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Corporate entrepreneurship: Nestle Nespresso case

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  1. Start with corporate growth strategy
  2. Understand the life cycle category
  3. Identify unmet customer needs
  4. Understand competitive behaviour
  5. Company capabilities

Nestlé Nespresso is one of the fastest growing subsidiaries of the Nestlé group. The group includes many different brands of coffee. Among them, there are two very profitable entities: Nespresso and Nescafé. Although they are not the same company, they are owned by the same group, yet the activity is not quite the same. Nestlé Nescafé is a company that specializes in medium-range coffee. This brand owns many different ranges of products, from soluble coffee to small portioned coffee sets. The products are sold in supermarkets, and this is one of the big differences that are noticed when compared with Nespresso. One of the things that we may identify about Nespresso is the fact that the company sells its products within a fully owned outlets network. Nespresso is a company that specializes in high-end coffee and coffee machines for rich people. In fact, this was the concept from the beginning. The company was created in Switzerland in 1982, to provide high quality coffee to homes, and businesses. Thus, Nestlé created very powerful coffee machines that were very expensive in the beginning (about 6000 €), and provided two of three different capsules. This was what is called in marketing, a niche market. Nespresso looks for the best coffees from all around the world, and is very strict about quality. All the coffee that does not match the company's parameters is given to Nestlé Nescafé. There is a distinct relationship between these two companies. Nescafé and Nespresso dislike each other. Nescafé wants Nestlé to stop providing financial support to Nespresso, because they are afraid of their growth. Nespresso has a double figure growth per year, which is an incredible achievement. The company, which controls only 5% of the coffee market in France, (which is the best coffee market worldwide) could easily conquer the other 95%. For a few years now, some companies have been trying to adapt to a new trend that is reaching all the different kinds of activities and markets: customization. You may talk about cheese, meat, or mobile phones, and be confronted by the same phenomenon. All these activities are encountering the trend of customization. A majority of customers are looking for products that are made specifically for them with respect to quality and quantity. The problem with the coffee market, is that is very difficult to get a good brew, and many people do not succeed in doing so. The other factor is thus the simplicity of the use of capsules. You just need to select the coffee that you want, put the capsule in the coffee machine and then press the button: that's all! The first of this kind of service was provided by Nespresso. It is true that many companies tried to copy it, as was noticed with the well-known Senseo coffee machine. The system looks like that one of Nespresso in the method of use. Even in the beginning of the 80's, Nespresso had the good sense to create enough patents to keep its activity to itself. Thus only Nespresso could provide coffee in aluminum capsules that permit it to stay protected from light, humidity, and air, and sell coffee machines with a 19 bar pump, that permits the user to get the best foam over the coffee. The competitors sell coffee machines that use paper capsules, but they are not equally effective. The pressure of the pump is lower, and the foam is not good enough to keep the volatile notes of the coffee. The paper is not protective enough and thus the coffee is dry, and not of the same quality. This is one of the main advantages of Nespresso.

[...] It is evident that they do not think about the features, but it is necessary to define them in this manner, to be sure that they will find the Nespresso coffee truly different from the others. To this kind of consumers, we could add those who do not know how to get a good coffee by measuring the powder precisely. They probably used to go to Cafés, and want a system that allows them to get a good coffee as fast and as easily as in those places. [...]

[...] Step 1 Starting with a corporate growth strategy As stated above, Nespresso's original aim was to reach rich people in Switzerland, and provide them with high end machines and coffee capsules. But, there is limited potential of growth in such a small country for an international company like Nestlé. It is difficult to stay in the race when a business is profitable, because there are many potential new entrants who could represent a serious threat. It is thus necessary to find new opportunities of growth. [...]

[...] They had already worked with Nespresso and were confident with the company. The other strength that the company has is that its parent company is Nestlé. Nestlé is already an international company and already has networks all around the world. Nespresso could use this network to its advantage. The budgets that Nestlé exclusively offers to its preferred fast growing subsidiary are colossal. Nespresso is completely profitable and may operate on its own, but Nestlé continues to invest in it. Thus profits are high. [...]

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