8.1: The Unique Business model of Nespresso
8.1.1: Nespresso began in 1986 as a more traditional business model in which the company manufactured Coffee machines and created a pod system, and then gave both products to traditional retailers to sell to offices and home users.
8.1.2: For a dozen years, this model did not prosper. In 1998, a new CEO devised changes to the business model, which revolutionised sales and put the company on a growth trajectory which created annual growth of more than 30%, creating more than R4bn in annual sales, making Nespresso not only the star performer of its parent company, the world’s biggest food company Nestle, but also the most successful coffee seller in history.
8.1.3: There are 9 components to a Business Model , as described in points 4.1.1.1.1 – 4.1.1.1.8 as well as, more extensively, in points 6.1.1.1.1 - 6.8.5.6 8.1.4: Nespresso’s mission was to offer the best quality coffee to customers for home use. The following is the rationale for the model that they chose from 1998 onwards which propelled them forward to global leadership: 8.2: Value Proposition 8.2.1:They had two components 8.2.1.1: A sleek simple coffee machine that would deliver perfect quality coffee every time 8.2.1.2: A pod system of a variety of specialised coffees and flavours that contained 5 grams of coffee (one cup) at a time. 8.3: By having a simple, relatively inexpensive machine as the method for delivering the coffee, the profitability would be derived from repeat sales of the pod which would be unique to this machine. 8.3.1: Once the customer had bought the machine, he/she was locked in to the purchase of the pod. In addition, the premise was that this convenience would provide the incentive to add value to the product by charging more than a traditional cup of coffee. 8.4: Before Nespresso, coffee was generally sold in two ways : 8.4.1: Instant Coffee, which consumers bought by the tin or by the jar for home use 8.4.2: Coffee beans sold in packets for grinding at home and used in percolators, a more complicated process with the advantage of richer coffees but less convenient than instant coffee. 8.5: The business model devised by Nespresso created an in-between niche – giving high end customers better quality AND ultra convenience, but charging much more for it – the added value. …show more content…
9.1: Customer Segmentation
9.1.1: The Customer base was refined to a niche segment rather than a mass market proposition.
9.1.2: The quality of the coffee was targeted at the high end user who would be willing to pay much more for the convenience of having café or restaurant style coffee deliverable at home.
9.1.3: As discussed in 3.3, Nespresso targets the top 5% of people, who enjoy the finer things in life but are also comfortable enough to pay the premium cost (the added value) that having that luxury entails. Nespresso is not a brand for the masses. It requires a large buy in: about R2000 for purchasing their cheapest machine, up to R4500 for their most expensive, as well as the continuous cost of pods, each pod costing approximately R7.
9.1.3.1 Most people simply aren’t prepared to spend that amount when there are cheaper alternatives such as instant coffee, but for Nespresso customers, instant coffee simply isn’t good enough to satisfy their needs as coffee-lovers, which is what explains the ultimate investment in Nespresso.
9.2.1: Key Resources and Partnerships: 9.2.1: The key resources revolved largely around the 1,700 patents that Nespresso and their KEY PARTNERS registered in regard to the technology of the COFFEE MACHINE and the production and look of the PODS. …show more content…
9.2.2: The pods had to be uniquely shaped and patent protected so that only their own pods could fit snugly into the machine.
9.2.3: The coffee machine itself had to be extremely simple to use. This was unlike the competitor machines in the market place – which were largely industrial scale for restaurant / café use, such as those produced by competitors at three times the cost. E.g. 9.2.4: It is worth noting that Nespresso’s primary source of income is generated from the sale of the coffee pods, and not from the sales of the machines. 9.2.4.1: In fact, Nespresso simply breaks even on the machines. The machines are produced
8.1.1: Nespresso began in 1986 as a more traditional business model in which the company manufactured Coffee machines and created a pod system, and then gave both products to traditional retailers to sell to offices and home users.
8.1.2: For a dozen years, this model did not prosper. In 1998, a new CEO devised changes to the business model, which revolutionised sales and put the company on a growth trajectory which created annual growth of more than 30%, creating more than R4bn in annual sales, making Nespresso not only the star performer of its parent company, the world’s biggest food company Nestle, but also the most successful coffee seller in history.
8.1.3: There are 9 components to a Business Model , as described in points 4.1.1.1.1 – 4.1.1.1.8 as well as, more extensively, in points 6.1.1.1.1 - 6.8.5.6 8.1.4: Nespresso’s mission was to offer the best quality coffee to customers for home use. The following is the rationale for the model that they chose from 1998 onwards which propelled them forward to global leadership: 8.2: Value Proposition 8.2.1:They had two components 8.2.1.1: A sleek simple coffee machine that would deliver perfect quality coffee every time 8.2.1.2: A pod system of a variety of specialised coffees and flavours that contained 5 grams of coffee (one cup) at a time. 8.3: By having a simple, relatively inexpensive machine as the method for delivering the coffee, the profitability would be derived from repeat sales of the pod which would be unique to this machine. 8.3.1: Once the customer had bought the machine, he/she was locked in to the purchase of the pod. In addition, the premise was that this convenience would provide the incentive to add value to the product by charging more than a traditional cup of coffee. 8.4: Before Nespresso, coffee was generally sold in two ways : 8.4.1: Instant Coffee, which consumers bought by the tin or by the jar for home use 8.4.2: Coffee beans sold in packets for grinding at home and used in percolators, a more complicated process with the advantage of richer coffees but less convenient than instant coffee. 8.5: The business model devised by Nespresso created an in-between niche – giving high end customers better quality AND ultra convenience, but charging much more for it – the added value. …show more content…
9.1: Customer Segmentation
9.1.1: The Customer base was refined to a niche segment rather than a mass market proposition.
9.1.2: The quality of the coffee was targeted at the high end user who would be willing to pay much more for the convenience of having café or restaurant style coffee deliverable at home.
9.1.3: As discussed in 3.3, Nespresso targets the top 5% of people, who enjoy the finer things in life but are also comfortable enough to pay the premium cost (the added value) that having that luxury entails. Nespresso is not a brand for the masses. It requires a large buy in: about R2000 for purchasing their cheapest machine, up to R4500 for their most expensive, as well as the continuous cost of pods, each pod costing approximately R7.
9.1.3.1 Most people simply aren’t prepared to spend that amount when there are cheaper alternatives such as instant coffee, but for Nespresso customers, instant coffee simply isn’t good enough to satisfy their needs as coffee-lovers, which is what explains the ultimate investment in Nespresso.
9.2.1: Key Resources and Partnerships: 9.2.1: The key resources revolved largely around the 1,700 patents that Nespresso and their KEY PARTNERS registered in regard to the technology of the COFFEE MACHINE and the production and look of the PODS. …show more content…
9.2.2: The pods had to be uniquely shaped and patent protected so that only their own pods could fit snugly into the machine.
9.2.3: The coffee machine itself had to be extremely simple to use. This was unlike the competitor machines in the market place – which were largely industrial scale for restaurant / café use, such as those produced by competitors at three times the cost. E.g. 9.2.4: It is worth noting that Nespresso’s primary source of income is generated from the sale of the coffee pods, and not from the sales of the machines. 9.2.4.1: In fact, Nespresso simply breaks even on the machines. The machines are produced