The Art of Coffee Marketing Marketing Analysis of Nespresso What I got myself into… Coffee is one of the most widespread and popular drinks next to water and the second most used product right after oil. Being a truly global commodity, its consumption today reaches 2. 25 billion cups per day. The biggest importers and thus coffee consuming nations are the US, Germany, Italy, Japan and France. It is everywhere and at any time. People drink coffee while working, relaxing, driving, meeting or communicating, rendering this beverage almost a necessity product with no time factor for consumption.
Drinking coffee can be a ritual, a culture, a tradition, a socializing event, a break or a source of energy. Its effects on health are still a subject of debate but according to the Harvard Health Publication; “…in moderation ??? a few cups a day ??? coffee is a safe beverage that may even offer some health benefits. ” The capsule coffee segment showed the most rapid growth in the coffee market. According to Euromonitor International, prepackaged coffee sales accounts to 20 to 40 % the value of ground coffee sold in Europe; a market worth USD 17 Billion.
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The Chanel of Coffee… Nespresso is a sub brand of the world’s leading nutrition, health and wellness company, Nestle. The brand Nespresso was born in 1986, in Lausanne with the aim to bring the best Italian bar, quality espresso into our homes and offices. The Group was not convinced about neither the product, nor the machine or the brand and it was in this negative, “close to the end” atmosphere that Jean- Paul Gaillard took over in 1988. “Nespresso is a rough diamond handled with the left hand by people with no vision” said Mr.
Gaillard and asked for a marketing budget of 1. 6 M???. He was granted the half of it and the other half he has borrowed from UBS. His vision: to enter the market through the high end by giving the brand a luxury glow. Today, the “Nespresso brand has become known for the highest quality coffee, sophisticated taste and continuous innovation. It is present in more than 50 countries and is supported by more than 190 boutiques, seven million Nespresso Club Members, and personalized customer service. ” Nespresso’s well protected playground…
Nespresso positions itself as the deliverer of the Ultimate Coffee Experience by combining pleasure, aesthetics, perfection and simplicity. Its customer driven marketing strategy is based on three main pillars: top quality Grand Cru coffees, innovative and stylish machines and an exclusive, personalized service to its clients. Its market leader position is based on 5 competitive advantages: service excellence, smart machines, optimum convenience, variety & choice and outstanding quality with innovation as a conductor line and philosophy on every level.
Nespresso’s target market was an unexplored area. By applying the marketing concept, Nestle has come up with the right and missing product for the customers by delivering not only a greater satisfaction but creating the “wow” effect. With two main target customer segments; In-home and Business, the company today enjoys a 25% market share of the world’s capsule coffee market and a 40% share of the French market.
The business segment includes offices (UBS, Deutsche Bank, Publicis), hotels (Kempinski, Relais&Chateaux), airline companies (British Airways, Cathay Pacific), high end event caterers and luxury or designer stores (Mont Blanc, Prada). Note, that in all of the cases Nespresso targets client and service oriented businesses where a small cup of “Grand Cru” will be a value adding factor. Regarding the in-home segment, its criteria is mainly socio-economical. The company targets the 30 and above age range, quality and style conscious, upper middle and upper class epicureans.
Their purchase of Nespresso exceeds the basic physiological need and by reaching almost the top of Maslow’s Hierarchy of Needs, it can be qualified as a satisfaction of the Self-Esteem need, showing a social and professional success. Not only technology but the whole concept is well protected ??? by 70 patents ??? at least till 1012, the year at which many of the patents are set to expire. This is a clear entry barrier for direct competitors who are still trying to get a chunk of the business. Here we have to mention Mr.
Gaillard’s name, who started Ethical Coffee Company and produces biodegradable capsules that fit the Nespresso system, sold at the Casino supermarkets. Another name to mention is Sara Lee’s “Maison du Cafe” that launched L’Or Espresso capsules in 2010 that fit the Nespresso system as well, sold in supermarkets for only 6 cents less than the original ones. Other attempts are being made by a Swiss start-up, Nexpod, Caps-Cup from Hong Kong and Cafe-Caps from South Africa. All in all, there is no brand so far, “attacking” the same market segment with a similar capsule technology and customer service.
We can speak of indirect competition when mentioning brands like Senseo (a Sara Lee and Philips alliance), Tassimo (Kraft Foods), Dolce Gusto (Nestle), Lavazza, Flavia (Mars Inc. ), Keurig (Green Mountain Coffee Roasters), Caggia-Illy, Saeco (Philips), Malongo. Nestle + Nespresso =”Nespresso Mix”… “As in the luxury industry, we propose the same range of products all around the world” ??? states Olivier Quillet, the international marketing director of Nespresso. The product range follows the market segmentation pattern: two lines of products ??? in-home and business.
In both cases we can state that machines are elegant, design awarded, innovative, user friendly and convenient. Business line includes the coffee machines with three sub lines: Gemini, ES for an internal use, destined to increase employee and client satisfaction within offices, hotels, luxury boutiques and travel companies, and the Aguila line, destined for restaurants and cafes (launched this month, required 3 years of research, weights 100 kg, prepares the full range of Italian coffees and milky coffees, inbuilt sim card that is connected to the maintenance center, recyclable capsules).
It also includes the 8 round shaped Grand Crus and the accessories. A large choice of targeted and exclusive services come with the product purchase and thus with the membership of the Nespresso Business Club. The services include commercial assistance, installation and training, delivery and technical assistance with 3 months within 48 hours, guarantee, water assessment, machine loans for both events and during servicing, leasing and rental contracts …etc. The In-home line includes machines, capsules and accessories s well. Machine lines are: Essenza, Pixie, Citiz, and Lattissima, depending on size, design function, color and price. Capsules include 16 Grand Crus depending on aroma, intensity and cup size (ristretto, espresso, lungo, and cappuccino). To select the preferred capsule or aroma family the customer is assisted by a “sommelier circle”. The parallel with the wine sector can be easily drawn, bringing coffee drinking to a degustation, “connoisseur” and exclusive level.
A wide variety of accessories is proposed in order to enhance the elegant and sophisticated presentation and atmosphere of coffee degustation (capsule dispensers, tasting service, confectionary and sugar). The design and collection concept is reinforced by matching accessory – coffee machine lines. At the end of each year Nespresso creates the limited edition line including three different aromas, giving its brand an “haute couture” and designer touch, accentuated by Nespresso’s packaging and presentation concept.
When purchasing a Nespresso coffee machine for both in-home or business use, one becomes part of the so called Nespresso Club, the key to the creation and nurturing of personalized client relationships, database marketing and development of tailored sales strategies. The club offers: * 24/7 access to the Nespresso Web, allowing online orders, free delivery above 200 capsule order, virtual advisor, discover new releases * Nespresso Boutique Pick Up allowing members to place orders by phone and picking it up at a nearby boutique after an hour * Nespresso Recycling reinforcing the CSR policy of the brand.
Dropping the used capsules at one of the 2500 collection points, 190 boutiques, or simply hand them over to the courier * Nespresso Mobile a smart phone application, allowing members to connect at any time to order or locate a boutique or collection spot * Nespresso Just for You allowing Club members to use the Lounge Service for tasting or take an Expert Appointment to gain a deeper knowledge of the aromas and coffee recipes * Nespresso Proximity ensures the convenient collection of the ordered capsules from one of the Kiala drop-off point, update by sms or email when order is available * Nespresso Your Time allows members to be delivered at a time of their choice * Nespresso Assistance assures an immediate technical assistance by collecting, repairing, bringing back and loaning a coffee machine 2010 reports show that Nespresso sales have been growing at an average of 30 percent per year over the past 10 years. Based on this figure it is possible to deduce that the product is still in its growth life cycle. Since 2000, when Nespresso started to break even, the company recorded a sale of more than 20 billion capsules through its boutiques and Web site. The price range of the machines starts at 99 EUR and goes up till 500 EUR for the in-home segment and varies between 275 and 1495 EUR for the business segment, with a price of 9850 EUR for the high volume restaurant and cafe machine.
Capsule prices are between 0,35 and 0,39 EUR cents, 6 cents more expensive than the first competitor’s price and offering a special price of 90,90 EUR for the discovery box. A cup of Nespresso costs 15 times more than a cup of filter coffee. Accessories range from 13 to 110 EUR and confectionary and sugar from 5 to 19 EUR. By looking the above we can clearly state that Nespresso follows a value based pricing method as delivering high value, quality and customer service justifies the high price categories. Just as like in the luxury sector, profit margins are extremely high. As target customers can easily and are willing to pay the set prices for their Nespresso moment, regardless of economic downturn, they can be categorized as not price sensitive buyers.
Once the machine is bought, the individualized service experienced and favorite aromas established and thus a strong emotional connection developed to the brand and its image, the threat of substitution becomes extremely low. Nespresso’s distribution method avoids any intermediaries between the brand and its clients, allowing a direct customer contact and maximize brand impact. As the first step of becoming a Nespresso Club member is the purchase of the machine, Nespresso decided to “democratize” its machine selling and thus render it available through specialist distribution networks and up market distribution channels such as Gallery Lafayette and Darty in France or the Bijenkorf in the Netherlands.
Capsules and accessories on the other hand are exclusively sold by Nespresso, through their site, phone or one of the 190 boutiques in 50 countries. Note that supply chain as well remains under Nespresso’s strict control, a way to assure high quality standards and deliver the promised services. Nespresso’s communication and design activities are led by FutureBrand (Interpublic) a Parisian design agency. The logo, rounded N, with shapes that complement each other and reminding us of “Ying-Yang”, vehicles perfection, perfect balance of shapes and both feminine and masculine side of coffee. The color palette (brown, beige, dark brown and black), was chosen to represent elegance, style and exclusivity.
Graphic and visual design was inspired by the ones, used in the luxury sector by Louis Vuitton or Chanel for ex. and adapted to whole physical appearance of the brand and its products. Boutiques do follow the above, adding materials such as polished aluminum, glass and leather and applying a pure, elegant, and discrete interior style. The atmosphere in the boutiques remains warm and welcoming. The poly-sensorial marketing concept is nearly perfect. The sight (store design, capsule color walls), smell (coffee aroma dispensers, candles), touch and taste (degustation possibility) senses are fulfilled leaving the hearing slightly aside. All in all, the feel and experience touch points with clients are brought to the maximum level.
Nespresso, together with the advertising agency McCann have chosen George Clooney as brand ambassador. The “Clooney Saga” (short stories where the seductive and stylish actor gets a secondary role next to the coffee and appears in one with John Malkovitch) together with the “What else…? ” slogan made a huge impact on the public and won numerous advertising prizes. Nespresso Club members have had the opportunity to suggest a storyline on the Nespresso site, rendering the campaign participative. Another marketing tool is the bi annual Nespresso Magazine, a pleasure and lifestyle guide that is also available through internet. The company has very little promotional activities as this would harm the high scale brand image.
Only at the purchase of a coffee machine clients can have accompanying promotional offers on accessories or capsules. This remains a one-time offer. Direct marketing activities such as mailing and emailing remain very slight, mainly used to inform clients about new products, store openings, events or the limited collections. It is done with the help of Nespresso Club, through which the company is very well informed about the type of the machine bought, the frequency of capsule purchase and the preferred aromas. This way not only a personalized offer can be elaborated for each and every customer but also cross-selling can be done. Participative marketing tools are also applied through Twitter and Facebook.
Nespresso is well known in the tennis and sailing world for its sponsorship activities and for even launching a Nespresso Sailing Cup in 2010. All physical evidence ??? products, boutiques, website, logo, ad campaigns, brochures etc. ??? is based on the core values of the brand: top quality, innovation, elegance, simplicity, aesthetics, excellence with the customer delight and wow effect at the heart. When observing boutique employees, they rigidly follow dress codes, behavior and communication norms set by the internal guidelines, and apply numerous politeness formulas while delivering outstanding service. From the doorman till the store manager, they are all true ambassadors of their brand’s image and reputation.
Thorough employee selection process and intensive training (service/technical aspects/product range) are the gauge of success of both personal selling and customer service. Employees and management do believe in the superiority of their product and are proud to be part of the winning team. Nespresso’s marketing process is highly customer focused. The client is taken care of and guided through the entire purchase decision making process being it through the phone, the web site or in the boutique. In case of an in-store purchase the client is enjoying a VIP treatment, can taste and smell the aromas, is reminded of what he or she has bought the last time and is advised on every and any aspect of the product.