Strategic management concepts and applications

Espresso Maker Case Study Analysis

How would you describe the target segment? What do you think were their needs? (the WHO)

Having successfully segmented the lucrative coffee and specialty drink market during the early 1980's, through the perfection of "instant" -- or soluble -- Nescafe-brand coffee, the Nestle company achieved a dominant position in terms of market share. Despite this accomplishment, however, members of Nestle's executive management structure soon recognized that the market was poised to undergo a significant shift in terms of demographic expansion. According to the case study, "cafes and coffee bars were growing in popularity across Europe and the U.S., beyond their traditional geographies (Italy, Spain and France) & #8230; (and) high-end consumers required a foamier coffee, achievable only with the use of pressurized water" suggested that inexpensive "instant" coffee drinks were being replaced by the growing Espresso trend. With expanded economic standards becoming the norm as the American middle class experienced unprecedented growth, Nestle targeted the burgeoning segment of the consumer demographic which was concerned with purchasing and using conspicuous symbols of affluence. The Nespresso brand emerged to meet this need, blending the convenience and affordability of "instant" coffee makers with the refinement enjoyed by Espresso drinkers in Europe and metropolitan centers.

- What benefits did Nespresso offer its target segment? Who was Nespresso competing with? How was Nespresso's customer value proposition different to competitors? (the WHAT)

Competing against the now trendy establishment of coffee houses and cafes throughout America's cities and suburbs, Nestle executives knew that their Nespresso machine must be capable of delivering a product that looked, smelled, and more importantly tasted like traditional Espresso blends. To achieve this lofty goal, Nestle made the relatively innovative decision to integrate the manufacture of Espresso machines with their production of specialty coffee drinks, and thus "with the introduction of the EspressoMaker, Nestle would no longer be selling only a product, but also the hardware and the related services." This ability to empower consumers, by enabling them to create their own Espresso without having to pay the premium charged by coffee houses and cafes. By resetting the customer value proposition to include the device making one's coffee, and not simply the coffee itself, Nestle distanced themselves from competitors in a meaningful way.

- What was Nespresso's competitive advantage? (the HOW)

The Nespresso machine's competitive advantage lied in its ability to deliver high-quality Espresso coffee drinks in a relatively quick and convenient manner. When the affordability of Nestle's signature Nescafe brand is also factored into the competitive advantage equation, the Nespresso machine clearly offered consumers a viable alternative to the time-consuming and expensive process of ordering Espresso in a coffee house or cafe.

- Based on the information contained in the text and your own hypotheses or assumptions, write a vision statement and a mission statement for Nestle's espresso machine business using your new skills acquired in Chapter 2 of Fred David's "Strategic Management: Concepts."

Vision Statement: Nestle envisions a world in which gourmet coffee is more than a luxury item, but an integral part of your kitchen and home.