Innovation And Renovation Lessons From Nespresso Story
The Importance of Innovation and Renovation
Nespresso is one of the most successful coffee brand which aimed to attain competitive advantage in the markets all over the world. For this reason, it followed the path of renovation and innovation and changed the game in its industry. This company conquered the battle by applying numerous strategiesbut aimed them to bring a perfect alignment to reach unique market position. However, it took a long time to achieve the goals laid by the brand and it came to failure more than once. Despite the fact that the company is doing well in the current situation but these strategies will not be able to save the company from thechallenges in future. Hence the company has to follow differedstrategies to support the idea of innovation.
The idea of innovation is a continuous process. In case of Nespresso, it is a non-linear process which helped the company to gain competitive advantage (Sung and Choi 2014). Through innovation strategy the brandshave become one of the fastest growing businesses from uncertain beginning. Under the parentage of one of the leading global food companies, Nestle, Nespresso has proved to be the successful fruit of innovation strategy. Before Nespresso, there were varietyof new and existing products which Nestle hadinnovated or renovated then tested successfully before exposing them into the western market. Nespresso is one of the most importantinnovation of the company as it not onlyincreased the revenue but alsoprovided an extra leverage to the company’s other productions such as machines and other coffee products like Nescafe.
The success of theglobal brand alwaysdepends on the renovation and innovation process.Innovation helps the bends to take something into the next category andrenovation is the method of keeping product in same category but introduce with more improvements (Brem, Maier and Wimschneider2016). For Nespresso, the improvement or innovation was not only focused in the product or technical innovation but needed guidance and full-fledged support from administration, finance communication and marketing. According theCEO of the company, the innovation process was to gain more strategic advantages than the existing competitors and new entrants. They aimed to remain prepared to face the high risk which is inevitable after innovation.
Innovation process that the company had applied in gainingadvantage was the expectation and pressure from the finance department. Nestle has been working in the most favorablecondition in the global market but the financial analysts kept on pressuring for innovation as they found it to be need of time (Rhéaume and Gardoni 2016).This is the reason why the company wanted to have such a product which will be directly linked with the process or machines. The Nespresso system was innovated to be a coffee capsulewhich can be only used in the exclusively designedcoffeemachineinnovated by the company itself. the idea was to mask the complicated use and method of producing special espresso coffee through outward simplicity. This product was much easy to use and cleaner than the handmade traditional espresso coffee. This reduced the stages of making an espresso which included three steps but in this machine, one could make coffee in one-step.
Strategies for Innovation and Renovation
Another strategy was to hold the patent but licensedtheir production to the manufacturers to distribute through someselected appliances retailers (Brem, Maier and Wimschneider 2016). The companyhowever did not get any revenue for selling the machine but get profits by selling these coffee capsules only because the customers needed to buy the machine otherwise the capsules were of no use.This innovation was hover supported greatly by the luxury image and distinctive brand (Palacios-Marqués,Merigó and Soto-Acosta 2015). Unlike otherproducts by Nestle, it had limited customers segmentwhich were of high income family. Therefore, the company did not follow the way of mass production which they usually do with their other products.
The innovation process combined the knowledge of coffeebusinessand the strength of Nestlé’sR&D so that high quality product could be introduced in the market. This is the reason why the project first took great support from the food service division of Nestle, to enter the restaurant market. The chiefidea was to test the response of the customers. After its successful introduction, the brand separated from the core company and acted like a satellitebusiness. The new unit was formed namely Nestle Coffee Specialtiesfor developing own commercial distribution along with own policy making responsibilities.
The innovation was first introduced in the world’s largest market of espresso coffee Italy and then in Switzerland. The case of Nespresso again demonstrated that innovation process is also associated with the process of sales.The strategy of the company shifted its focus to the household market instead of the restaurant business (Joyce and Paquin 2016).In addition to this, the company followed various methods to attract the customers in the best possible ways. As the company was facing challenges in the selling espresso coffee in the offices and cafes, the brand focused the market segment of different demographics.Instead of focusing on the young generation, it concentrated to serve the people of mid-thirties to mid-forties. The reason of such agreat shift was due to the fact that the market searchedhadrevealed the preference of this segment of people to have restaurant quality of coffee at home.
This was the reason why the company wanted to build a long term relationship with this customer segment hence it attempted the bringranges in the sales section. According to the higher authorities of the company the method of channeling capsule through supermarkets was increasing the gap between the customer and the company and transfer profitability of the business away from the company. The distribution channel of the company’s product was also a great barrier for its profit as the products took long to reach the customers. Therefore, the company took simple measures to reach directly to the customers within a short period. The people whowanted to enjoy the unmatchable aroma and taste of Nespresso could order through the Nespresso Club. It was an elegant strategy which made the sales more appealing. They started to take on call orders which was absolutely free, initiated arrangements for prompt delivery of fresh coffeealong with advices from the trained coffee specialists. They used to guide the customers with special recipes and use of other accessories.
Lessons from the Nespresso Story
The method of productinnovation was supported by the strategy of position the brand away from utilitarian office so that the company could target more segmented customers and operate in complete freedom. The machines were mainly produced in the firms of Switzerland under exclusive agreements with the top manufacturers of the espresso machines. This strategy influenced the distribution department also. The companywanted to make the result more specific hence started to campaign for the product more intensely so that every high income household can become potential as well as loyal customers. The idea was to fulfil the global ambition. Unlike other coffee products of the company though it did not follow method of mass production but targeted the customers in one hand and machine manufactures on the other. For successful innovation the company needed support and opportunity. The opportunity to products and machine innovation was implicit and what they needed was the support from the management. Together with these the company had a great success within some years.
For gaining successful result of innovation the company realized the importance of catering proper climate for making best possible decisionto take intelligent risks.In order to get the fruit of innovation in best possible way, it is not only necessity to take care of the productsor incorporate new things in the existing product but it is also necessary that the brand can be relatedto the manufacturing process improvement or the trade channels. For the aspect of renovation, the company has got the change to incorporate more features to the existing products which will be more acceptable to the customers.
For innovation and renovation, the company needs to have inventor who will be capable to feel the urgency of innovate a new product or renovate an existing product for the company. The case of Nespresso, details that this innovation method can cause complex andhigh risks thereforeproper leadership and an institution of potential individuals should be present. They will make the innovation arenovation process quite constitutiveotherwise the impact of innovation will not be fruitful for the company. The innovative idea that the innovator aims toincorporate in the company need to be supported by the management so that they can provide security as well as longevity to the innovation rather than keeping concentration in running the core business more successfully.
In the case study, it is discussed that Nestle Coffee Specialties is having ambitious growth target, which was not being able to get fulfilled by their existing strategies. This is mainly due to the reason all the strategies are being initiated and implemented without the effective determination of the market trend and requirements. Thus, though the concept of the Nestle Coffee Specialties is innovative and effective in nature, but it failed to succeed in the market. The following sections will discuss about some of the activities or strategies that should be initiated by the Nestle Coffee Specialties in order to increase their future business potentiality and meet the determined target.
Growth Strategies for Nestle Coffee Specialties
Initiation of the growth strategies for Nestle Coffee Specialties will be discussed by using the Anoff matrix. According to this model, there are mainly four aspects that should be considered by them in order to have expected growth in the market.
This strategy refers to the concept of further penetrating in the market by the business organizations in the existing market. Thus, in the case of Nestle Coffee Specialties, they should first target their existing markets and the markets that are the major contributors in their revenue (Baker 2014). In the case study, it is discussed Nestle Coffee Specialties are having their coffee capsules as their major products. In addition, it is also stated that coffees capsule works only with the espresso machines. Thus, all these elements are limiting the potential market reach of Nestle Coffee Specialties. Thus, it is recommended that Nestle Coffee Specialties should come up with different variants of coffee, which will help to cater to different customer sections. This is due to the reason that having different variants of coffee will help to meet the diverse requirement of the customers (Basu 2014). For instance, some customers will have convenience with the coffee powder while some will be comfortable with other forms of coffee. Introducing different variants of coffee by Nestle Coffee Specialties will help to maximize the market reach.
Another activity that should be initiated by Nestle Coffee Specialties in further penetrating their existing market is introducing different sizes of the coffee products in the market. This is important due to the reason that, the more will be the size variants of the coffee products, the more will be the target segments for Nestle Coffee Specialties. This is due to the fact that availability of the coffee products in different size and packaging will ensure that the products will be available in different price levels (Besbes and Saure 2016). For instance, coffee products of them available in smaller packets will cost less in the market and it will be able to target the mass market. More customers can get attracted with having product in lower price points.
Thus, it can be concluded that having more product variants and price variants will help Nestle Coffee Specialties to gain more stronghold in their existing market along with having more customer base. The more will be the market reach in the existing market, the more will be the probability to increase the sales revenue and meet the growth target.
The next element of Ansoff matrix is product development. This concept refers to the developing of the existing products in the existing market. In the case of Nestle Coffee Specialties, it is recommended that they should come up with more new products in the market in order to target the different and diverse need of their existing customers (Crawley, Cameron and Selva 2015). In the case study, it is stated that Nestle Coffee Specialties is already having coffee capsules as their major products along with the coffee clubs and coffee machines. Thus, it is recommended that they should come up with different flavors of coffee in the market. In the current market scenario, there are various flavors available for coffee from different brands. It is suggested that Nestle Coffee Specialties should also come up with different flavors of coffee in the market. One of the major advantages that can be gained by the Nestle Coffee Specialties is reaching out to the new segments of customers. There are still huge numbers of untapped market segments remain in the existing market of Nestle Coffee Specialties, who are not get attracted with the existing and normal taste of coffee (Linsbauer, Lopez-Herrejon and Egyed 2013). Thus, initiation of the new flavors of coffee will help Nestle Coffee Specialties to target these new customers in their existing market. This will lead to the increase in target market for Nestle Coffee Specialties.
Apart from the different flavors, it is also recommended that they should come up with coffee variants specially targeted for the particular customer segment. For instance, Nestle Coffee Specialties can be performance enhancing coffee products in the market for athletic customers. This will further diversify their customer segment in their existing markets. One of the major advantages that can be gained by them is having different products for different sets of customer. It will become easier for them to enhance their market share and revenue if they can cater to more diversified set of customers. This will be another probable and potential option for Nestle Coffee Specialties to meet their growth strategy in the long term.
Another important strategy that can be initiated by Nestle Coffee Specialties is market development strategy. According to this strategy, they can develop their market by entering in the new regions around the world (Vahlne and Johanson 2017). This strategy can be effective due to the reason that the more will be the available market for sales, the more will be the number of target customers for the particular product. In the case of Nestle Coffee Specialties, it is recommended that they should consider in entering and increasing with their market presence in the developing countries such as Brazil, China and India. This is due to the reason that these countries are having more rate of economy growth compare to the developed countries in the recent years. Thus, with having more economy growth, developing countries are posing more opportunities. In the case study, it is stated that the market for Nestle Coffee Specialties is already saturated in their existing markets, which are mainly the developed countries.
Market Penetration Strategy
Thus, it is recommended that Nestle Coffee Specialties should enter in the developing countries or they should increase their business operation in these counties. These countries are having huge untapped markets without having less competition. It will help Nestle Coffee Specialties to increase their products in multiplying amount by entering in the developing countries. Another major advantage for Nestle Coffee Specialties that they will gain from entering the developing countries will be no requirement of developing new products. Thus, the cost to be incurred in new product development will get cut off and the profitability for the organization will be more. The concept of coffee capsules and coffee club are relatively new in the developing countries (Gourinchas and Jeanne 2013). Thus, it will be a huge potential and opportunity for Nestle Coffee Specialties to increase their sales revenue by entering in the developing countries. Moreover, it should also be noted that entering in foreign countries will further help them to increase their brand value and exposure. The more will be their brand value, the more easily for them to push their offerings in the market and increase the revenue.
The last aspect that can be initiated by Nestle Coffee Specialties in enhancing their business growth is diversification strategy. According to this strategy, business organizations can diversify their businesses in different sector from their existing one (Bowen, Baker and Powell 2015). In the case of Nestle Coffee Specialties, it is suggested that they can enter in the tea sector and can offer different products of tea along with having the same concept of club. Tea is consumed by a huge number of populations in the global market similar to the coffee. Moreover, it is easier for Nestle Coffee Specialties to enter in the tea business due to the reason that the basic approach of tea business will be same as coffee business. In this sector also, Nestle Coffee Specialties can offer teabags and other products and initiate the concept of tea club.
Entering in the new business sector will further help Nestle Coffee Specialties to generate more revenue from the market by adding new customer segments along with their existing ones. Moreover, the diversification of their businesses will also help in reducing the risk and dependency over their single line of business (Lien and Li 2013). It will also help them to cover more markets in the global scenario and thus, the revenue to be generated will also be more.
Product Development Strategy
Thus, it can be concluded that in order to meet the target growth in the coming years, there are mainly four options available for Nestle Coffee Specialties. All the four option are having their own merits and demerits from different perspectives. Therefore, it is recommended that Nestle Coffee Specialties should analyze all the four options and implement the mote effective one according to the situation and business position.
Baker, M.J., 2014. Marketing strategy and management. Palgrave Macmillan.
Bal, Y., Bozkurt, S. and Ertemsir, E., 2015. A study on determining the relationship between strategic HRM practices and creating innovation in organizations. International Journal of Contemporary Management, 13(2).
Basu, S., 2014. Product market strategies and innovation types: finding the fit!. Strategic Direction, 30(3), pp.28-31.
Besbes, O. and Sauré, D., 2016. Product assortment and price competition under multinomial logit demand. Production and Operations Management, 25(1), pp.114-127.
Bowen, H.P., Baker, H.K. and Powell, G.E., 2015. Globalization and diversification strategy: A managerial perspective. Scandinavian Journal of Management, 31(1), pp.25-39.
Brem, A., Maier, M. and Wimschneider, C., 2016. Competitive advantage through innovation: the case of Nespresso. European Journal of Innovation Management, 19(1), pp.133-148.
Crawley, E., Cameron, B. and Selva, D., 2015. System architecture: strategy and product development for complex systems. Prentice Hall Press.
De Vries, H., Bekkers, V. and Tummers, L., 2016. Innovation in the public sector: A systematic review and future research agenda. Public Administration, 94(1), pp.146-166.
Gourinchas, P.O. and Jeanne, O., 2013. Capital flows to developing countries: The allocation puzzle. Review of Economic Studies, 80(4), pp.1484-1515.
Gundry, L.K., Ofstein, L.F. and Kickul, J.R., 2014. Seeing around corners: How creativity skills in entrepreneurship education influence innovation in business. The International Journal of Management Education, 12(3), pp.529-538.
JarleGressgård, L., Amundsen, O., MeretheAasen, T. and Hansen, K., 2014. Use of information and communication technology to support employee-driven innovation in organizations: a knowledge management perspective. Journal of Knowledge Management, 18(4), pp.633-650.
Joyce, A. and Paquin, R.L., 2016. The triple layered business model canvas: A tool to design more sustainable business models. Journal of Cleaner Production, 135, pp.1474-1486.
Lien, Y.C. and Li, S., 2013. Does diversification add firm value in emerging economies? Effect of corporate governance. Journal of Business Research, 66(12), pp.2425-2430.
Linsbauer, L., Lopez-Herrejon, E.R. and Egyed, A., 2013, August. Recovering traceability between features and code in product variants. In Proceedings of the 17th International Software Product Line Conference (pp. 131-140). ACM.
Matzler, K., Bailom, F., Friedrich von den Eichen, S. and Kohler, T., 2013. Business model innovation: coffee triumphs for Nespresso. Journal of Business Strategy, 34(2), pp.30-37.
Ngo, L.V. and O’cass, A., 2013. Innovation and business success: The mediating role of customer participation. Journal of Business research, 66(8), pp.1134-1142.
Palacios-Marqués, D., Merigó, J.M. and Soto-Acosta, P., 2015. Online social networks as an enabler of innovation in organizations. Management Decision, 53(9), pp.1906-1920.
Rhéaume, L. and Gardoni, M., 2016. Strategy-making for innovation management and the development of corporate universities. International Journal on Interactive Design and Manufacturing (IJIDeM), 10(1), pp.73-84.
Sung, S.Y. and Choi, J.N., 2014. Do organizations spend wisely on employees? Effects of training and development investments on learning and innovation in organizations. Journal of organizational behavior, 35(3), pp.393-412.
Vahlne, J.E. and Johanson, J., 2017. The internationalization process of the firm—a model of knowledge development and increasing foreign market commitments. In International Business (pp. 145-154).