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Management decision making: The Nestle Nespresso case

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  1. Defining the problem
  2. Framing the issue properly
  3. Identifying alternatives
    1. Try to enter the medium-range coffee capsule market
    2. Merge with Nescafé to get a good place in the medium range coffee capsule market
    3. Merge with Nescafé and keep the existing position
    4. Create new patents that could get the same effects than the first ones
    5. Do nothing and continue just like the patents would still operate
  4. Selecting an approach
  5. Choosing the process, planning and implementation

Nestle Nespresso is one of the fastest growing subsidiaries of the Nestlé group. The group includes many different brands producing 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, and perform different activities. 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 its big differences with Nespresso. It is true that one of the particular features that we could identify about Nespresso is the fact that the company sells its products within a fully owned network of outlets. Nespresso is a company that specializes in high-end coffee and coffee machines for rich people. In fact, it was created with this concept in mind at the very inception. The company was created in Switzerland in 1982 to provide high quality coffee to homes, and commercial entities. Thus, this branch of Nestlé created a very powerful coffee machine that was very expensive from the very beginning, and provided two or three different capsules. It catered to what we call in marketing, a niche market. Nespresso looks for the best coffees from all around the world, and is very particular about quality: all the coffees that do not match with the company's exigencies are given to Nestle Nescafe.

[...] It is also true that it would give Nespresso another 20 years to think about the future strategy. To merge with Nescafé would not be a good idea and would be difficult due to the fact that they were two entities for two different purposes. Nestlé has invested in a 15-year research and development program with high financial investments. It made a similar investment in marketing campaigns in those last years. It is sure that Nespresso has a place of its own in the market, just like Nescafe, which could continue to provide other forms of coffee like powder, soluble coffee etc. [...]

[...] Another big factor that would make the issue very significant is the fact that 2011 is very near and Nespresso has not engaged any program to settle the patent issue. It is also possible that measures have been taken, but kept under wraps due to the spying from competition and business surveillance. However, if it has not already done so, the company might fall short of time to adopt an effective counter operation. Identifying alternatives There are four alternatives available to the company. [...]

[...] It is also noteworthy that consumers do not differentiate between the many different brands in the coffee capsule market, and so the marketing of Nespresso could benefit to other companies that sell the same system. We might add that many potential consumers do not know that Nespresso has its own outlets and think that they can find the capsules in supermarkets. In doing so, they will find competitor's products instead! This is mainly due to the fact that Nespresso does not give any information about their outlets in the advertisements. [...]

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