Nespresso Report

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Good for You, Good for the World

BUS 560 –Marketing Seminar

Instructor: Jeanny Liu

Group Number: Boyu Zhang

Weijie Wu

Weixuan Hu

Zebo Zhang

4/10/2017

Summary of Primary Research

On March 24, our group visited the Nespresso flagship store, which is located in the entrance of Fashion Island. The façade of this store is well clean, organized and designed, so than most of consumers can be caught their attention at the first time. When we entered this flagship store, there were less consumers with only two couples in here including one couple was tasting tasting coffee, and other one was asking question for sales person. Besides, the first impression is pretty the cool, fashionable and luxurious coffee store in my experience. There are three parts in this flagship stores including tasting area, display area, and grand crus of capsules. There were different kind of coffee machines from high to low price, and a variety of expensive coffee accessories in the display area. Every salesperson is so wonderful, helpful and knowledgeable with sweet smile to explain their products. We tried several different flavors coffee in tasting area like expresso's, lungo pours, etc. This was a truly glorious experience. Base on our observation, the target market of Nespresso is the premium coffee to provide consumers with high-quality espresso.

The Coffee Market in the United States

According to the first graph from IBISWorld, the coffee market is facing the decrease of coffee consumption, which one of the most important reason is that more consumers purchased smaller amounts of premium coffee in the past five years because they began to like drink high-quality home-brewed espresso. Besides, the per capital disposable income is forecasted to rise in the future five years, so more consumers will purchase high-cost, specialized coffee products (Coffee Production, 2017). In the second graph, there are four kinds of coffee including roast and ground coffee, K-cup coffee, Premium coffee, and instant coffee. Premium coffee will get about 9.3% of total revenue including espressos, lattes and others, and it can witness the rapid increasing because 34% of adults is drinking premium coffee on a daily basis.

        According to coffee product in U.S. from the IBIS world, consumers are divided into four kinds base on the different age in the third graph. 26.3% of coffee industry revenue is expected to consume by people with 60 years or older, which they are the most likely to consume premium coffee for everyday. The age group with aged 40 to 59 is the highest proportion of coffee industry revenue reaching about 62.0%. The group with aged 25 to 39 will comprise 23.1% of the industry's market, which they consume a large proportion of premium coffee, specifically espresso. The group with aged 24 and younger will consume about 9.1% of coffee, which they don’t like to drink traditional premium coffee, but they prefer to drink espresso.

More consumers like to drink coffee in home in 2016 with about 1.05 cups per day, at the same time, the time of breakfast consumed more coffee than sum of other times with reaching about 0.81 cups per day (NCA, 2017). 12% of consumers began to use espresso machine to prepare the coffee, which became one of three common methods of preparation in the United Stated in 2016. In the fourth graph, it shows us that the espresso machine usage has obviously increased with day coffee drinkers over past seven years (NCA, 2017). In the fifth graph, 76% of coffee consumers preferred to drink coffee with additive including whitened and sweetened. So most of consumers can not like to drink espresso. In the sixth graph, most of consumers purchased coffee in supermarket about 73% in 2016, and only 3% of consumers purchased coffee in specific online store (NCA, 2017). However, consumers only purchase capsules of Nespresso in itself online shop and flagship stores. There are some consumers’ reasons to limit coffee consumption; the largest reason is that consumers want to limit the acceptable daily intake of caffeine, and other reasons are price, prepare time and healthy (NCA, 2017).

Competitors

According to the research, there are the top 2 competitors in the same market Keurig and Verismo. Together with the increasing demands on drinking coffee, the coffee maker industry is offering various products. There are now a few coffee maker brands, which are differ in styles, designs and quality, giving various choices for you to choose from. And if you are looking for an item to make cups of coffee at your own house, these three most outstanding models are very popular in nowadays market, they are Keurig models, Nespresso models, Verismo models. In fact, all of them are good choice for those who want to make coffee themselves at home (Brackin, 2017). However, there are still some differences among them.

Keurig, which is one of the biggest brands, at least in the United States. It is also a coffee machine that is made of household coffee preparation. It has established technical partnerships with a number of coffee manufacturers (such as Mr.Coffee, Black & Decker, etc.), as well as a number of coffee producers (including Dunkin 'Donuts, Starbucks, Green Mountain Coffee) help Keurig produce coffee capsules of all kinds of flavor. They’re often known with the popular K-Cup, which you’ve probably seen before. And the two most famous Keurig units are the Keurig 45 and the Keurig K40 (Lacy, 2016).

Verismo is Starbucks’ home brewing brand. They are available in Starbucks stores. Most of these units come with numbers, rather than names. For example, some of the most popular models are the Verismo 580 and the Verismo 583 (Carabis, 2016).

Value Offering

Talking about the unique value of Nespresso, we musts talk about its unique marketing plan. Nestlé has adopted a straightforward boutique for Nespresso, selling the product as a luxury for sale, and completely rejecting any third-party sales channels. Through the boutique show to attract customers, and use the service and a good experience to retain customers. So, 50% of Nespresso's sales come from the online sales of the site, with more than 30% coming from the company's boutique and about 20%from the company's phone sales. According to our target market, we can show Nespresso new product online and make a commercial to introduce the new product. Meanwhile, the Nespresso boutique shows the new product and gives the guest to have more opportunities to experience it. What’s more, another feature of the Nespresso system is that Nestlé has almost controlled all the value chains of the system. At present, in addition to Nespresso machines manufactured by third parties, the company controls all other links. This will help Nespresso raise the level of gross margin, more importantly, this control makes Nestle to ensure the quality of the brand and high-end market image (Lacy, 2016). At the same time Nestle with a very high customer service to strengthen the brand image. Besides, according to the unique value I talk about above, Nespresso has no third part to help them manufactured so that the company will not only strict control of raw material supply chain, but also guarantee for all the customers that we have the high quality and unique innovation of raw material. Nespresso create more new flavor coffee while protect its recipe because Nespresso flavor is unique.