Nestle has been making instant coffee since 1938. Nespresso was initially launched in 1979 but suffered in several production problems of machine and capsules such as an error and delay support in capsules order and machine manufacturer. (Lachapelle, 2018, p.3). They learnt from these problems and Nespresso became the leader with high market share of capsules coffee by the 2000s.
In 1986, seven years after the first attempt, nestle established Nespresso company as a subsidiary owned by itself. Nestle was repositioned as an invention product of Nespresso’s business model by dividing the customer segment of the Nespresso system, which focused only on B2B sector, into two main customer segments. (Lachapelle, 2018, p.4) The first B2B segment included companies, hotels, restaurants, and first-class airline. Another segment is Business to the customer (B2C) such as 18-65 years old, niche market, and medium-high income. While Nespresso has changed customer segment, it remains focused on its original value proposition to offer the high-end cup of espresso coffee – like a barista style at home and workplace. (Nestle, 2016)
The problem of coffee machine production was solved by outsourcing machine manufacture which is a vital partner of its business. Other key partnerships are raw material suppliers which produce the coffee beans for its capsules.
Nespresso uses lock-in strategy – which means the coffee machine is compatible only with Nespresso capsules. This mean, on-going purchase of capsules generates its main revenue stream. (Lachapelle, 2018, p.5)
Nespresso protects intellectual resources which are its key resource by registering in 1,700 patents to prevent competitor release similar or counterfeit machine and capsules.
In term of physical and digital channels, Nespresso has separated into direct and indirect channels to deliver value and interact with its customers. Retailers even in the electronic store are an indirect channel via partner channels because Nespresso wants to bring the machine into the household. (Nestle, 2016)
Nespresso uses its own channel which is a direct channel to eliminate the middle man and increase the speed of sale and delivery to its customers. This channel creates value for its business and its customers because there is no margin cost from the merchant, therefore, the customers buy at reduce prices. They use telephone and e-mail to give advice on the selection of Grand Crus and machine, and to respond to individual need of Nespresso club member. Since 1996, Nespresso has launched its own website Nespresso.com via digital/online channel and developed the first e-commerce platform in 1998 to provide global online ordering 24/7 for Nespresso club member, and now a Nespresso mobile App for Nespresso club members to reserve 48 hours delivery. Moreover, Nespresso maintains relationship with customers via Facebook which already has fans of over five million. (Nestle, 2016).
Source : https://theregister.co.nz/features/come-cuppa-nespresso-makes-itself-home-new-zealand
The next channel is physical/offline, which delivers a unique experience value via international retail shops. The first Nespresso boutiques opened in 2000 in Paris and now there are 792. (Nestle Corp., 2017, p. 36) Furthermore, Nespresso cubes- a digital and automatic boutique, which offers the art of personal shopping experience via limited edition flavours, as well as customers being able to enjoy watching the unbelievable speed of order process which is handled by a robot within the machine.
Source : https://www.youtube.com/watch?v=D2xHjIhx83o
Customer relationships are managed though marketing channel. Nespresso integrates four crucial elements include social, mobile, analytics, and cloud (SMAC) to leverage all interaction of customers data via in-store order, website and App orders, and even consumer complaint which are stored on the cloud. They analyse customer behaviour and intention by using big data to generate real insight and personalize for customers.
Source : https://digit.hbs.org/wp-content/uploads/sites/2/2018/04/4.png
This information induced Nespresso in the digital transformation to make the coffee machine “Nespresso Prodigio” which connects with the Nespresso App within your smartphone via Bluetooth to let you set up time for the machine to make coffee, to allow you to order or reorder capsules in one touch and also to alert you though your phone when the machine needs to refill water or service maintenance.
Research and development (R&D) are key activities for Nespresso on digital innovation to invent “capsules recycling” – made from aluminium which is recyclable to protect quality and aroma from light, humidity, and oxygen.
Source : https://www.youtube.com/watch?v=IVX9yg1P1Ac
Moreover, in term of circular system of agriculture, Nespresso launched the AAA sustainable quality program – sustain quality coffee sourcing under ecollaboration with coffee farmers create sustainability across the coffee value chain. (Nestle, 2016) The positive outcome such as 90% of Nespresso coffee source though this program, 100 % of coffee delivered by train, 16-20% energy saved during roasting, is 230,000 m3 of gas saved a year.
To conclude, the main concept of Nespresso business model is management control in every single step of coffee supply chain from coffee farmer to end-user. However, they should continue with investment in the physical store to reinforce sale volume via the digital platform. This is because customers are necessary to trial and select which favors they prefer before order or reorder the capsules.
References :
1. Lachapelle. (2018). Business Model Design. Retrieved 25 February 2019 from
2. Nestle Nespresso SA. (2016) the Nespresso History : from a simple idea to a unique brand experience Retrieved 27 February 2019 from
https://www.nestle-nespresso.com/asset-library/documents/nespresso%20-%20history%20factsheet.pdf
3. Nestle Corp. (2017). Annual report. Retrieved from
https://www.nestle.com/investors/annual-report
4 Nestle Nespresso SA. (2016) global brand community. Retrieved 27 February 2019 from
5 Nestle Nespresso SA. (2016) Corporate backgrounder. Retrieved 27 February 2019 from
https://www.nestle-nespresso.com/asset-library/documents/nespresso%20-%20corporate%20backgrounder.pdf (Nestle, 2016)
6 Nestle Nespresso SA. (2014) creating Highest quality grand cru coffees. Retrieved 28 February 2019 from
7 Nestle Nespresso SA. (2016) Nespresso AAA sustainable Quality™ Program. Retrieved 1 March 2019 from
8. stl_mba19. (2017) Nestle: Greening the Supply Chain. Retrieved 1 March 2019 from
https://rctom.hbs.org/submission/nestle-greening-the-supply-chain/
9. Callahan. (2017) Nespresso: Protecting the World’s Best Coffee. Retrieved 1 March 2019 from
https://rctom.hbs.org/submission/nespresso-protecting-the-worlds-best-coffee/#_ftn6
10. Coleman. (2017) Climate change could lower the quality of your coffee. Retrieved 26 February 2019 from
https://edition.cnn.com/2017/06/21/world/coffee-climate-change-trnd/index.html
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Hello, This is an interesting topic!
I once visited Nespresso boutique in Paris and very impressed. I felt that this is quite clever business model that it can manage since its beginning (supply chain) to the end consumer. One of my friend bought the Nespresso coffee machine , therefore; he always have to buy the capsule to make the coffee. It quite clever way to create loyal customer for the company, in my point of view. They try to offer the new way of coffee drinking experience by creating through both online and offline channel as you said.
I didn’t know before that they got the application for Nespresso club members. This takes coffee industry into another level excluding all coffee café chain store like Starbucks. In the future, I think they can develop into the the place like Heineken Experience in Amsterdam that telling the history of product by using the technology.
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Thanks for this post! I grew up with a Nespresso machine in the house and when I moved out, a Nespresso coffee maker was one of my very first adult purchases 🙂 I didn’t know that they had been around for so long! I find that really interesting because I actually think of Nespresso as quite a modern brand – its convenience and the feeling of luxury surrounding what actually is a pretty basic FMCG brand feels perfectly designed for the modern world. I love the fact that they are making such an effort to keep up with modern life! For example, if they hadn’t introduced the capsule recycling scheme, I think I would have stopped using Nespresso a few years ago. I also love that they’ve realised my life-long dream of a coffee machine that makes you a coffee as soon as you wake up!!! Just what is needed, if you ask me. Have you seen the latest series of TV ads with George Clooney and Natalie Dormer? I really like their continued use of George Clooney as a spokesperson but reinventing his role in different campaigns.
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Big thanks Emilie for your beautiful comment, I realize that you are a big fan of Nespresso. Of course, George Clooney still is the no.1 of Nespresso’s advertisement. I personally think his personality demonstrated the real image of this brand. Another point that I agree with you is a capsule recycling that shows us about the environment concern from this brand. This is because not only the brand can remain a present customer but also can increase the number of customers who realize about a sustainable environment.
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Hello, Gig ^_^
Thank you for your post! I do really enjoy reading your blog
My family (especially my father) have been a big fan of Nespresso for so long. You have provided fascinating information about their marketing strategy which Nestle separate their communication channels into two; direct and indirect. I have a keen interest in their direct channel. You’ve mentioned that “Nespresso eliminate the middle man and increase the speed of sale and delivery to its customers.” and “Nespresso launched the AAA sustainable quality program.” I personally think that these strategies were created to change the brand image that it wanted to take the opportunity to start a conversation around its approach to sustainability and gain their revenue in the long term. Besides, they created a sustainability marketing plan that today’s people paid attention to such as recycling packaging, so they will have an opportunity to grow their business in the near future.
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