Nespresso: Role of Innovation and Renovation

Introduction

Looking at the world today, one cannot help but marvel at the transformations that are occurring in the production industry. Today, many businesses have to adopt radical decisions in order to stay at the helm of things. In the current economic climate where technology is fast changing, businesses have to do anything possible to stay at the top of things. This calls for businesses to innovate and renovate their existing products if they are to stay on top of the competition. This is more so for companies offering the same products in an already crowded market. For many of these companies, innovation and renovation is what defines if they will be able to survive. This paper seeks to look at how innovation and renovation play a key in ensuring that a business stays on top of its competitors. It does this by examining a case study on Nespresso. The study examines the development of this world renowned brand and the challenges that stands on its way for the future. (Miller)

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Founded in 1867, Nestle is a world leader in food production and has a high number of employees that most companies have ever employed at one time. One would therefore imagine that a company with such high number of employees would have a matching economic growth. This was however not the case. Statistics show that for all the years in operation, Nestle usually had an annual growth rate of 2%. Their projection of attaining a 4% growth rate remained a pipe dream for many years. Another reason was the high competition from other brands in the market. Though the companies’ new product Nescafe had been doing well in the market, a current phenomenon was showing that customers were becoming biased toward this product. This clearly showed the need of changing tact in its market approach. (Nespresso)

When Peter Brabeck took over the leadership of the company in 1997, one thing he clearly understood was the need for innovation and renovation in the company. To Brabeck, innovation was not only the ability to take a product to a whole new level, but the ability to create a whole new product as well. On the other hand, he termed renovation as the ability of not only maintaining the existing brand but significantly improve it as well. Brabeck expected these phenomena to not only be applied in the existing products but in management as well. Though the company had a minimal risk in the market, Brabeck could have chosen to be complacent but he chose to go full throttle instead. (Miller)

Though Nescafe was doing well in the dissolved coffee market, Brabeck upped the game by launching the Nespresso. The Nepresso were independently made pills that contained a few grammes of roast and ground coffee. These capsules were specially made for use with specially tailored machines. Unlike the other existing dissolved coffee in the market, Nespresso was packaged neatly. It also had the ability to retain its freshness for six months after production due to the nature of its packaging. This was completely new innovation from Nestle. (Nespresso)

The Nespresso coffee specifically needed to be used on Nespresso machines that were exclusively owned by Nestle. Though the machines were not for sale, the Nespresso coffee earned the company lots of money on profits. At first, the inception of the Nespresso looked like an odd idea that many people thought would not yield much in profits. After a very short while, financial analysts were projecting that this brand could fetch profits as high as 50%. (Nespresso)

The lessons that can be learnt from this story are enormous. The first is on consistency. Looking at the real story behind this technology, one does not fail to see the role that consistency played. While Nestle had made a name in espresso coffee that was not so expensive to make, the production of Nespresso needed as much as five times the amount of money as the original production. For many companies, the main goal is to cut on production cost and maximise on sales. To the initiators of Nespresso, this was not so. These men understood the power of innovation and decided to stay with the vision despite the high costs involved. This clearly shows the role that determination and belief in a goal can play in bringing about results. (Espresso 218)

In coming up with the product there were also the technical glitches to be overcome. At first, it was impossible to preserve the freshness of the packaged coffee and its quality was not consistent. This hurdles needed to be overcome for anything to be achieved. To many people, this could have been viewed as an impossible task but not to those behind this brand. These people understood that they had a role to play and they could not let hurdles deter them. (Miller)

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As a whole, Nestle believed in the power of innovation. Taking a break from its traditional role of manufacturing foods, it began a new unit called the Nestle Coffee Specialties. This company was tasked with the role of marketing coffee that the company had just delved in to. At the time, many people thought that the idea of producing coffee let alone coffee the size of a capsule was an absurd idea. However, people who believed in the idea decided to stay with their vision. To the people who believed in the idea, innovation was one sure way of testing and showing people how businesses can be developed in a different way from the traditional ways. (Wheller)

Upon inception, this process looked promising but it soon proved to be a disaster. The machines kept on breaking down and they had to be constantly repaired. This in itself was costing Nestle much money hence cutting down on profits. Some countries like Japan were less receptive toward the brand and this reduced the estimated sale. This called for rethinking of the initial strategy. Against norm, Nestle brought in a young and dynamic man called Lang from Phillip Morris. Lang was tasked with the responsibility of renovating the Nespresso brand to make it more appealing to many people. (Miller)

The first thing that Lang realized was that if the Nespresso brand was going to make any impact, he had to change the target market. Where the brand was purely designed for offices, it was now incorporated in to the households. The other thing that Lang did was to modify the shape of the coffee capsules. This ensured they cut down on the cost of the materials which also meant they could be recycled for re-use. This renovation ensured that the product cost less hence appealing to many people. To ensure that sales were constant, Lang came up with a plan where customers could order for Nespresso through the internet or over the phone. This strategy gave birth as by the year 1996 the company had begun making profits. This was only possible when Nestle decided to renovate the original brand. (Espresso 219)

By the time Lang left the company, NCS was making over SFr150 million. The management would however want to raise this figure to SFr 1 billion in the next ten years or so. As it is, NCS has only managed to penetrate about 1% of the household target. To move forward toward its projected target, NCS needs to work more toward penetrating households. Its current standing on the international market needs to be looked at. Though the 5% figure is impressive by many standards, it is still an option that NCS should explore. The company also needs to look for a new consumer base in order to increase sales. Another strategy that the company can incorporate is advertising. As it is, NCS mostly sells their machines by word of mouth. The company needs to come up with campaigns to market their machines. This should succeed in getting them a significant percentage of customers. Considering that the coffee can only be afforded by few people, NCS should look for ways to reduce the price of the coffee hence increase on sales. There is also the need to move away from the traditional way of marketing the machines. By increasing on distribution, the capsules would find a bigger market. This should significantly increase on sales and consequently rise the sales from this brand of coffee. (Nespresso)

Conclusion

The story of Nespresso is a good example of how innovation and renovation can bring about growth in a business. By taking a break from its initial production line, Nestle proved to skeptics that it had the potential of taking the coffee market by storm. The story clearly shows the need of staying with an idea even when people think it can never work. When you innovate a product but it fails to take off there is the need to take a detour by renovating the product to a brand that is more appealing to the market. In the current economic climate where many businesses are going under due to high competition and the current financial recession, innovation and renovation may be the factors that determine if a business will survive or go under.

Works Cited

Espresso. “Coffee international File”, Market Trading International, (2002):219 222.

Miller, Joyce.” Innovation and Renovation: The Espresso story”, IMD international.2003.

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Nespresso. “Where the leaders stand”, Tea & Coffee Trading International, 2002.

Wheller, Michael. “Coffee to 2000: Market untamed” Economist intelligence unit, 1995.

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