Five Forces Model

Executive Summary

Nestle

Table of Contents

o Synopsis 1

o Questions 1

o Conclusions 6

o References 9

Synopsis

Questions

1. Identify the macro and micro environmental factors that led Nestle to pursue the productization of Nespresso. Why ones were most important and why?

The important macro-economic factors which lead to the productization of Nespresso were from a number of different factors. Individually, these factors could not have benefitted the productization of Nespresso; they had to work with each other. These factors were: A) Switzerland being aligned with the Western Nations (U.S.) during the cold war. Western alignment encompassed Western Europe including economies of Great Britain, West Germany, Italy, France, and Spain. In North America, there were Canada, and the U.S., and in East Asia there was India, South Korea, Australia, Taiwan and Japan. All these gave Nestle a global scope and subsequent economies of scale by harnessing the resources of different cultures and economies, as well as marketing to different cultures and economies. B) The general growth of technology in the Western block nations steadily advanced due to the competitive nature of capitalism. Technology was one of the means that companies gained competitive advantage. As a result of this, Nestle drew from the expertise of the surrounding culture for the advancement of its own corporate interest. C) The supply side economic policy of President Reagan was one of supply side economics which used tax cuts to stimulate the economy while also increasing defense spending. This combination of tax cuts and increased government spending, with the fact that the U.S dollar was the world's reserve economy stimulated the Western economies and brought general economy growth. This certainly had a positive impact on Nestle.

The important micro-economic factors that assisted in the productization of Nespresso were similar in nature to the macro economic factors in that each factor cannot work independently. These factors were: A) The maturity of the general coffee industry had been reached. There was sluggish growth and as a result this put pressure on Nestle to become innovative in servicing existing markets as well as further segmenting markets to service. Nestle had to either "renovate", improve existing products or innovate, invent new products. B) Intense Competition in the Coffee Industry in combination with the maturity of the coffee industry placed added pressure on Nestle. C) Growth of the gourmet coffee market in the coffee industry made it necessary for Nestle to position itself as a major player in this segment. D) Competitors used technology to develop many instant coffee making devices. Whatever strategy and product Nestle develop had to utilize technology to preserve quality, accessibility and speed of delivery of drinkable coffee.

2. What role did Nestle's corporate culture play in the productization of Nespresso?

Nestle's corporate culture was generally mixed when it came to the productization of Nespresso. There were many who were against the product and few who were for the product. The latter won out due to the perfecting of the Nespresso technology to overcome certain inconsistencies in quality, freshness and costs. The significance of the initial concept development of Nespresso was due to the conceptual need and desire of Nestle, "To combine Nestle's R&D strength with its deep knowledge of the coffee business to bring a high quality coffee product to the market" (IMD International, 2000). After the development of the Nespresso and its succeeding technological improvements by R&D division of Nestle, the food services division was enthusiastic in its support for the product and sought to position the product in restaurants. After their initial marketing strategy failed, Nestle's management realized that its corporate culture was not suited for the marketing of the Nespresso, and the corporate culture was more conservative, and that a maverick culture was necessary. Nestle made the decision of creating a separate company, Nestle Coffee Specialities, and hiring an outside Executive, Yannick Lang to head up the company and to bring the much needed success. Lang was able to bring in a management team that was tailored specifically to the success of Nespresso.

3. Who were the key players in the Nespresso productization, and which role did each play?

The key players in the Nespresso productization can be divided into 2 categories. These categories are the Pre Lang era category and the Lang Era category.

The Pre Lang Era includes the following key players CEO Helmut Maucher, Nespresso Development team (Camillo Pagano, Rupert Gaasser and Alfred Yoakim), and General upper management of Nestle. Long time CEO Helmut Maucher played the significant not mentioned role of positioning Nestle at that point in time to be able to capitalize on technological advances due to its global financial success in the food industry. Without this success and the economies of scale to harness, Nestle would not have been in a position to both develop Nespresso and to be in a position to market it.

The Nespresso Development Team, who was charged with taking the patent of the initial Nespresso system as was developed by the Battelle Research Institute, played the key role of perfecting the Nespresso Technology so as to have it maintain freshness of the coffee as well as consistency in quality and taste. Additionally the R&D department eliminated excess costs from the development and manufacture of Nespresso.

The General Upper management of Nestle, after realizing that the marketing of Nespresso needed a different lead, played the critical role of creating a spinoff company (Nestle Coffee Specialties), hiring an outsider Yannick Lang and giving him the lead and the latitude to bring success to the new entity. The general upper management also made the critical decision of separating the manufacture of Nespresso by licensing other Turmix to make it and licensing another company to manufacture the capsules thereby only reserving the sale of the capsules for Nestle. This decision helped Nestle to focus on pure marketing instead of marketing and customer service instead of and manufacturer and marketing of both the machine and the capsule.

The Lang era includes the following key players, Yannick