Case Scenario: The Nespresso the New Challenge
In 1988, Mr. Jean-Paul Gillard had just taken over the acquired the Nespresso subsidiary which, despite selling one of Nestle's most innovative new products, was facing serious financial problems. So, he therefore had to decide how to rejuvenate the subsidiary's financial fortunes by developing a new strategy.
The Nespresso product was a system which allowed the consumer to produce a cup of espresso coffee at home. Though simple in appearance and use it took Nestlé more than ten years to develop it. The system consisted of two parts: a coffee capsule and a machine. The coffee capsule was hermetically sealed in aluminum and contained 5g of roast and ground coffee. The machine consists of four parts -a handle, a water container, a pump and an electric heating system. These four parts were cast into the body and formed the machine.
The use of the Nespresso system was straightforward. The coffee capsule was placed in the handle which was then inserted into the machine. The act of Inserting the handle into the machine has pierced the coffee capsule at the top. At the press a button, pressurized, steamed water was passed through the capsule. The result was a creamy, foaming and high-quality cup of espresso coffee.
The new product was introduced in 1986. The original strategy adopted by Nestle was to set up a joint venture with a Swiss-based distributor called Sobal to sell the new product. This joint venture (named Sobal-Nespresso) was supposed to purchase the machines from another Swiss company (called Turmix), the coffee capsules from Nestlé and then distribute and sell everything as a system one product, one price. Offices and restaurants were targeted as the customers and a separate unit called Nespresso SA was set up within Nestlé to support the joint venture and to service and maintain the machines.
By 1988, it was clear that the new product was not living up to its promise. Sales were well below budget and quality problems were driving costs through the roof.Nestlé headquarters was considering freezing the operation when Jean-Paul took Gaillard took over. He had to decide whether and how strategically reposition the subsidiary.
But which way should he go? At the top of his "to-do" list were questions such as: "Should we continue targeting offices and restaurants as our customer or should we focus on upper -income households and individuals?" "Should you continue focusing our activities in Switzerland, or should we expand to other espresso-friendly countries?" "Should we stick to our current strategy of selling both coffee and the machines as a system, or should we just concentrate on coffee?" "Does the current distribution policy make sense, or should we choose an alternative distribution method such as the Internet or mail order?"
These were not easy questions and the answers were not immediately obvious. Yet, these questions had to be asked. Possible alternatives identified and specific choices made. In fact, going through the process of asking these questions and then making difficult choices (which may turn out to be wrong) is what strategy is all about.
As it turned out, Jean-Paul Gillard chose correctly for Nespresso. He changed the targeted customer from offices to high-income households and the distribution of the coffee capsules from the joint venture to mail order (through the "Nespresso Club") As a result of these choices and other strategic decisions. Nespresso grew tremendously in the next five years. The main point of this story is simple: the heart and soul of the strategy is asking "who-what-how? "questions, developing alternatives, and choosing what to do and what not to do.
Let me therefore repeat my main point: strategy is all about deciding what game we want to play and then playing the game well. Both are important decisions, and both belong to strategy. Both require the company to make choices -often painful ones. A company that fails to make choices abdicates one of its most important responsibilities.
Task: Browse Nestle company websites and the related social media then select any three products additional to Nespresso product to answer the following questions:
Question 1: Describe and evaluate Nestle's (3) products, business, and corporate values.
Question 2: What are the different strategies for these products? Name and evaluate two competitors for each.
Question 3: Name two main competitors of Nestle's Nespresso product. What its competitive advantage? is it sustainable? How Nestle's can maintain its competitive advantage for this product?
Question 4: Evaluate how and why Mr. Jean-Paul Gillard adopted and function acquisition and strategic alliances in the market.
Question 5: How do you think Mr. Jean-Paul Gillard managing and operating The Nespresso product strategies and tactics? state any alternative strategies.
Question 6: What general lessons can be learned from The Nespresso product strategies?
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