How can Nespresso leverage its

product superiority and

differentiate itself from the
competition?

Sebastiaan Debrouwere
19 February 2015
Marketing Management

OVERVIEW
01 RISTRETTO Executive Summary
02 MACCHIATO State of Play and Challenges
03 CAPPUCINO The Challenge
04 LUNGO Top-level Strategy
05 ESPRESSO Recommendations

01 RISTRETTO Executive Summary

Nespresso has an exceptional product that is well-received and well-loved amongst its existing customer
base. After a decade of strong growth, the risk is now that its market share may be plateauing, since most
of the believers have been converted.
At its heart, this report recommends three things:

That Nespresso leverages its premium position to stimulate the consumption of quality coffee in
Belgium, by recognizing the art of coffee through a series of focused actions, such as the Barista
of the Year awards;
That Nespresso attacks the Flemish long-coffee market through a local face of the brand, Matthias
Schoenaerts;
That Nespresso increases the opportunities for new customers to come into contact with its coffee
and convert to the house of Clooney by a series of well-targeted interventions in the customer cycle.
Specifically, the report recommends that Nespresso create a food truck and pop-up stores.

02 MACCHIATO State of Play

PRODUCT
Nespresso differentiates itself from the competition by offering an exceptional, quality based coffee
experience. The Nespresso trilogy commits itself to offering customers the best in-cup quality, the best-inclass service and a premium-based identity.
The brand is a hugely important element of this. Given the high awareness it has, and the strong
associations consumers make with the brands key success factors (quality, customer relationship and an
aspirational lifestyle), it offers great horizontal and vertical brand potential.

COMPETITIVE ANALYSIS
Coffee is hot.
Not just in the thermodynamic sense, but
also as a consumption good.
Since 2010, the Belgian coffee market has
grown by over 20%, with an average
annual growth rate of 4%. According to
Nielsen and Euromonitor, it is set to
continue growing at this rate in the next
years.

Figure 1: Coffee Sales in Belgium (Euromonitor)

Coffee is chic
One of the most important trends within
this growing market is a shift towards the
premium segment. Increasingly more
consumers seek a special gourmet
experience when drinking coffee, which
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has benefited the fresh ground coffee pod

segment. Whilst the share of traditional
filter coffee has steadily decreased, the
share of pods has increased by nearly
50%.

Figure 2: Sales of pods versus filter coffee (Euromonitor)

Nespresso what else?

Within the segment of branded coffee
pads, Nespresso is the only player to have
gained significant market share. Despite
the expiration of the patent on its coffee
pod machine in 2012, Nespresso has
maintained high growth rates.
Flavour innovations, leveraging the
Nespresso club experience and B2B-sales
have all contributed to its growth.

Figure 3: Sales within the branded coffee pad segment

(Euromonitor)

One country, two tastes

The Belgian market is peculiar because
coffee tastes widely differ across linguistic
lines. Brussels and Wallonia traditionally
have a strong preference for espresso
which is highly compatible with
Nespressos core brand whereas
Flanders drinks more milk-based coffees
like Cappucino, Lungo and Latte.

CUSTOMERS
Segmentation
Within the market for hot drinks, Nespresso
originally targeted a rather specific
segment: that of coffee aficionados. These
are 25-45 year old consumers, who drink
an above-average number of coffee cups
per week (7+) and consider themselves as
experts.
Due to their busy lifestyles, they look for
easiness, availability and instant
gratification when consuming coffee.

The Nespresso Club

Nespresso cultivates a long-term relationship with its customers by engaging them in the Nespresso
Club. This allows them to send tailored marketing and extend customer lifetime value.
Customer journey
Nespresso uses a hook and sinkerapproach to customer cultivation.
The key moment, which Ive labelled NEureka, is when a customer translates their
desire for good, instantly available coffee
into an affection for the Nespresso brand.
The challenge that has arisen since 2012 is
that the purchase of a machine no longer
implies that a customer will keep buying the
Nespresso pads.

SWOT
Nespressos key strengths are its perception as a lifestyle
brand and intense customer contact, whilst it is vulnerable to
incompatible customer preferences in Flanders.
It needs to leverage these strengths through the Nespresso
club and by stimulating a market trend towards premium
coffee.

03 CAPPUCINO The Challenge

Nespresso has a growing market presence, but is under challenge from private label (in the overall market)
and from customers opting for non-Nespresso pads.
Nespressos key assets are the quality of its products, its ability to hook customers and its strong
community. It needs to leverage those to:

Gain a share in the milk-based/longer coffee market

Become the player par excellence in the premium/lifestyle range.

04 LUNGO Top-level strategy

Nespressos strategy so far has been to excel through focussed differentiation, specifically:

An exclusive distribution network

High margins
Limited competition
Customer awareness and intimacy

Going forward, the key challenge to address here is competition. Dropping prices would be unwise, as
would be extending its distribution network since service is an integral part of the brand. Instead it should
focus on increasing customer awareness and intimacy. All our recommendations will seek to do this.

05 ESPRESSO Recommendations
1. CULTIVATE THE FLEMISH LUNGO HABIT

From the research it is evident that the most significant segment of the Flemish coffee market will not easily
switch to Nespresso. This is mostly because of the fact that this part of the country has a deeply engrained
preference for milk-based coffee, and that the association between Nespresso and espresso forms a
significant hurdle for them to convert.
Nespresso has a great range of milk-based (lungo) coffees available on offer. The key here is to change
customer perception and, while were at it, use the opportunity to establish Nespressos hip-factor in this
market segment as well.
In recent years, gin producers have done a very similar thing in repositioning a traditionally foreign, alien
and somewhat old-fashioned spirit into a hip drink for connoisseurs. This has happened mainly through
social media and the use of influential bloggers.
The recommendation is to similarly try to make lungo coffee hip. In part through a word-of-mouth based
strategy with influential bloggers and, in a secondary face, by creating a face for Lungo in Flanders.
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This face needs to be iconic, classy and timeless in the way that George Clooney is. They also most have
some brand equity left (i.e. they may not be associated with too many brands). An informal round of
questioning with coffee drinkers in this Lungo segment suggests that Matthias Schoenaerts, the Antwerpbased actor, is the ideal candidate and should be contacted.

2. DIVERSIFY THE DISTRIBUTION NETWORK

Nespressos core strength lies in the Neureka-moment when would-be consumers taste the coffee and
experience its lifestyle value. Unfortunately, whilst the current distribution network does contribute to the
brand, it does not allow many consumers to easily get hooked.
We could address this by going more into retail, but this would dilute brand value. Therefore it is crucial that
we bring this experience to customers in a way that is consistent with the brand and ensure that the
distribution network addresses the dual goal of exposure and exclusivity.
We could address this by playing into a series of existing trends that have brought both fashion and highend food to the mass market: pop-up shops and food trucks. Nespresso should tap into this, and create a
coffee degustation food truck that can pop up at festivals, major events, etc.
Another way to bring the boutique experience close to the customer would be to launch a series of
Tupperware-style parties where brand ambassadors can share their love for coffee. We could do this by
providing selected Nespresso club members with a degustation set and promotional materials for a home
party.

3. RECOGNIZE THE ART OF COFFEE

Nespresso ultimately benefits from a market that recognizes premium, degustative coffee as the summum
of indulgence. To achieve this, we need to broaden the coffee experience away from the mere act of
drinking towards an all-encompassing lifestyle experience.
The rising global popularity of coffee and its strong association with sharing moments lend themselves
perfectly for this. All Nespresso Belgium needs to is tap into the coffee as an experience-trend, stimulate it
and ensure consumers know they can recreate the exquisitie experience of a coffeebar at home.
The Nespresso Club offers the perfect platform for this. The recommendation is to increase the amount and
visibility of community-based events that celebrate the art of coffee. Specifically, we could roll out the
following campaigns:

Coffee tasting workshops with sommeliers, potentially followed by a flavour customisation;

A Barista of the year-award that rewards skilled baristas for their ability to create tasteful, elegant
coffees;
Coffee tasting box-sets launched around key seasonal moments that allow consumers to taste new
blends, flavours and grinds.