Paul Sheetz IIT Institute of Design [email protected]

Nespresso: to Incorporate the Internet of Things and Tea An analysis of the current and future product portfolio of Nespresso

N

espresso. What else? George Clooney, Penelope Cruz, and John Malkovich can be spotted endorsing this global brand, but why should you accept the offering at face value? The answer is you should not. Nespresso, the single-serve athome coffee and espresso provider, has enjoyed steady growth in sales and market since 2000(1), and we can attribute their incredible success to much more than just celebrity faces. Nespresso has become one of the fastest growing divisions within parent company Néstle through a culmination of strategic decision making and positioning achievements. Beyond their high profile advertising campaign, Nespresso has differentiated themselves as the

12/06/2013 | Portfolio Planning

“Armani of Coffee(2)” by delivering on an innovative business model, patent protecting core offerings, establishing key partnerships with suppliers, while enhancing the entire coffee user experience. This assessment seeks to describe, in detail, the product portfolio of Nespresso - paying close attention to the company’s background, competition, industry, and customer segments. Following an analysis of the current strategy, we recommend planning options on how Nespresso can define its goals for the next product development cycle. In particular, we offer recommendations on how Nespresso can explore options of incorporating the Internet of Things and hot tea into their product portfolio.

Nespresso | 1

Company Analysis To begin, Nespresso is a wholly owned subsidiary of Néstle. Néstle, now the largest food producer in the world, has a market capitalization of $233 billion from many of its well-known brands such as Gerber, Kit-Kat, Perrier, Cheerios, and many more(3). Meanwhile, as Néstle continues to top the charts in terms of growth(4), so too does Nespresso, which has enjoyed 30% annual growth in sales since 2000, and sold more than 20 billion coffee capsules to date(5). However, this has not happened by accident. Nespresso has carefully allocated its resources with specific intent to achieve such gains. In order to understand Nespresso’s core value proposition, we will first take a brief look how it manifests itself through their creative business model. The first aspect of Nespresso’s competitive advantage are the 1,700 patents that keep the competition at bay from infringing upon its coffee capsules, machines, and production processes(6). To strengthen their position, Nespresso has instituted a direct-to-consumer approach in the sales of both capsules and machines. By selling proprietary capsules through direct channels, Nespresso has incredible control over the customer experience as well as the coffee quality. You can only purchase the coffee capsules through Nespresso boutiques or the online ordering system. Between the patents and the direct retail outlets, Nespresso profits heavily from the sale of the actual coffee grounds, which earn up to 5 times the revenue of the same quantity in other forms. In addition, by combining the services and products, the company has an edge by amassing customer data

12/06/2013 | Portfolio Planning

themselves, to which they can communicate directly.

“A step below luxury, but a cut above the ordinary” Moreover, Nespresso has carefully considered the entire consumer experience from purchase, through consumption, to disposal. They seek to achieve an experience that is, “A step below luxury, but a cut above the ordinary(7).” That is, they have created an affordable luxury aimed at the high-end consumer market. To support this position, the company has partnered with popular chic department stores in major metropolitan cities across the world, including, but not limited to: New York, Madrid, Milan, Tokyo, Seoul, Sao Paulo, and most recently the flagship boutique on the Champs-Elysees, Paris. Nespresso boutiques can be found inside Bloomingdales in the United States, Harrod’s across Europe, and The Centro in Italy. These relationships and locations signal the image that Nespresso is looking to achieve in the global market. Although, its not just a look. Nespresso reinforces these fashionable outlets by bundling premium products with premium services. As if they had written the book, ‘A Practical Guide to Combining Products and Services(8)’, Nespresso has done so with eloquence. Small, heavily staffed boutiques provide complimentary espressos and toptier customer service akin to any major player in the hospitality realm (of which I can attest to, as I visited the Chicago location). Also,

Nespresso extends the services to your home in form of a call center that will help you diagnose your machine or replace it with a loaned machine while being repaired. Customers who purchase into the Nespresso system become a member of ‘The Nespresso Club’ which opens the door to 24/7 capsule ordering, technical support, recycling programs, premium courier services, a magazine subscription, and a place among other high-profile customers(9). Beyond the consideration put into the customer experience, Nespresso has also applied the same innovative lens to their internal supply chain processes. After all, where would a premium coffee company be without high-quality coffee beans? This challenge is exactly what Nespresso has faced due to increased competition and the fact that most of the beans are grown on small-scale farms in lower socio-economic regions of Guatemala, Colombia, and Africa, which strain both the farmer’s margins and environment. Since Nespresso has strict quality specifications, they have invested in the long-term relationships with the coffee bean suppliers. Instead of simply pressuring coffee bean farmers to lower prices for Nespresso’s benefit, they instituted the AAA ‘shared value’ program. The AAA is aimed at improving the social, economic, and environmental conditions of the small-scale farmers(10). Nespresso provides the farmers with training, pesticides, and financial investments, as well as 30-40% higher prices than market paid to them by Nespresso to ensure supplier relationships. Today, partnerships with 52,000 AAA farmers as well as the Rainforest

Nespresso | 2

Alliance has allowed Nespresso to source 68% of their coffee from the program, as they look to improve it even further(11). In addition to looking upstream, Nespresso has also focused efforts on the downstream recycling portion of their product life cycle. By forming partnerships with recycling centers, aluminum providers, and Life Cycle Assessment organizations(12) Nespresso has been successful in reducing their overall carbon footprint.

channels. This may be the cause of the recent partnership with Target to exclusively offer the Nespresso machines. Although, the company will still not stray far, and chooses to place a Nespresso employee at the helm of every point-of-sale. Meanwhile direct and indirect competitors are building strong brand presence and market share through lower price points and more rampant retail outlets.

Competitive Analysis

“There is big potential [in the United States]” Strengths aside, Nespresso still faces difficult challenges along their roadmap. While boasting a fantastic customer experience and business model, moving potential consumers past the perceived switching costs is a hurdle. After an unsuccessful print advertising campaign, the company has switched to television advertising as well as exploiting the demonstrative approach offered by its department store boutiques. The current CEO Richard Girardot admits, “There is big potential [in the United States]”, but it lags behind European countries as merely the 8th largest market(13). The company has tried to increase growth through various promotions, such as the recent partnership with major airlines to install the machines and offer the beverages to business passengers. This marks one weakness in having such strict control over the supply - the brand simply has had trouble catching on in the United States due to limited 12/06/2013 | Portfolio Planning

It is hard to talk about the current coffee industry without mentioning the names of popular brands that have succeeded in infiltrating the lives of millions of consumers in the past decade such as Starbucks, Keurig, and Folgers. These companies and others continue to grow the coffee market to its current standings of roughly $20 billion(14). Nespresso is a player in the game, and if it had it its way, the business will accomplish its goals of bringing premium coffee production into the households of

all. Nonetheless, the competitive marketplace will not likely allow such an event, and in this section we will examine the competitive landscape to see where Nespresso stands amongst its industry counterparts. Within the similar ‘form’ region of the competitive landscape we see that Nespresso shares market with other single-serve at-home coffee brewers such as Lavazza, Green Mountain Coffee Keurig K-Cups, Starbucks Verismo(15), french presses, and similar countertop coffee machines (figure 1.1). These products emphasize simplicity, convenience, and speed during the home coffee experience. Lavazza is the closest in terms of actual look and function as Nespresso’s espresso machines. These two companies have sought to separate themselves from the crowd based on their sole emphasis on espresso / coffee, while Keurig and Verismo attempt to broaden their customer base appeal - capable of handling tea, hot chocolate, coffee and other beverages. The ‘category’ holds indirect, but influential

DIRECT INDIRECT SUBSTITUTES COMPETITORS COMPETITORS

TRADE-OFFS

BUDGET GENERIC CATEGORY FORM • • • • •

Single-serve French press Keurig Verismo Lavazza

• Coffee options • Starbucks • Dunkin Donuts • Carabou • Folgers

• • • • • • •

Tea Wine Beverages Energy drinks Water Baileys Kahlua

• • • • •

Cigarettes Ice cream Snacks Alcohol Fast food

Figure 1.1

Nespresso | 3

competitors such Starbucks, Dunkin Donuts, Peets, McCafe, and other single serving coffee outlets that provide the same value proposition in a slightly different format. One level out, the ‘generic’ zone encompasses a wider range of substitute beverages such as bottled waters, teas, sodas, energy drinks, Irish creams, and more. These beverages may provide similar caffeinated effects, but through a different form, channel, and taste. Lastly, budget tradeoffs can be made for Nespresso with a products such as cigarettes, ice cream, snacks, alcohol, fast food, and candy bars, all of which compete for the discretionary income of consumers.

DIFFERENTIATION

Furthermore, Nespresso faces head-to-head challengers encroaching upon Nespresso’s proprietary system as others look to bypass their patents in search

“Coffee capsule war” focusing on more sustainable capsule materials, at cheaper prices. Recently, both Sara Lee and Ethical Coffee Co. have been involved in European legal battles with Nespresso over rights and patent infringement cases, in what Ethical Coffee Co.’s CEO claims as a, “Coffee capsule war(16).” Nevertheless, as some of Nespresso patents begin to slip into expiration, Mondelez, Dualit, CaféPod, and close to 50 other

• Nespresso • Starbucks • Bowtruss

• Dunkin Donuts COST-LEADERSHIP

of their own coffee capsule profits. Brands such as Ethical Coffee Co., which is run by the former Nespresso CEO, seeks to make room in the growing market by

• Keurig

• Lavazza

• Ethical Coffee Co. • CaféPod

• Folgers

• Dualit • Mondelez

BROAD

competing businesses are now introducing Nespresso compatible capsules in attempt to position themselves in the same niche as cost-leaders, chipping away at the margins from below(17) (figure 1.2). Keurig K-Cups also threatens Nespresso through a more broad cost-leadership approach. Using the more affordable machines and capsules, K-Cups positions themselves as more accessible to the masses. To make matters worse, Starbucks and Dunkin Donuts have partnered with the Keurig to further merge the competitive set.

Customer Analysis Nespresso has established itself as a brand that can deliver premium quality espresso and coffee in a quick, convenient, and consistent manner. They don’t just target anyone though. The company has sought to market themselves towards high-end consumers such as travelers, business professionals, foodies, and connoisseurs of caffeine, all of which who want to brew the perfect cup at home. This focus has been held closely throughout their promotions, memberships services, and boutique experiences. Nespresso looks for its customers to become a part of ‘The Club’, in hopes of developing a commitment to the brand along with a sense of entitlement. They seek to fulfill the needs of customers who have an affinity for design, ease of use, and perhaps, image. Similar to how Nespresso’s 21 different coffee flavors appeal to a range of taste buds, the various coffee brewing machines cater

FOCUSED

Figure 1.2

12/06/2013 | Portfolio Planning

Nespresso | 4

to particular customer segments. Models distinguish themselves from one another through an array of metrics such as, countertop footprint, price, control, accessory lines, serving volume, and aesthetics (see figure 1.3 for the plotting of the C60 Pixie Espresso machine - meant for single family members on a budget). Through partnerships with machine manufacturers such as Krups, Magimix, Delonghi, Siemens, and Gaggia, the company has achieved a technologically advanced product line, each having their own strengths. These machine attributes allow for a broad scope of users with their own individual intentions. For example, the Essenza and U are targeted to attract business travelers because of their small stature and carrying case accessory. Nespresso noticed that some travelers couldn’t live without their daily espresso and tailored these machines to compliment those users’ mobile lifestyle. Along another spectrum is the Top Line model, which is meant to fulfill the needs of enterprise level customers who are looking for large volume usage and continuous operation. While this model meets the demands of hotels, restaurants, and business offices, it is unlikely to be found in a home residence. In between are product lines such as the Gran Maestria, which is better suited for families, design enthusiasts, and everyday home use through a finely tunable interface. In addition to the machines and the capsules, Nespresso has begun to partner with high profile designers, such as Andree Putman, Konstantin Grcic, and Olivia Giacobetti to develop collections of accessories meant to round out the product portfolio. Cups, trays,

12/06/2013 | Portfolio Planning

stirs, dispensers, candles and more make up these new lines of accessories. These accessory lines deepen the customer purchasing and possibly alludes to new trends in their marketing as they seek to truly envelop the entire coffee drinking experience.

Strategic Analysis In this section, we detail the strategy that Nespresso has set in motion through the previously described business model, competitive position, and customer segmentation. At the highest level, Nespresso’s mission states that, “Coffee is at the heart of all we do. Yet, consumer pleasure is why we do it(19).” The vision is to develop customers as ambassadors of their coffee,

“Coffee is at the heart of all we do. Yet, consumer pleasure is why we do it.” machines, and brand through longlasting relationships(20). In terms of value discipline, Nespresso’s core proposition is one of best total solution, or what Treacy and Wiersema label, ‘CustomerIntimacy’(21). A customer-intimate company strives to take care of all their customer needs, tailor products / services closely to customer desires, and ultimately establish long-term customer loyalty. Unlike a productleadership company driven by a relentless quest to offer the latest technological development

C60 PIXIE ESPRESSO MACHINE

FOOT PRINT

PRICE

CONTROL

ACCESSORIES

SERVING VOLUME

AESTHETICS

Figure 1.3

Nespresso | 5

(e.g. Microsoft, Sony), or the operational-excellence firm that streamlines all internal processes to maximize customer value (e.g. Dell, Walmart, UPS), the customerintimate company (e.g. Nespresso, Nordstrom’s, IBM) focuses the bulk of its resources on cultivating customer relationships (figure 1.4). Recognizing that a firm’s resources are scarce, not to be spread too thin, Nespresso has chosen to allocate its resources to fortifying the relationship-oriented domain(22). In that same vein, Nespresso has applied its finite resources (i.e. money, time, effort) to fulfill a strategy of market growth. In doing so, it has made decisions about selecting among strategic alternatives. A profit seeking organization has several options to choose from in effort to maximize shareholder value on the long-term. One can choose to decrease outputs (e.g. reduce manufacturing costs) or increase inputs (e.g. concentrate on most profitable products). Alternatively, the company can choose to grow in sales or market share (the option of which

“If you look at other countries in Asia, Latin America, and the U.S., it’s an enormous market for us to develop. That’s where the growth is going to come.” Nespresso has chosen). Growth in sales, also referred to as market penetration, includes stealing customers from competitors and / or leveraging current customers to sell them larger volume or more frequently (figure 1.5)(23). To exemplify Nespresso’s growth in sales approach, we quote their CEO explaining why its important to retain and leverage its customer base, “You have big sales of machines, people buy coffee at the beginning and then they taste it once or twice and then they stop. That’s the worst thing you can do. So you should make sure the people who buy your machines are entering a pattern of ongoing coffee consumption(24).” Nespresso has invested in this market penetration approach

CUSTOMERINTIMACY

PRODUCT LEADERSHIP

12/06/2013 | Portfolio Planning

Figure 1.4

in conjunction with a market development strategy; by which it expands its customer base by establishing new segments, converting non-users, and entering entirely new markets. Although, this strategy may seem obvious for any organization (of course, let’s get more customers and sell them more stuff), Nespresso has invested heavily in this area; even more so in market development than market penetration. As previously mentioned, Nespresso sees great potential in the United States (demonstrated by their recent creation of new boutiques in NY, LA, SF, Miami, Dallas, and Chicago), as well as expansions elsewhere. “If you look at other countries in Asia, Latin America, and the U.S., it’s an enormous market for us to develop. That’s where the growth is going to come(25)”, explains Nespresso. In summary, Nespresso views market penetration / development as a core strategy, which manifests itself through three main objectives of maintaining a ‘Gran Cru’ level of coffee, retaining longterm relationships, and building successful business solutions with its suppliers(26).

Portfolio options: Where to go now? OPERATIONAL EXCELLENCE

There is no doubt that Nespresso is poised for success using its current strategies and Nespresso | 6

portfolio of products. Although, the real question is how will it sustain its competitive advantage over the next development cycle? The business is growing fast, but so are the competitors’ propositions. In this section, we address a recommendation plan for Nespresso, and unveil several portfolio options to pursue. This can be hard to comprehend when Nespresso is leading the industry, but this is something that must be considered or they risk leaving the door open to others. The angst of such happenings is already beginning to form due to a number of patents running out in 2012, the former CEO starting an opposing capsule company (Ethical Coffee co.)(18), and competition beginning to heat up downstream (e.g. Starbucks and Dunkin Donuts partnering

with Keurig). The natural tendency for these opposing businesses will be to see the large margins that Nespresso is achieving and they will move upstream towards the higher-end market in search of their own healthy margins. We can be assured that many companies are mounting an attack from below as we speak; therefore, we shall explore a few possible directions for Nespresso. The first option available to Nespresso is to design and develop a new line of espresso machines that leverages the Internet of Things (IoT). This would more closely coordinate the customer, machine, and supply information into the available data accessible by Nespresso. This advancement would have significant advantages

Long-term profits

Growth in sales or market share

Efficiency, short-run profits

Market development

Market penetration

Decrease inputs

Increase outputs

New segments

Existing customers

Reduce costs

Increase price

Improve asset utilization

Improve sales mix

Convert nonusers

Competitor’s customers

New product development

12/06/2013 | Portfolio Planning

Figure 1.5

from both the consumer point of view and that of the business. (See sidebox description of Internet of Things). From the vantage point of the Nespresso consumer, the notion that your at-home espresso machine has a direct connection with Nespresso bears significant advantages. Most importantly, it can simplify your interaction with the company regarding tedious tasks such as purchasing coffee capsules, reporting maintenance, or diagnosing issues with your machine. For example, the machine-to-machine (M2M) network created by such a product line could monitor your use of daily coffee consumption through the machine usage, and place orders for you as your levels dwindle. This could establish a just-in-time order mentality that keeps your stock at the level you desire, with the flavors you set, all the while requiring zero interaction. It completely takes the customer out of the equation and sets up a system that regulates itself. Or perhaps, if customers are not comfortable with relinquishing complete control, the machine could simply set up email reminders and other forms of communication at the right moments based on your situation. This would keep customers in the communication loop, allowing them to monitor purchases or make changes. The possibilities are quite vast when this ability to communicate among machines is instituted, as well as the addition of personal computing devices. From the perspective of Nespresso, this potential to have more direct access into the machines of customers has equal benefits. Most importantly, this product strategy is inline with

Nespresso | 7

the customer-intimacy goal of the business at large. Staying true to its constructs of directto-consumer relationships, this concept would add a new layer of intimacy. As of now, Nespresso loses contact with its customers regarding their actual machines unless they run into technical or functional problems. Customers routinely purchase capsules through the boutiques and online ordering system, but the machines have more or less left Nespresso’s radar. Retaining connectivity with the machines while they are in the homes of customers offers incredible opportunities to better understand / rectify the customer usage habits, machine aberrations, software updates, and more.

The Internet of Things (IoT) is a modern conceptualization that embedded technologies in objects will establish a network of connected devices sending and receiving data to the Internet. This differs primarily from our modern constructs of the Internet, where only humans are capable of using computers and other devices to manually enter and retrieve data. The IoT will allow for a new realm of daily objects - lamps, refrigerators, door locks, clocks, ovens, etc - to have the same type of content control. Thus, signifying a further development of technology, where not only humanto-machine interactions exist, but now in addition, machine-to-machine (M2M) intercommunication will become prevalent.

12/06/2013 | Portfolio Planning

Trends in online forums, makerspaces, and tech communities hint at the need for such a product line as end-users are already taking matters into their own hands. Using Raspberry Pi(27,28,29) and Arduino(30,31,32) mini computing devices, savvy tech enthusiasts are connecting their coffee makers to the internet. This is enabling them to gain more control over the machine and remove the hands-on approach commonly used to operate the machines. While many of the designs are truly ‘hacks’, it says something about the excitement and need of coffee consumers to add more internet functionality to their everyday devices like a Nespresso. Additionally, Nespresso is no stranger to this emergence, having installed M2M correspondence in their enterprise-level machine(33). While this is a good first step for the business, Nespresso can take this one further by introducing a new line of espresso machines targeted at home-oriented users who may seek this same functionality. Keeping in mind possible barriers to success, such as privacy concerns, the market not being sufficiently ready, or simply an unnecessary basis of competition provided by the IoT, Nespresso ought to prototype / pilot these models within carefully selected market segments. Not waiting until the product is perfect will also have advantages for Nespresso as a first-mover. The early adopters choosing to invest in this product line will be less concerned with vast functionality, and more concerned with a small step in the M2M direction. Starting with a limited, yet pointed ability to either order, monitor, control from afar, or any other simple task may prove to be all that is necessary

to gain preliminary sales. The initial market reaction shall be small, but as technology improves Nespresso will be able to advance the functionality within the lineup, and the reputation for the products will grow accordingly. Thereafter, the proven technology may be installed in many other of their successful product lines. The second option available to Nespresso is to incorporate other types of beverages into its line-up. Similar to how Keurig and Verismo adapted to other hot drinks, such as tea and cocoa, Nespresso needs to do the same. The caveat being that we recommend this strategy to be pursued in a different manner. Unlike the competitors machines capable of handling various types of capsules, we propose that Nespresso spins off entirely new branches of its business to invest in these other types of drinks. Retaining the focus on the Grand Cru of coffee is critical for Nespresso to maintain its competitive advantage, so we are not advising them to simply adopt a herd mentality(34), but rather to take a more calculated approach in developing these products. In a recent interview with the Wall Street Journal, Nespresso’s CEO explains how the massive Chinese market has yet to build up the same affinity to coffee as Europe and other western cultures(35). Therefore, he states that being patient is more advantageous than forceful in their approach to building the Chinese coffee market. Meanwhile Green Mountain Coffee is able to penetrate that market by emphasizing the hot tea-making potential of their machines. As Nespresso stands still, we feel that more action is necessary to adopt to the eastern culture than Nespresso

Nespresso | 8

12/06/2013 | Portfolio Planning

Third, new ventures that are required to operate under the umbrella of the mother company are forced to play by the same rules. This means that as Nespresso has grown larger and larger in the world market, they increasingly have higher expectations and demands for how well new products need to perform in order to satisfy the company’s appetite for revenue. Thus, Nespresso will not likely be driven or excited by small developing markets and lesser sales volumes produced by the hot tea line. Resources will quickly be redistributed to other more profitable areas of the business, leaving the tea branch to shrivel. Therefore, we propose a separate subsidiary that remains independent from Nespresso in order to get excited about small victories - an organization appropriately sized to match that of the tea market.

An important aspect to factor into these options is that the competition will surely react no matter whichever Nespresso may choose. Performing a vulnerability exercise on these ideas will tighten the offering, and better prepare Nespresso for the market reaction. While examining the first option of connecting the devices with the IoT, one could imagine competitors will reverse engineer the technology in order to produce mere copies of the machine networking capabilities. Therefore, it would behoove the company to look into patent opportunities to protect a specific use of M2M method. Additionally, establishing partnerships with research labs, universities, or other progressive technology communities could lead to prosperous relationships similar to their current affiliations with farmers. Conversely, the new hot tea concept is a more far stretching growth concept. Involving both new products and new intended markets than previously developed for Nespresso (figure 1.6). This concept requires more forethought into how others might react. Before

New

We stress the separation of the business unit for three important reasons that are fully supported in Clay Christensen’s book, The Innovator’s Dilemma(36). The first is that customers exert a profound influence on the process of resource allocation within a company. If Nesencha was not separate from Nespresso, the Nespresso consumer research would rarely support the need for the hot tea brand, as their customers have been adopted from a coffee perspective. The natural consumer bias against tea would

Second, current employees of Nespresso will naturally look out for their own professional interests. Since it is believable that the initial rollout of the hot tea line will not be an instant success, incumbent employees will not emphasize the more difficult to sell tea product lines. Instead, employees will likely highlight the most profitable and easy to sell espresso / coffee models that readily achieve sales goals, and in turn make themselves successful within the organization (at the inevitable expense of the newcomer tea line-up).

Further Recommendations

• Hot Tea

Same

Rather than generating a new product line under the Nespresso name, which could potentially damage the brand, Nespresso needs to create a new business that is focused solely on developing an analogous hot tea brand and product offering. Under a new name and new organization, the tea subsidiary shall partner with tea leaf growers, develop an intimate customer relationship with tea drinkers, advertise with popular eastern celebrities, all the while developing an elite club for tea-goers. This should be possible due to the already existent tea culture. Nespresso’s subsidiary (we’ll call it Nesencha - Sencha being the tea equivalent of espresso) must perform its due diligence to provide the same elite and premium brand among the tea communities. Nesencha can leverage the knowledge about creation of boutiques, employee training, machine production, supplier relationships, distribution, and more from its parent Nespresso.

cause the company to shelve the unsuccessful tea offerings and chalk up the pursuit as a failure due to lack of market interest. The purpose of the spin-off is to find wholly new customer segments with new needs.

PRODUCT / OFFERING

is currently pursuing. Instead of waiting for the Asian continent’s tastes to change, perhaps a more proactive tactic is to change some of Nespresso’s offerings.

• IoT capable machines

Same

New

INTENDED MARKET

Figure 1.6

Nespresso | 9

undertaking an endeavor such as this would require ample customer and market research to ensure success. A simple examination of the vulnerabilities here shows that a more transparent game plan may be exposed to the competition when it is discovered that Nespresso is behind the new tea boutiques and machines. A quick analysis of the parent company by others will show where Nesencha would be looking to grow - a reproduction of Nespresso in a new product category. This makes it difficult to go undetected for very long. Others may even try to circumvent the company as the premium customer relationship brand if Nesencha were to act too slowly. So we believe that working fast is paramount. That may mean buying up a smaller company that has already set out in this direction in order to take advantage of their knowledge of the elite hot tea market and customers.

12/06/2013 | Portfolio Planning

Conclusion To summarize, we can’t wonder if the market will shift, but rather we need to prepare ourselves for when it does. Understanding this will allow Nespresso to hedge its growth initiatives in logical directions in order to be ready. Even though Nespresso has become a very successful business through a well developed and executed strategy - with more growth in the foreseeable future these portfolio options represent opportunities for Nespresso to begin to explore. Depending on what growth initiatives Nespresso currently has in its portfolio pipeline may justify the pursuit of one of these concepts over the other. Either way, we believe that these recommendations at least begin a dialog for where to go next, as we look forward to more great achievements by Nespresso.

Nespresso | 10

Citations: 1. Slywotzky, Adrian. “Triggering Demand: How Coffee-Maker

Nespresso Turned Drips Into Gushers.” 10-3-2011. Fast Company. 115-2013.

2. Slywotzky, Adrian. “Triggering Demand: How Coffee-Maker

Nespresso Turned Drips Into Gushers.” 10-3-2011. Fast Company. 115-2013.

3. “FT Global 500: Prices and market values.” 5-28-2013. Financial

Times. 11-10-2013.

4. “Top Companies: Most Profitable.” 7-25-2011. CNN Money. 11-22-

2013.

5. Alderman, Liz. “Nespresso and Rivals Vie for Dominance in Coffee War.” 8-20-2010. The New York Times. 11-06-2012.

6. Alderman, Liz. “Nespresso and Rivals Vie for Dominance in Coffee War.” 8-20-2010. The New York Times. 11-06-2012.

7. Gapper, John. “Lessons from Nestlé’s coffee break.” 1-3-2008. Finacial Times. 11-12-2013.

8. Shankar, Venkatesh; Berry, Leonard L.; Dotzel, Thomas. “A

Practical Guide to Combining Products and Services.” 11-1-2009. Harvard Business Review.

9. “Nespresso US - Club Services.” Nespresso.com. 11-22-2013.

10. Porter, Michael E.; Kramer, Mark R. “Creating Shared Value.” 2-12011. Harvard Business Review.

11. “AAA: the Nespresso long-term commitment to farmers.” Nespresso.com. 11-25-2013.

12. “Capsule Recycling.” Nestle-Nespresso.com. 11-26-2013,

13. Simonian, Haig. “Nespresso stirs up US potential.” 3-18-2011.

Financial Times. 11-27-2013.

14. Goldschein, Eric. “11 Incredible Facts About The Global Coffee

Industry.” 11-14-2011. Business Insider.

15. 11-28-2013. Verismo. 16. Bouckley, Ben. “Nestlé loses latest skirmish in Nespresso coffee

capsule wars.”2-22-2013. Beverage Daily. 11-23-2013

17. Donner, Francesca. “Nespresso’s Single-Serve Plan Focuses on

China, U.S.” 5-21-2013. The Wall Street Journal.

18. Allen, Mathew. “Former Nespresso guru takes on his ‘baby’.”

10-24-2010. Swiss Info.ch. 11-15-2013.

19. “Our Strategy - The Nespresso Roadmap for Sustainable Growth.” 11-15-2013. Nestle-Nespresso.com.

20. “Nespresso’s Retail Strategy Converts Customers – One Cup at a

Time.” Bertrand on Brand. 11-20-2013.

21. Wiersema, Fred; Treacy, Michael. “Chapter 3 - The Winner’s Choice.” The discipline of market leaders.

22. Cooper, Robert; Edgett, Scott; Kleinschmidt. “Chapter 3 - Portfolio

Management Methods: Maximizing the Value of a Portfolio.” 2001. Portfolio Management for New Products.

23. Lehmann, Robert; Winer, Russell. “Chapter 8 - Developing Product Strategy.” 2002. Product Management.

24. Donner, Francesca. “Nespresso’s Single-Serve Plan Focuses on

China, U.S.” 5-21-2013. The Wall Street Journal.

25. Donner, Francesca. “Nespresso’s Single-Serve Plan Focuses on

China, U.S.” 5-21-2013. The Wall Street Journal.

26. “Our Strategy - The Nespresso Roadmap for Sustainable Growth.” 11-15-2013. Nestle-Nespresso.com.

27. “Mocca Pi: A coffee machine controlled by Raspberry Pi.” 3-12-2012. http://moccapi.blogspot.co.uk/. 12-3-2013.

28. Mason, Angela. “Raspberry Pi’s 10 Best Hacks.” 2-22-2013. Monitor.

us. 12-5-2013.

29. “A coffee machine controlled by Raspberry Pi.” 6-1-2012. Pi Projects. 12-5-2013.

30. Frenzy. “Tweet-a-Pot: Twitter Enabled Coffee Pot.” Instructables.

12-3-2013.

31. Robinson, Andrew. “Arduino-Controlled Keurig Coffee Maker with

RFID.” 1-3-2012. Arduino. 12-5-2013

32. Benchoff, Ben. “Monitoring a coffee pot with an Arduino.” 9-2-

2013. Hack-a-Day.” 12-5-2013.

33. Frenzel, Lou. “A Successful “Internet of Things” Hinges On M2M.”

6-4-2012. Electronic Design. 12-5-2013.

34. Moon, Youngme. “Escaping the Competitive Herd.” Different. 35. Donner, Francesca. “Nespresso’s Single-Serve Plan Focuses on

China, U.S.” 5-21-2013. The Wall Street Journal.

36. Christensen, Clay. 1997. The Innovator’s Dilemma. 37. Image: http://i.telegraph.co.uk/multimedia/archive/02311/ Nespresso_2311832k.jpg

12/06/2013 | Portfolio Planning

Nespresso | 13