The Continual innovation of Nespresso Essay

1872 Words8 Pages
Instant coffee is a household staple, with 73% of UK consumers drinking it daily. Nestle’s Nescaffe dominates the market with 43% market share and the majority of volume sold. In seeking out new ways to expand coffee drinking in the home, Nestle developed Nespresso. Nespresso is every bit as convenient as Nescaffe but uses fresh ground coffee individually packaged in pods to brew consistent single serve espresso. To use the pods, a special Nespresso coffee machine is necessary. Upon purchasing a machine, the consumer becomes part of the Nespresso club. Pods are then sold to club members either through high-end Nespresso boutiques or online. This premiumisation of convenient coffee is a growing market, in fact between 2010 and 2012 it was…show more content…
After just a few years, this strategy wasn’t working and the project had lost momentum and support from within the company. Enter a new Commercial Director, Jean Paul Gaillard. He was passionate about the brand and made several strategic changes that would turn the flailing project into a multi-million Swiss Franc business.
Until this time, Nespresso had been manufacturing the machines and the capsules while outsourcing distribution. Feeling that Nestle was in the coffee business rather than the machine business, Gaillard’s first move was to separate machine from coffee in order to focus on their core competencies. He struck up a deal with a Swiss-based OEM and later a number of manufacturers including Turmix, Krups and Philips to manufacture the machines which were then sold directly to high-end department stores and ultimately to the consumer. At the same time, he brought distribution of the capsules in house, creating a club, mail order system, and 24-hour call centre to manage orders and queries. In moving production of machines outside of Nestle, Gaillard assumed that the transaction cost of such a change would be low in comparison to the cost of vertical integration due to their superior capabilities in the coffee industry. But moving production outside the firm could have been a costly proposition

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