A Study on Nespresso's Business Model and its strategies.

The scope of my thesis was to analyse Nespresso’s business model, its competitors and identify the company’s struggles in order to suggest solutions or strategies for the future. The study has been mainly limited to Nespresso in the Italian territory. The objective of this research was to understand the salient features of Nespresso’s business model, what resulted in its success and what elements led to its struggle in the market in the last few years. The Business Canvas Model tool was used to identify the nine important building blocks of Nespresso’s business and it highlighted the synergy between the various elements of the canvas. This study examined some of the prominent strategies used by Nespresso that helped the brand sustain its principal position in the market. For example, the ‘Bait and Hook’ is used by Nespresso to give the machine for free to make profit on the repetitive sales of capsules. It increases the sales of the capsules which is profitable but also focuses on the retention of customers. The use of Benefit Ladder tool helped to explore the emotional relationship that the customer creates with Nespresso and the benefits derived being related to the brand. What makes Nespresso different from its rivals was found by analysing its competitors. This study was able to evaluate the points of parity and differences between Nespresso and its rivals. The major players that were selected to do the comparative analysis with Nespresso were illy, Lavazza, Nescafé Dolce Gusto and Caffé Borbone. The reason for choosing illy and Lavazza was due to that fact that both the companies had their respective systems of machines and capsules but at the same time, they also produced capsules that were Nespresso compatible. The reason for choosing Nescafé Dolce Gusto was to understand how Nestlé placed this brand in the market along with Nespresso without resulting in the cannibalization of the brands. A quick analysis of Starbucks which sells single-serve coffee under Nestlé’ was performed. The reason for choosing Caffè Borbone was to understand how a relatively new brand like Caffé Borbone in the portioned coffee sector, decided to compete with Nespresso. The comparative analysis between the various brands were performed using the Marketing Mix technique: Product, Place, Price and Promotion. Through my research I found that Nespresso was able to maintain its dominant position in the market due to its customer centric approach to the business. The quality was not just about the coffee but also about the services that it provided for the customers. The strategies adopted were coherent and consistent with its business model. Recently, the company was facing strong competition from its rivals and was losing its market share. This is mainly due to the penetration of the market by players with compatible capsules. The company fought back by implementing subscription models and by concentrating on customer experiences. After consulting the different players examined, my study suggests few strategies that Nespresso could adopt to compete against its rivals. They are mainly recommendations based on the small gaps that are present in the market that Nespresso can use intelligently to sustain its position in the market. Keywords: Nespresso, Business Canvas Model, Marketing Mix, Customer Experience, Benefit Ladder, Bait and Hook, Subscription Model, Portioned Coffee, Single-serve, Capsule