Nespresso Case Study

This case study explores the concept of innovation and renovation through the Nespresso Case Study. It discusses the background of the case study, drives of innovation and renovation, and the difference between innovation and renovation. It also covers ambitious growth targets for Nespresso and provides recommendations for achieving them. The study highlights Nespresso's dominance in the coffee market and the challenges it faces in reaching its one-billion target.

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Nespresso Case Study
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Executive summary
Innovation and renovation are both a necessity under respective business circumstances;
however, renovation is safer as compared to innovation. Renovation actually prepares a platform
for facilitating future innovation. The main purpose of this study is to understand the concept of
innovation and renovation. Moreover, it also provides ways through which Nespresso can attain
its ambitious “One-Billion’ growth. To be able to attain so Nespresso needs to follow a few
strategy as mentioned in the recommendation section of this study. On a larger note, the study
suggests Nespresso to continue with its original concept and avoid caring for the product
diversification strategy to tap new marketplaces. Moreover, the study identifies no stronger need
to reduce the price for the product. Indeed, Nespresso is for exclusive customers.

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Table of Contents
Introduction......................................................................................................................................3
Q1: Lessons from the innovation or renovation from the Nespresso story.....................................3
1.1 A brief background of the case study....................................................................................3
1.2 Drives of Innovation..............................................................................................................4
1.3 Drivers of Renovation............................................................................................................8
1.4 Innovation vs. Renovation.....................................................................................................9
Q2: Ambitious growth targets.......................................................................................................10
2.1 Issues being faced................................................................................................................11
2.2 Recommendations................................................................................................................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................15

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Introduction
The study helps to identify the difference between innovation and renovation by
understanding these two terms from the Nespresso Case Study. The Nespresso Case Study
presents a very good example of innovation while also explaining the term renovation. In this
way, the case study provides a lesson on terms innovation and renovation. In addition to lessons
learnt on these two terms, the study also provides its readers an opportunity to understand the
growth-specific issues faced by NCS. Indeed, this was necessary to identify possible solutions
for NCS future growth.
Q1: Lessons from the innovation or renovation from the Nespresso story
1.1 A brief background of the case study
Innovation has kept on happening in the coffee making sector. In the 50s, the soluble
coffee was an innovation. Concerning the coffee machines, one of the innovations was in the
form of Espresso Coffee machine that happened in 1901. The person responsible for the
innovation was Luigi Bezzera (Imd.org 2019). In the 70s, Nestle decided to groom on this
innovation and intended to target a new market segment. Nestle targeted premium customers,
which is understandable as well considering a fact that Nespresso machine is highly expensive.
Nestle decided to hit the market with a strategic innovation. The innovation was thought of doing
breakthrough business by influencing the consumer behaviour and by affecting the competitors’
business. Nestle invested lot on research & development (R&D) and worked hard to create the
impact. The research and development department in the company after 15 years of their
research was able to invent capsule that had freshly ground coffee. Moreover, it also had
followed a pressurised extraction process for coffee (Imd.org 2019).

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Nestle with Nespresso was able to dominate the entire portion-coffee market; however, it
now faces difficulty in reaching to its one-billion target. The biggest challenge for Nespresso has
been encouraging customers to purchase Nespresso machine for making coffees at homes. It is
because customers generally like having espresso coffee at restaurants, shops and other
favourable places. Indeed, Customers have least preference for having Nespresso machine at
their homes as the machine is very expensive and is only suitable to premium customers
(Imd.org 2019). In addition, market competition also makes things difficult and does not allow
making frequent innovative decisions. All these makes the one-billion target of Nestle as very
challenging for the company.
1.2 Drives of Innovation
Before being able to understand the Nespresso Case Study, it is primarily important to
understand what drives organisations for innovation and renovation. This section of the study
discusses the drivers of innovation. There are various drivers of innovation. On a broader aspect,
the different drivers of innovation are as listed below:
Employee Engagement:
Various research works, website articles and official reports suggest that talent
management is increasingly becoming a part of organisations irrespective of their sizes. The
findings of such reports indicate that an effective people management could make them more
engaged to their work. When they are highly engaged, they will feel motivated to do other than
their normal tasks. This is the point in time when employees start thinking out of their box. As
per many research done in recent past and in current times, engaged employees are one of the
resources of new ideas (Mone and London 2018). For example, engaged employees in an IT firm

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look for developing new software for a better market penetration or for targeting a new market
segment. Developing new and innovative software is actually a factor of competency for
software companies. A company with better capability to create innovative software will find
more buyers. For example, Paytm is a hugely successful wallet app in India (Joshi, Gupta and
Rangaswamy 2019). It is evident that employee engagement does influence the innovating
capability of a firm. Apart from boosting the innovating capability, employee engagement does
also help by reducing the employee turnover rate for a firm. Nevertheless, employee turnover
rate is a universal challenge. Firms across the globe find it very challenging to reduce or control
the attrition rate in their companies (Pereira, Malik and Sharma 2016).
Government Intervention:
Government intervention drives to innovation. Various reports suggest that corporate
companies contribute hugely to growing environmental pollution. As a result, operations in
corporate companies are in regular monitoring of the national government. It is due to this,
corporate companies have to publish their environmental performance in their respective annual
reports (Diouf and Boiral 2017). The impact is not just observable in environmental records
published every single year. Indeed, it drives companies to innovate. An increasing adoption of
Electric Vehicles (EVs) by automotive companies worldwide is also an impact of strict
government surveillance of firms’ environmental performance (Mi and Masrur 2017). An
increasing practice for environmental-friendly cars just tells that government intervention in the
corporate sector drives businesses to innovate and increase their market presence.
Customer Expectations:

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Customer expectations place pressure on firms to continually initiate and innovate as well
to stay up with the buyer demand. Moreover, staying competitive suggests distinguishing the
proper business solutions that grow along with the enterprise. There is a desire to take a position
in technology that may expand to the impossible. The buyer market is often evolving and
customer demands are not going to slow anytime shortly. Whereas the client is not invariably
right, organisations will have to hear their expectations and take into thought the feedback they
supply. With several businesses late to the technology game, the challenge is in distinguishing
ways in which to produce a superior customer expertise (Cook 2017). As an example, once
Amazon launched their prime service, customers rejoiced at the choice of choosing one-day
delivery for eligible purchases. It absolutely was revolutionary, making others unequaled the
expertise that provided a convenience for shoppers, which many of its competitors could not
supply. However the convenience and speed of Amazon Prime was not enough for shoppers,
therefore, Amazon launched their quick-delivery service in 2014, providing free same-day
delivery to their Prime customers (Garner 2018). The message here is loud and clear: customers
need their purchases quicker than ever, no exceptions.
The above-mentioned information is also true with Nespresso as the brand was able to
use both technology and innovation even better than its competitors were. One of its distinctive
qualities is a fact that customers perceive Nespresso as a high-quality luxury brand. They offer
premium low, and that they allowed customers to test their machines before deciding to buy
them. Their machines also are able to turn out high amounts of pressure than the rival brands’
machines. Their machines solely took one or two seconds from start to the finish. Nespresso
conjointly had around a growth of 35% as an annual growth between 2001 through 2005. They
continued with 30% annual growth from 2006 to 2010 (Imd.org 2019). They have massive

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market shares in Europe that produces the simplest and the best coffee in the world. Nespresso
also conducted TV advertisements in Europe with George Clooney as their head spokesperson
that contributed to a rise in trials and growth (Imd.org 2019).
Corporate Social Responsibility:
Any corporate company by perception of customers, and the local and international
governments has some social and environmental needs to fulfill. Corporate companies do it to
show that their responsible leaders. Being a responsible leader won’t just help in developing an
image of a firm that understands its social, economic and environmental needs but also that the
firm gets high respect and regards from its target consumer segment. Leadership responsibilities
will be counted in terms of a company’s economic, social and environmental performance.
Satisfying the financial needs is not just the only purpose of doing a business today. Indeed, a
business has the responsibility, and is perceived for satisfying the social and environmental needs
of the business. Under social needs, a business is perceived of fulfilling the needs of its
stakeholders. This means providing good salary and other benefits to employees, offering
excellent quality products and services to customers, ensuring good returns to the shareholders
and creating means of economy for the society where the business operates in or has the
influence of the business (Crane, Matten and Spence 2019). Reducing rate of employment from a
state or the entire country is also kind of fulfilling the social needs of a business (Crane, Matten
and Spence 2019). On a similar note, reducing the adverse environmental impact of a business is
fulfilling the environmental needs of a business. Corporate companies contribute hugely to air
pollution, water pollution, wastes and all (Crane, Matten and Spence 2019). Corporate
companies are perceived of adopting innovative strategies to improve their environmental
performance. Some companies do it by recycling their waste whereas many others do it by using

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renewable form of energy. For example, Coles is trying to reduce its adverse environmental
impact in numerous ways. Coles has planned distributing its leftover food to the needy people.
This would not just help Coles reduce its waste level but also provide food to the needy. In this
way, Coles will be trying to improve its environmental as well as social impact (Mortimer 2017).
Information furnished as in the above paragraph clearly shows that changing business
purposes such as the social and environmental responsibility of corporate companies drive them
to innovation. Nespresso itself was innovative with its strategy. The machine was initially
launched in countries Japan, Switzerland and Italy. The product was initially sold in a (B-to-B)
market segment. The plan was not very successful as the sales figures were largely discouraging
in the first year. It continued next year as well. Nestle was confused whether to continue with
selling the product. Nestle decided to continue with the product but for selling it to a different
market segment. The target market segment was then a (B-to-C) market segment. Countries
picked up were also different from the earlier. The product was marketed to people living in the
United States of America, Germany, France and so forth (Imd.org 2019). It shows Nestlé’s
capability to innovate in terms of marketing strategy. Apart from marketing strategy, Nestle was
able to identify ways in which to get the machines made, as Nestle does not produce machines.
Nestle outsourced the production to the Swiss company Turmix. Turmix is a company that sells
the capsules of coffee (Imd.org 2019).
1.3 Drivers of Renovation
Renovation unlike innovation is modifying the existing products and services by working
on the feedbacks from customers and stakeholders. Drivers of renovation are as mentioned below
(Jensen, Maslesa and Brinkø Berg 2018):

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Customer Feedbacks: Successful and major companies consider customer feedbacks on a
serious note and work upon it to improve their offerings to keep penetrating the existing market,
increase the sales, elevate the profit margins and hold the gained market reputation. For example,
Samsung keeps renovating with its phones to make those more relevant and desirable for the
target market segment (Straker and Wrigley 2016). Likewise, the changes made to marketing
strategy by Nespresso on not being able to succeed with (B-to-B) market segment is also a kind
of renovation.
Buyers: Those who renovate they do it to ensure that their buyers stay with them in long-term.
They are more focused on the growth by working on the weak areas and offering their buyers
even better products and services. These brands try to attract new consumers by offering range of
products under one brand suiting the needs and demands of people from diverse age, ethnic and
income groups.
Brand Loyalty: In this way, these brands create a platform for future innovation. A trust thus
created and loyalty for the brand will provide an easy assimilation with the target consumer
segment (Pappu and Quester 2016).
1.4 Innovation vs. Renovation
Stronger demand is created when brands are able to look fresh and vibrant with their
selection strategy for the products and services. To be able to maintain stronger demand for
products and service, businesses have relied largely on both renovation and innovation. Both
innovation and renovation help to grow the business; however, both differ to each other
considerably.

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Innovation is something that brings new product lines in either existing or new
marketplace. The threat of innovation failure will be different for different markets. Threat of
failure can be more for a new than the existing marketplace (Tidd and Bessant 2018).
Renovation unlike innovation is a strategy to re-stage or re-launch the product. Innovation
influences the leadership image; however, it is never easy a task to commence. Especially, in
India it is very challenging to innovate. The country experiences about 14,500 new products
launched annually in the FMCG sector; however, very of these products do actually garner
breakthrough results (Rajeshwari 2017). Innovation in most occasions become a necessity such
as a business being in a state of saturation. In situations as such, major firms go with innovation;
however, it is a do or die situation for them. Innovation has a direct impact on the financial
performance of a company whereas renovation is like a base business to a company, which is to
grow continually (Tidd and Bessant 2018). Renovation does not affect the current buyers
whereas innovation may or may not be able to retain the current buyers. Consumer switchover to
a brand can be confusing in case of innovation as there is no assurance of whether the product or
service is worth purchasing. In renovation, consumers know that they are switching to their
trusted and preferred brand. Innovation does not guarantee a success whereas renovation done
periodically helps to prevent the core features of a brand. Renovation helps to build sustainable
platforms for future innovation (Tidd and Bessant 2018).
Q2: Ambitious growth targets
The ambitious growth targets is selling “One-Billion” Nespresso machines. The growth
faces barriers in its way to reach to the ambitious figures. These issues are attracting new

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consumers, lowering the price, distribution to serve a wider market, diversification into non-
coffee products and blocking competitors.
2.1 Issues being faced
Attracting new consumers: Nespresso being a highly expensive product is not being able
to drive huge sales. The sales figures as shown in the case study on Nespresso are excellent;
however, these do not indicate any positive progress towards its ambitious growth plan. Due to
being highly expensive Nespresso is not affordable to many customers. Indeed, the machine is
not for the mass markets rather for the niche market. Premium customers are the target consumer
segment (Imd.org 2019). However, Nespresso as believed by the CEO of the Nestle Company
should reach to a wider marketplace. Expensiveness of the product coupled with consumer
behaviour for portion-coffee creating troubles for Nespresso. Consumers prefer having portion-
coffee by going to café shops, restaurants and other similar places. It does not just save money
for them but also provide them an opportunity to have a short meeting with their relatives and
dear ones.
Lowering the price: Nestle does not want to lower down the price for Nespresso
machine. The CEO believes that the current price for the machine is more than just competitive.
Nespresso has competition rising from various foreign brands entering the portion-coffee market.
Some of the foreign brands are Bellarom, CafePod, Carte Noire, Espressi and so forth. Nespresso
also faces competition from another brand of Nestle, which is Nescafe Dolce Gusto. Nescafe
Dolce Gusto performs even better than Nespresso in terms of sales, as it is relatively less
expensive and is more mainstream than exclusive market (Brem, Maier and Wimschneider
2016).

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Distribution to serve a wider market: The CEO of Nestle believes that coffee lovers will
accept Nespresso from across the globe. It is a powerful product and it should do well with niche
market. However, it has struggled so far in finding the best network of distribution to reach to a
wider marketplace. Nespresso is not finding distributors due to because the machine is hugely
expensive and that there are other cheaper options available in the market (Imd.org 2019).
Diversification into non-coffee products: Renovating the compatibility features of
Nespresso machine into non-coffee products could be a good move in markets where non-coffee
products are hugely popular. Non-coffee products are hugely popular in Asian countries such as
in India, Pakistan, Bangladesh and so forth (Plaka et al. 2017). However, the brand is concerned
with a fact that such moves may dilute the original concept and will lose its exclusiveness.
Blocking competitors: As stated earlier, there are blocking competitors pouring from
across the world. Some of the competitor brands of Nespresso are Keurig, Espressi, CafePod,
Bellarom, Carte Noire and so forth. It has competition from other brand of Nestle “Nescafe
Dolce Gusto” (Imd.org 2019). This means customers have access to wide number of portion-
coffee making machines at prices lower than of Nespresso.
2.2 Recommendations
1. Nespresso should not lower down the pricing for the machine as it provides an
unparalleled experience to its users and provides a high quality coffee. The regular coffee
brewing machines and real espresso making machines deliver coffee of inferior quality.
2. Nespresso should not worry about blocking competitors and instead, it should keep
offering high quality coffee to luxury customers. Consumers know Nespresso for its
ability to deliver the portion-coffee of unmatched quality. The trust should never be heart

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rather be made even stronger by supporting the product with a highly engaging marketing
strategy.
3. A much more improved marketing strategy can help to attract new consumers.
Consumers should know the difference between the portion-coffee from Nespresso and
other brands. They should know why they are getting charged more for the same
machine. An effective utilisation of content marketing can be helpful. Remember, Coffee
helps fight diseases such as Parkinson, Type II Diabetes and so forth (Tucker 2017). It
makes sense to have a portion-coffee of high quality.
4. Diversification into non-coffee products should not happen. Instead, Nespresso should
stick around its original concept to keep the trust of its customers alive for the long-
term. There are customers who are still willing to pay a higher price for the high-quality
portion coffee. The current sales suggest that consumers are not price-sensitive and that
substitute are not a huge threat to the concept of Nespresso.
5. As far as distribution is concerned, Nespresso should go with highlighting its concept
with the help of a chain of exclusive boutiques situated in high-street areas in some of
the major European cities. Although, this will consume a huge one-time investment but
that should not be an issue to Nestle.
Conclusion
To conclude, it can be said that both innovation and renovation are the essentials of a
business. However, renovation is the safer of the two and helps to prepare the platform for a
future innovation. Nespresso faces several barriers in its way to its ambitious “One-Billion”
growth. Nespresso should stick around a few recommendations as mentioned in the
recommendation section of this study to remain successful in the long-term. Hence, Nespresso

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should never go down the market. It should keep targeting its exclusive customers with high-
quality coffee. There is a need for a much-more improved marketing strategy to reach to even
wider consumer base. Nespresso should not compromise with its original concept. Nespresso
should take help of the chain of exclusive boutiques situated at high streets of major cities to
distribute its concept.

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