Exclusive Distribution - Case Study Nespresso

Exclusive Distribution - Nespresso

Introduction

For this year's Sales Management project we dealt with Exclusive Distribution and made a case study on Nespresso who successfully applied this form of distribution. In order to enhance understanding for exclusive distribution we gave some theoretical input on distribution including distribution channels and forms of distribution. During the second part of our presentation we further explained the history and strategy behind Nespresso's success. Thanks to our expert Maga Cornelia Huber we were able to gain some interesting background information.

Distribution

The decision for a distribution system has to be carefully taken as it is not only a long term decision but can lead to competitive advantages.

A distribution channel can either be direct or indirect and may feature numerous levels. In case of a direct-channel the company has direct contact with its customers e.g. ex-works sales. A company can also decide to use one or more external partners, so called intermediaries to distribute their products. In this case of an indirect-channel the company may use one, two or more intermediaries (generally these levels are represented by retailers and wholesalers) to distribute their products.

Forms of Distribution

Within the decision about the scope of distributing the manufacturer has three strategic alternatives: exclusive, selective and intensive distribution. Exclusive distribution indicates that one particular retailer in a given area is granted sole rights to distribute a product. This type of distribution is mostly relevant for luxury products like cars, jewellery or designer clothes. The inverse is intensive distribution where a product is available at all possible retail outlets. It is most suitable for convenience goods like soft drinks or sweets. The combination of those two forms of distribution is called selective distribution. In this case a specific number of retail outlets in a given area are selected to distribute a product.

The main conclusion we've drawn is that the form of distribution should be related carefully to the product type. The importance of choosing a corresponding form of distribution can be underlined by several examples. Imagine for example that Sony decided to distribute their products via intensive distribution, thus Sony TV sets would not only be available at Haas or Mediamarkt but also at discount stores like Lidl or Penny. In the short run this new strategy would probably lead to an increase in sales as the product is visible and available in more stores. In the long run however intensive distribution could in this case lead to price discounting, poor customer service and a degradation of Sony's brand image.

To sum it up the basic principle implies that exclusive distribution is the ideal solution for luxury products that consumers seek out and intensive distribution is best for convenience goods. But obviously coffee isn't a luxury good, so an important question arises: Why did Nespresso decide to channel their capsule sales through exclusive distribution and not through intensive distribution?

During our research we found out that in the beginning, Nespresso actually tried to sell the capsules in supermarkets but it didn't work out as the consumer base had not been broad enough and as a result retailers had been left with