Nespresso Case
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What are the strategic options open to Nespresso in responding to copycat capsule rivals? Which of them do you think they should pursue and why? What are the pros and cons of launching a Nespresso-lite for sale in supermarkets?
Around 2004, problems aroused for the Nespresso brand as new companies such as Sara Lee and Kraft introduced new espresso machines to the market at lower prices. Also, this machines required as a complement lower priced capsules which were sold not only online and in specific stores but also in supermarkets. The problem increased in 2009 when compatible capsules were released in the market at lower prices than Nespresso capsules and when Jura automatic coffee machines were sold with an even more exclusive positioning than Nespresso.
Due to the increase in competition in the market, Nestlé seems forced to react to overcome the problem and to perceive high revenues from the Nespresso brand. In order to do so, there are many alternatives that can be taken into account as strategic options to stay as leaders in the market. It is clear that low cost competitors have changed the structure of the market and even though they do not target exactly the same public as Nespresso it would be a huge mistake to ignore them.
One strategic option that Nespresso has is to start a price war with the low cost competitors. However this will not only be a failure to the brand as it will fight against the premium concept, but it will also be a hard battle as low cost companies business models are designed to have low costs, hence they are able to make money at low prices which doesn’t occur in the case of premium brands. Also, if Nespresso decides to win the battle by causing “dumping”, this will lead to legal matters as it goes against the law.
The next option that Nespresso has is to create a dual strategy meaning so that it can create a low cost strategy that fights against the low price competitors. However, this strategy will not be a complete success for the company, as the traditional operations will not necessarily become more competitive. Having a new independent low cost unit will not bring success to the former Nespresso brand and this can be demonstrated by the introduction of the Nestlé Dolce Gusto, a multi-beverage system with lower bar pressure. This idea can be linked to a new strategic option that is switching to low cost models. Nevertheless, this will not be a good idea in the case of Nespresso as the business model has to be redesigned, new capabilities have to be acquired, new locations have to be found for stores and for production centers and operations have to be super efficient in order to keep up with low costs.
For these reasons, the strategic option that should be implemented by Nespresso is to differentiate from the market competitors and to switch to solutions for consumers to become more loyal to the brand. In order to do so, Nespresso should focus on the design of the machines, capsules and boxes. They could hire well-known artists to design the products offered and release limited edition collections that would increase the demand of consumers. Additionally, they should continuously innovate and release new flavors and ideas for the consumers in order to keep them interested in the brand. They should also offer a unique product mix, meaning that they could have coffee produced in many parts of the world that can adapt to the preference of each consumer. They could also