Success Story of Nespresso

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  • Topic: Coffee preparation, Coffee, Nespresso
  • Pages : 8 (2068 words )
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  • Published : October 23, 2011
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Success Story Of an Innovation
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NESPRESSO
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What Else?
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Submitted By: Khadija Ait Ouhanni
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Hassan Radi
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To: Professor Amine Bennis
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Al Akhawayn University-Fall 2010

Important innovations in the coffee market

The last innovation in the coffee market was the soluble coffee in the 50s. Concerning the coffee machines, it was the invention of the Espresso Coffee machine in 1901 by Luigi Bezzera. In the 70s, Nestlé decided to target a premium segment by launching a strategic innovation, an innovation that would not basically impact the consumer’s habits (it doesn’t change the number of coffee they drink per day), but that would completely destroy the skills and assets of the already established actors in the market. Indeed, it was the first radical innovation in the coffee market since Bezzera.

From 1970 to 1985, 15 years of research

* In 1970, Nestlé’s Research and Development department invents the capsule containing freshly ground coffee and its pressurized coffee extraction process. More precisely, it was the engineer Eric Favre who invented the concept of coffee capsules. * In 1976, Nestec, the Nestlé Group’s development centre, files the first patent application for the process. * 1986, the launch of the system

* In 1986, the Nespresso SA company, wholly owned by the Nestlé Group, is founded in Vevey. In partnership with Swiss manufacturer, Turmix, it launches the Nespresso system in the office coffee sectors of Switzerland and Italy. Capsule production is centralised at Nestlé’s factory in Orbe, Switzerland.

The initial strategy fails!

At first, Nespresso targeted the Business Market (B-to-B), particularly companies that have coffee machines installed in offices and hallways for their employees, and restaurants. Three countries were chosen to launch the product: Switzerland, Italy and Japan. The production of machines (which is not the job of Nestlé) was given to the Swiss company Turmix who was also in charge of selling the capsules of coffee. However, sales were disappointing: only 875 machines were sold the first year; and there was no increase of sales the following year. Nestlé was worried about the future of its innovation.

Stop or not to stop? That was the question

Many market researches were done and opinions diverged. The challenge was to identify the problem: is it the marketing strategy that failed or the whole concept itself? Eventually, Nestlé decided to give one last chance to this product that was supposed to revolutionize the coffee industry. They hired a new CEO, Jean-Paul Gaillard, who decided to completely modify the marketing strategy.

A new strategy: focusing on individuals and on the direct sales of the capsules

The B-to-B market was abandoned and the customers market was penetrated. Nestlé also moved to new countries starting with the USA, then France, Germany and so forth. Licenses to produce Nespresso machines were given to different companies depending on the country. However, the sale of coffee capsules was exclusive. Customers can only buy these...
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