Nespresso: A Case Study On Customer Preferences, Market Identification, And Competitiveness

Customer preferences

Task: Individual Research Report

Assessment Details: At a minimum, your report must address the following issus:

- A definition of the customer’s needs, wants, demand, product and market identified for the organisation

- A discussion of the Orientation the company exhibits toward the market place

- The major competitive issues facing the firm (for instance, the nature and level of competition, competitive strategy profiles, regulations, etc)

- Segmenting, targeting and positioning issues relating to the organisation.

Nestle is a champion among the most comprehended relationships in the matter of sustenance in the branch of coffee products. Coffee capsules of Nespresso are a product made by Nespresso, a working unit of the Nestlé Group, created in Lausanne, Switzerland. The Nespresso coffee capsules are one of the principal products of Nespresso, and they have a focal impact accessible. The company “Nespresso” is operating mainly in the market of coffee machines. The machines of Nespresso brew espresso and coffee from the coffee capsules or pods in bar machines which is a variety of “pre-apportioned single-use” urn of “ground coffee beans” with added flavors. Moreover, the company is also selling its coffee capsules and coffee machines in the international market. The company had strated its journey in the year of 1976. As stated by Bhatta, (2011) “an employee of Nestlé, invented, patented and introduced the Nespresso system.” Now, it can be identified as one of the major companies in its target marker.

As opined by Janiszewska & Insch, (2012) needs can be designated as the “as goods or services that are required.” Needs are imperative for survival. However, on the other hand, the idea of “want” represents something different. As mentioned by Tapp & Spotswood, (2013) “wants are goods or services that are not necessary but that we desire or wish for.” In the case of Nespresso and its products, the company has utilized the “want” of the potential customer. The products of the company are typically upscale and of the best quality. Moreover, coffee can be identified as a lifestyle product. The offerings of Nespresso is the best quality coffee capsules as well as high quality coffee machines. The price of the products are relatively higher than most of its competitors. The premium pricing strategy of the company is targeting the affluent group of customers. The finest green coffee and the selected capsules and innovative machines are mainly targeting the high social class and the buyers with high purchasing power. In spite of this, by utilizing the idea of “want” of the customers the company is holding 15% of the global market (Brem, Maier &Wimschneider, 2016).

Market identification

Product

Coffee capsules made by Nespresso have its own standard and has set its own bench mark in the category of coffee capsules (Bhatta, 2011). In spite of the fact that Nespresso came into the scenario with its line of coffee powder., its smart move into the capsule section has earned it its name and given it an entirely different image in the coffee market.  The key thought behind working on the coffee capsules was related to making something for the coffee machines of unique taste unlike the coffee powder and ensuring that the fragrance of the coffee does not leave the coffee. In such a case, the coffee capsules were made by the association with a point of view of making something suitable for single use with each capsule having their unique flavors stored (Peppers & Rogers, 2011). While earlier coffee machines were obliged to the shops, the present instance of owning coffee machines could be seen in every family with most of them asking for that alliance allowing them in setting up their outlets.

While portraying the product on three layers, the center product is, truly, the coffee capsule that is hugely improved than the powdered coffee as the capsules don't lose their flavor and in like manner, help in offering the coffee with an upgraded fragrance enhancing one’s experience of having it (Baek, JeeHee, Bang, Han Na, & Kim, EunJeong, 2012). The products are grouped according to the grade of the materials used and their impact on the human body. The lifecycle of the product can be seen when we check the movement of the product (Navarro, Tiwari, & Turner, 2013). In any case, as coffee machines wound up being logically understood, the other rival associations on the other hand started making substitute things for the coffee machines that took after Nespresso's coffee capsules.

Nespresso’s target market can be identified as the affluent group of the customers. The company is mainly targeting the coffee lovers in the global market. According to the market research of the company it can be identified that the majority of the customers of the Nespresso products are the females. Most of the customers of the offerings of Nespresso are the middle-aged persons, mainly belonging to the 30 to 50 years of age group. Moreover, target customers of the Nespresso offerings are the higher income group. The company does not have any global boundary. The customers of the company are the people who possess a psychology of aristocratic behaviour.

Market orientation

The brand Nespresso is one of the pioneers in the coffee business and the development of the coffee capsules has proven to be one of the most important accomplishments (Virén, 2008). The examination of the internal and external environment of the company reveals the special setting force which helps the management to plan their way ahead. With the aid of this practice the managers do get firm belief that they are working for the betterment of the product and also keeping intact the image of the brand itself. The examination of the external factors does help in keeping the relationship intact among the customers and the company. It has been seen that Nespresso’s progress in the growing days is also continuing to grow the client base.

As opined by Janiszewska & Insch, (2012) “marketing oriented companies focus on the customer needs and for them the opportunities arise from the changing needs of the customers or market”. As stated by Tapp & Spotswood, (2013) the marketing orientation of the company can be identified as “consumer focused”. The Nespresso has reviewed the food habit of the upper class people and identified the popularity of coffee within that group. Hence, they introduced best quality coffee capsule product in their product line with a premium pricing strategy. On the other hand, the marketing orientation of the company may also be identified as “product oriented.” The company claims that the quality is their passion (Brem, Maier &Wimschneider, 2016). Hence, in the marketing strategy of Nespresso, the promotion of the quality of the coffee capsules acquires a great extent.

The most important reasons of Nespresso’s success can be identified as marketing to the right folks and providing a genuine product. Nespresso has rightly identified the upscale customers as their target and providing the best quality product by making justification with the announced price level.

The competitive issues:

High price:

The product has been priced scarcely higher than its competitors (Bloodgood& Katz, 2004). Compromising in the aspect of quality can cause the brand to lose its clients, as it would suggest that the brand is wheeling and dealing on its quality. In such a case, looking over is a way that will be betterment for the brand quality. The concern on that has been set for prospects for growing advantage in the long run (Ferran, n.d.).

As opined by Janiszewska & Insch, (2012) the issue of strict competition cannot be ignored by a company which is operating in a market for a long time. In the case of Nespresso, Nestle is facing the same competitive issue. The coffee capsule product of Nespresso is facing huge competition from the coffee bin industries worldwide. The name of Senseo, Tassimo, Keurig and many others can be discussed in this regard.

Market competitiveness

On the other, hand the issue of limited distribution channel cannot be ignored. As mentioned by Baek et al., (2012) the coffee capsule product of the company is not being available to the large extent of customers due to its lack of required distribution channels. The coffee capsules of Nespresso are not available in all outlets of similar products. Moreover, as the company is targeting only the upscale consumers, the product is only available in the official website, boutiques and the well-known departmental stores of the city areas. Furthermore, as mentioned by Brem, Maier &Wimschneider, (2016) the product is hardly available in the markets outside the USA. Thus, it is reducing the customer response of the product.

In addition, as opined by Alvarez, Pilbeam & Wilding, (2010) tea can be a great “substitution” threat to the market of the coffee capsules of Nespresso. Tea is a greatly popular drink worldwide. Not only the aristocrats, but also the middle and low-income groups like to have tea. Moreover, the companies, which are operating in the tea market, have made themselves available to almost all level (income groups) of customers. Unlike Nespresso, their product is affordable for all income groups.

Barriers of entry:

However, the barriers of entry have to be discussed in this regard. The company is enjoying a huge economy of scale. Moreover, the startup cost will be huge for the company’s trying to enter in the market. They have to compete with the economy of scale of the company. Moreover, the governmental issues cannot be ignored. The company is facing issues with the restricted recycling potential of the “single-serve aluminum pods.” As mentioned by Alvarez, Pilbeam & Wilding, (2010) the company has not followed any “any recycling programs outside of a few parts of Switzerland.” It has made government involve in the business process of the company.  Hence, the company’s “38-point list of commitments” is dedicated to fight this issue. The new entrants have to keep on mind these environmental regulations. On the other hand, the product and the technology of the company are of high quality and upscale. It will create a great barrier to the new entrants in the selected market. A barrier of entry to this coffee market can be identified the “product differentiation.” Not a many company is providing the same quality product of the Nespresso. However, there are a number of companies, which are offering the customers the same pattern of product and in mush lower price than that of Nespresso.

Segmenting and targeting issues:

If the market segmentation of the coffee capsule of Nespresso can be done, it can be noticed that the majority of the customers are coming from the affluent group. On the other hand, the company is getting the more customer base from the females. Moreover, this particular product of Nespresso can be identified as a popular drink among the middle age group. Now, it can be identified as a segmenting issue of the company. The company is targeting a very small range of coffee consumer in the world. It is reducing the potential profit level of the coffee capsule product of the company.

The company needs to enhance its boundary of the target group. As mentioned by Brem, Maier &Wimschneider, (2016) the target market of Nespresso is really narrow and high standard. It is restricting the huge customer base in the middle-income group of the global coffee market. As opined by Alvarez, Pilbeam & Wilding, (2010) the company is deliberately targeting the consumers who are serious about their coffee. As mentioned by Brem, Maier &Wimschneider, (2016) “Nespresso machines are quite expensive- some are upwards of $800.” The target market of the company may be providing it a tag of upscale drink, but it is limiting the profitability of the company. The company needs to increase the brand awareness among the potential customers and increase the market segment of the products.

The product has been made considering the necessities to be included in the complete pack. In such a case, the IMC has been achieved with a viewpoint to push the product among these circles. The progression has been done transversely over various channels that give the affiliation an ideal approach in managing regular interact with the goal customers (McDermott, 1998). The web progress goes for portraying the diverse flavors that the product offers; the structure that is related here is along these lines an arrangement of division from its adversaries. The brand goes for portraying to the customers that it can give the customers a comprehensive course of choices for flavors that are not given by the contenders. In such a case, the customers are additionally managed to go for the products, as they do not think much about spending more for a unique product that in like way gives the customer such a course of choices (Bejou & Palmer, 2005)

As discussed by Baek et al., (2012) the positioning of a brand depends on a number of issues or variables. However, most importantly, the variables like, price level and product quality determines the brand positioning of a product.

Figure 1: Brand position of Nespresso

(Source: Alvarez Pilbeam & Wilding, 2010)

Here, in the above provided graph, it can be identified that the brand position of Nesspresso is high in both the quality and price benchmark. As mentioned by Alvarez, Pilbeam & Wilding, (2010) in the case of the USA market, the company holds 7% market share. On the other hand, the luxury image of the brand has also positioned it to the higher range in the positioning map.

It may become a threat for the company’s profitability. As mentioned by Baek et al., (2012) with the global trend of economic slowdown, the rate of disposable income of the consumers is decreasing. In the cases of these life style products like coffee, this is hugely affecting the market. The company is creating a tag of “upscale product,” which is hurting the potentiality of the brand in the popular market. Hence, the company needs to acquire the market that has not been reached yet. For this, the company has to compromise with its price level. The company may launch small quantity of the product in a lower price and promote it as a product for everyone. It will help the company to reach the previously un-approached group of customers and thus get a better position in the brand-positioning map. Moreover, if the company can win the heat of this potential customer group and utilize the “want factor”, it will surely provide better level of customer base in the future.

Conclusion

Nespresso is having a reasonable relationship today and their product, the coffee capsules have correspondingly been preferred by the customers to a great extent proving it productive to an astounding degree. The product was initially dispatched to an area for the coffee machines in the shops. In such a case, it was a business product and meant for a particular customer base. Regardless, the rising occupations gave some people their very own coffee machines and like this; the product saw a positive turn in its game-plans. Consequently, it changed its status to a client product. This move brought up in the game-plans recommended that the product is now something indicated to be used by all brining more and more challenges for the business divisions working with it. In such a case, the product required a suitable moving structure that would help it in keeping up its place in the market place. All the USP of Nespresso has assisted in keeping up the product quality while helping in retaining the division and uniqueness of the product from the ones offered by the competitors.

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