on both direct-toconsumer and business-to-business sales, Nespresso is strongly positioned in the
most dynamic and fastest growing segment of the global coffee market.
When that proved successful, Nespresso:
1. Started selling online.
2. Built coffee dispensing stores at prime locations.
3. Launched its own 'boutiques' in up-market departmental stores.
4. Established a Nespresso community through an Internet club and then Facebook,
MySpace and Twitter.
Social media, such as Facebook, promoted the product in the form of an
interactive Facebook page and celebrities, such as George Clooney and John
Malkovich, have been used to market the product. The brand's
current slogan is What else?. The brand Nespresso is the subject of continued
promotional campaigns around the world. Promotions include bonus coffee capsules
sold with the machine. TV commercials also feature Penelope Cruz, including a
longer promotional video on Nespresso's site and YouTube with Cruz and Jimmy
Kimmel.

IMPORTANCE OF STUDY
A marketing study helps you create products and services with the best
chances for making a profit. This is because marketing strategy starts with
marketplace research, taking into consideration our optimal target customer, what
our competition is doing and what trends might be on the horizon. Using this
information, We can determine the benefit customers and clients want, what they
are willing to pay and how you can differentiate your product or service from the
competition.
It also helps us as following:1. Helps Determine Optimal Prices :If we learn that our customers wants a high-end product in our
category, our pricing strategy might require us to sell at prices that create a
high-end perceived value. If our target customer is bargain conscious and is
willing to accept fewer bells and whistles on our product in exchange for
paying less, our pricing strategy will require us to sell at or below the
competitions price.
2. Establishes Effective Distribution
Once we know what product features we will offer, who our target
customer is and what our price points will be, we can select where we want to
sell to maximize our marketing effectiveness. If our market research shows
we need to be in retail stores but we dont have a sales force, we can use a
wholesaler or distributor.
3. Assists with Marketing Communications
Our market research will help us create our brand, or image we want to
establish about our business. A marketing strategy lets us determine if a
particular magazine, radio station or website fits into our selling plans.
4. Organizational Impact
When you have a marketing strategy, your departments can better
work with each other, because they are all working from the same plan which
will intern increase profit.

STATEMENT OF PROBLEM

Nespresso uses special aluminum coffee pods (Capsules) in there coffee machines
as shown below

Fig a 1
Fig b 1

Fig a1. shows the individual coffee pods while Fig b shows the pods arrangement
inside the coffee machine.
Each capsule contains 56 grams of ground coffee and makes one cup of
coffee. Depending on the length of the pour, the capsule can produce a 40 ml
espresso shot, or a 110 ml lungo (long) pour. The capsule body and perforated top
are both made of aluminium, and are mostly recycled. To assuage concerns
on potential aluminium health effects, most of the capsule interior is lined with foodgrade lacquer.
Nespresso capsules are sold exclusively by Nespresso and are significantly
more expensive than an equivalent quantity of "loose" ground coffee. The cost per
serving is up to three times higher than that of alternative brewing methods.
Because of the hermetically sealed capsule, however, the coffee aroma does not
degrade with time like coffee in a pack that has been opened.
Nespresso actively discourages customers from purchasing coffee capsules
from other sources. As a result, choice of flavours is limited and there is limited
6

competitive downward pressure on capsule prices. Nespresso seeks to position the

brand as an exclusive luxury good. In the US, The price of capsules in 2014 ranged
from USD 0.65 to USD 0.70 each. In Europe they are considerably cheaper, e.g.
0.35/capsule in the Netherlands in 2014, about equivalent to US$ 0.42. with free
shipping for orders over 50 capsules. There is a minimum order quantity of 50
capsules, and standard shipping for 50 capsules is USD 6.95, raising the total cost
per capsule to USD 0.79 to USD 0.84.
For comparison to buying coffee by weight, 167-200 56 gram capsules
contain one kilogram of coffee. At 2014 prices the per-weight cost is USD 108
140/kilogram. In March 2011, the Swiss discount supermarket, Denner, won a court
battle with Nestl over the sale of Nespresso compatible capsules. The plastic
capsules are approximately half the retail price of the Nespresso capsules.
Another problem faced in recent times for Nespresso is, That the concept of
machine, capsule, service, is subject to 1,700 patents which protect Nespresso's
ownership of the concept until the patents expire. But Nespresso's patents began to
expire in 2012, gradually allowing competitors to offer capsules and machines
compatible with the Nespresso system. Due to this reason many competitors like
the Dutch company, Douwe Egberts has launched a coffee capsule compatible with
Nespresso machines in Europe and the US. Unlike the Nespresso capsules, the "L'OR
EspressO" capsules are made out of plastic instead of aluminium. An Italian
company Caff Vergnano has also launched capsules compatible with Nespresso
machines, called spresso, and was attacked by Nestl Nespresso S.A. notably
because Vergnano capsules, unlike Nespresso ones, can be found in supermarkets
and small shops.

OBJECTIVE
With Nespresso we get the best of the both worlds, - innovation and
simplicity. The Nespresso machines have been designed to reveal the subtle aromas
and flavors of their exclusive capsules.
Offering timeless designs and high technology, function and user-friendliness,
every detail have been carefully considered to provide us with the ultimate coffee
experience.
With every new machine, combining latest technology and great ease of
use,Nespresso sets new standards in innovative design. Much of the inspiration
behind these creative designs stems from the designer Antoine Cahen who has
worked with Nespresso from the outset.
Nespresso controls all stages of the coffee production to ensure coffee of
consistent quality. From production through to tasting. This is why every cup
delivers the ultimate coffee experience. The process starts from Cultivation,
Harvesting, Processing, Transport, Blending, Roasting, Grinding, Capsule system and
Decaffeination.
There are three methods for transforming the coffee cherries into beans
which have a direct impact on the cost and quality of a coffee. These methods
involve removing the waste from the crop and taking off the various outer layers of
the beans. This is how the coffee is obtained, which is the generic term given to
coffee after it is processed and before it is roasted. The wet method favored by
Nespresso, which requires more investment and care, results in coffee with a more
complex aromatic profile. Wet processed coffee is sometimes referred to as
"washed" coffee. These are generally high quality Arabica coffees. Wet processing
enhances a coffee's aromatic notes and reduces bitterness.
Nespresso develop our Premium Blends from the finest coffee origins at the
Nespresso production center in Orbe. The blend requires absolute precision in terms
8

of its proportions. The final quality in the cup depends not only on excellent origins
but also on the correct amount of each origin in the blend. It is a deep
understanding of these two elements that makes Nespresso an expert in the field.
The exclusive method of packaging, the hermetically sealed
aluminium capsule which we have discussed earlier provides the pressurized seal
needed to preserve the 900 aromas and flavors of freshly ground coffee for several
months until it is served. Packaging the coffee in capsules involves placing just the
right quantity of ground coffee into aluminium capsules that are coated on the
inside with a protective film. The capsule is hermetically sealed with aluminium foil,
which protects the freshly ground coffee from air, light and humidity. Aluminium is a
100% and infinitely recyclable material.

HYPOTHISIS
Despite the high quality of the coffee provided by Nespresso, the further
rapid expansion to the modern world for Nespresso is not achieved. One might
observe Nespresso as a monopoly in coffee industry but a bit deep study in the
subject will show us that despite their effort to conquer the households and average
(or even below average) restaurants or cafeteria, their aim is not achieved. In this
era of technology and marketing, Nespresso tries its best to achieve the goal of
entering into common man's market but it trebly fails to do so, it remains as a
Luxury brand(At least in Middle East).
For any company for that matter to survive this rapid changing and ever
evolving market of our Modern times, they have to step down from there Luxury
status, and enter majority average peoples market. Its evident in Automobile
industries also Luxury brands like Volkswagen & BMW have their budget cars. This
helps them to get into the competitive market. Even Nespresso knows this as a fact,
But what is the issue in entering this competitive market (Average man's market)?
According to me after consulting few customers & service providers following are
my findings:1.) High Cost of Coffee pods exported outside Europe.
2.) Poor service & support from the official service centers.
9

Even though Nespresso have their budget machines for coffee making due to
the highly specific transportation, the cost of Coffee is really high. An average
customer finds it not affordable, when compared to other coffee makers in the
market.
Service provided for machines are very poor. Customer satisfaction is not
achieved by many of the official service providers. An unsatisfied customer finds
Nespressos competitors much favorable, since their competitors are finding new
way to establish their monopoly as of Nespressos.

RESULTS AND DISCUSSION

Nespresso is a 5 billion dollar business, and one of the fastest growing Nestle
brands, the success that has attracted competitors who want a slice of a business
that carries higher margins than instant coffee and which is growing at a faster rate.
The competition is mainly based in the production of low cost coffee pods or
capsules. It was said that there is 20 odd competitors in the Swiss market against
the Nespresso branded coffee pods, which is less expensive compared to the
Nespreso capsules. This also had resulted in a big decrease in the sales growth
momentum from 29% in 2009 to 16% in 2012.
The popularity of knock-off coffee pods sold by Migros, the second-biggest
retailer in a country with a population smaller than New York City, contributed to a
slower start to the year for sales of single-serve Nespresso.
Migross capsules, on sale since May, probably squeezed Nespressos
quarterly sales growth to 8 percent, the slowest pace in the brands history.
The growth of the brand Nespresso, which was started in 1986 as an
autonomous global company under Nestle, came to its full flow in the year 2000.
10

The George Clooney factor has also a major part in the increase of the
sales of Nespresso.

FINDINGS

NESPRESSO PERFORMANCE
Nespresso

2012

% change

2013

%change

Market
share
Volume
Market
share value
House hold
penetration
Average
expenditure
per
household
Revenue

2378 tonne

+33%

31962
tonne

+33%

2014
forecast
4174 tonne

USD 87m

+37%

USD 119m

+37%

USD 163m

1.74m

+42%

2.47m

+32%

3.26m

USD 104

-11%

USD 93

-11%

USD 83

USD 181m

+18%

USD 230m

+8%

USD 269m

11

The chart clearly proves that the Nespresso could not convince the house hold
market efficiently

RECOMMENDATION & SUGGESTIONS

Nespresso is a known name in the coffee drinking community. The easy use
and the quality of the coffee produced is the main attraction. The cost of the coffee
pods is one of the main disadvantages of the Nespresso. Being a luxury good, the
quality is in its high. The exclusive stores, also known as tasting bars, that are setup
in the posh areas of the city centers do say it all. In the present scenario, the luxury
is also spreading into the average mans lifestyle. People willing to try different
taste of luxury and food is also increasing day by day.
The cost of the coffee pods is in the higher range. The aluminum finish and
the special inks used do increase the cost. And the production of the pods is based
in Switzerland, where the cost of living is one of the highest; therefore the cost of
production will also increase by a great margin. The coffee is produced in different
parts of the world, which are collected at a lower price, treated and packed in the
factories. This directly or indirectly effects the transportation, storage, and hence
the coffee pods costs higher.

12

Instead of transporting the half boiled coffee from different parts of the world
to a specific location, a factory which follows all the standards and quality could be
setup in the said developing nations, and the final product can be shipped to the
nearby location at a lower cost of production. By attaining this form, the cost of the
coffee pods could be reduced in a greater extent.

CONCLUSION
Following are the conclusions that we came upon:-

Reduce the cost of coffee pods, without compromising its quality, by building
coffee processing units near to the places which produce coffee beans, with
international standards for processing coffee. By building units in India &
Africa, which are Huge producers of coffee beans (From where even
Nespresso buys coffee beans), cost of processing, transportation can be
reduced drastically. Export to Far East & Middle east will be also convenient
are cost effective. Hence overall cost can be reduced in manufacturing and
transporting the pods, which in turn reduces the cost of pods.

For achieving 100% customer satisfaction the service providers of the coffee
machines should be properly selected. The selection process should be made
13

strict with standard procedures. The service providers should be frequently

monitored based on their performance. Positive & Negative motivations
should be provided.

14