Nespresso Brand Strategy: A Complete Case Analysis

Introduction and History of Nespresso

Nestlé was founded in 1866 by Henri Nestlé in Vevey, Switzerland. Today, Nestlé is the world's largest corporation in the food, nutrition, health, and wellness markets. The company has more than 8,000 products in its portfolio across various markets and owns over 140 brands. Since its beginnings, Nestlé has remained loyal to traditionally made, health-conscious products. In 2012, Nestlé operated 461 factories in 83 countries and employed more than 330,000 people across 150 countries (Nestlé, 2012), recording CHF 83,642 million in sales and closing the year with a net profit of CHF 12,538 million. Nestlé is a leader in research and development (R&D) and created the Corporate Wellness Unit to drive nutrition, health, and wellness across its food and beverage business.

Nespresso, the sub-brand of Nestlé and the leading brand in portioned coffee, began in 1974, inspired by Luigi Bezzera's original concept of espresso. Nestlé's passion for creating Nespresso was rooted in combining the strength of its R&D capabilities with its expertise in the coffee business, in order to provide the best quality of portioned gourmet coffee to customers. Through extensive research by Nestlé's R&D department, the original concept of the Nespresso capsule was created in 1976 by Eric Favre (Bader, 2011). To most effectively develop, produce, and market the Nespresso system, Nestlé Nespresso S.A. was founded in June 1986 as a 100% wholly owned Nestlé affiliate (Nespresso, 2012).

In 1987, the first Nespresso system was launched in Italy—the world's largest espresso-drinking market—and in Switzerland, Nespresso's home country, followed by Japan, the fastest-growing coffee market in Asia. The strategy initially targeted the business sector. By the end of 1987, however, only half of the manufactured Nespresso machines had been sold due to the limited size of that sector. Consequently, in 1992, Nespresso shifted its strategy to focus on the household market, targeting consumers at the top end of the market. It was believed that, to build a long-term business with discerning consumers, Nespresso needed to establish itself in the household segment (IMD International, 2003).

Nespresso reached break-even in 1995 and became one of the fastest-growing businesses within the Nestlé corporation. Even amid economic crises, increasing competition, and rising raw material costs, nothing seemed to halt Nespresso's growth. Since 2000, Nespresso's sales multiplied by 16 (approximately 30%) to reach €2.5 billion. The company sold 450 million capsules in 2000 and 6 billion in 2010—equivalent to 12,300 cups of Nespresso consumed every minute worldwide (Bader, 2011). By 2012, Nespresso had opened 270 boutiques in major cities and employed more than 7,000 people worldwide (Nespresso, 2012a).

According to Gerhard Berssenbrugge (2006), as stated at the Nestlé Nespresso S.A. Investor Group Meeting in Switzerland, the mission and ambition of Nespresso are to:

Nespresso's product range follows its market segmentation pattern with two product lines: in-home and business. In both lines, the machines are elegant, design-award-winning, innovative, user-friendly, and convenient. Grand Cru coffee capsules and a wide variety of accessories are offered to enhance the elegant and sophisticated coffee experience. Accessories include capsule dispensers, tasting sets, confectionery, and sugar. The design and collection concept is reinforced by matching accessories to machine lines.

The business line includes coffee machines across four sub-lines (Nespresso Business Solution, 2012):

The business capsule range includes eight round-shaped Grand Crus (Nespresso Business Solution, 2012). A wide range of targeted and exclusive services accompanies every product purchase, including membership in the Nespresso Business Club. Services include commercial assistance, installation and training, delivery, technical assistance within 48 hours for the first three months, warranty, water assessment, machine loans for events and during servicing, and leasing and rental contracts.

The in-home line includes machines, capsules, and accessories. Machine lines differ in size, design, functionality, color, and price. The available models are: Essenza, Pixie, Citiz, Lattissima, Maestria, and U (Nespresso, 2012).

The capsule range consists of 16 Grand Crus, classified by aroma, intensity, and cup size (Nespresso, 2012):

Brand Positioning and Market Segmentation

According to Kotler and Keller (2006), positioning involves implanting a brand's unique benefits and differentiation in customers' minds. Since its creation, the Nespresso brand has sought to build a specific image and appeal to a particular type of customer. This reflects a clearly premium positioning on both machines and coffee capsules, with equal emphasis placed on product quality and the quality of service offered. Nespresso differentiates itself from competitors by conveying an image of luxury, high quality, and closeness to the buyer. The coffee is positioned as unique and exceptional—the brand aspires to be understood as something to be savoured rather than simply consumed. The products are fully consistent with the luxury image the brand advocates, built around the idea of providing "a professional quality espresso at home" (Nespresso, 2012).

All approaches that Nespresso adopts for its brand are captured in the following positioning statement: "To coffee lovers and connoisseurs, Nespresso is not just a coffee. It is another dimension in the world of coffee. It is a lifestyle that is simple yet refined, offering timeless elegance. It is a genuine experience that combines perfection and pleasure, simplicity and aestheticism" (Nespresso, 2012). The brand's positioning map places Nespresso firmly in the high-quality, high-cost quadrant relative to its principal competitors, consistent with its premium pricing strategy.

User segmentation is the division of potential customers into market segments according to how and for what purpose they use a product (Brandchannel, n.d.). A target market refers to the market segment or group of customers that the company has in mind while developing products and marketing strategy. Marketing plans are formulated in accordance with the target market, taking into account demographics, demands, and specific needs (Elliott & Percy, 2007).

Nespresso divides its market into two segments: business and in-home. It applies several criteria to define its target market, the most relevant being socioeconomic status (income), demographics, and purchasing behavior. With these two main customer segments, the company today holds more than 21% of the world's capsule coffee market (Nespresso, 2012b).

The business segment includes offices (such as UBS, Deutsche Bank, and Publicis), hotels (Kempinski and Relais & Châteaux), airline companies (British Airways and Cathay Pacific), high-end event caterers, and luxury or designer stores (Montblanc and Prada) (Nespresso Business Solution, 2012). In every case, Nespresso targets client- and service-oriented businesses where a small cup of Grand Cru coffee adds meaningful value.

The in-home segment is primarily defined by socioeconomic criteria. The target audience is upper-class consumers. The brand maintains a top-of-the-range luxury image, observable in the quality of its coffee and in the locations of its shops, which are typically situated on fashionable streets such as the Champs-Élysées in Paris. The creation of the "Club Nespresso" adds a further touch of exclusivity, and the brand's association with George Clooney and John Malkovich in advertising helps maintain a classy image (Beickler, 2011).

The typical Nespresso consumer is between 28 and 50 years old, lives in a large city or urban environment, has an interest in art and film, and engages in recreational activities. They are image-conscious and desire to stay current. The price of Nespresso machines—at least $300 (www.nestle.com.au)—means that not everyone can afford them, effectively creating a barrier for younger and less affluent consumers. According to Maslow's hierarchy of needs (Kotler, 2009), the purchase of Nespresso exceeds a basic physiological need and approaches the top of the hierarchy, qualifying as a satisfaction of the self-esteem need and signaling social and professional success.

Brand Promise, Values, and Personality

According to Kotler and Lane (2008), a brand promise is the marketer's vision of what the brand must deliver to the consumer. Consistent with its positioning statement—that perfect coffee is not merely an indulgence but a lifestyle—Nespresso promises to offer the ultimate coffee experience (Lewis, n.d.). This promise is expressed through three pillars:

According to Brand Channel (n.d.), brand values are the code by which a brand lives. They act as a benchmark against which behavior and performance are measured. Nespresso's core brand values are: Reference, Innovation, Perfection, Authenticity, and Irreplaceability (Outside The Box, n.d.).

Attaching personalities to brands contributes to a differentiating brand identity, which can make brands more desirable to consumers (Thomas & Sekar, 2008). Jennifer Aaker (1997) defined a brand personality scale with five dimensions: sincerity, excitement, competence, sophistication, and ruggedness. Evaluated against these dimensions, Nespresso has been authentic and sincere in providing convenient, useful, and well-designed products. Through innovation and imagination, the company has added to the excitement quotient. Its unique designs and high product quality give it a competitive edge. Sophistication is expressed through the careful and classy aesthetic of its products. Ruggedness is associated with Nespresso's durable and enduring brand image. Overall, the brand personality most strongly associated with Nespresso by consumers is one of sophistication, innovation, and uniqueness.

Nespresso Brand Equity and Awareness

Brand equity can be defined as the "assets linked to a brand's name and symbol that add to a product or service." These assets can be created and analyzed through four dimensions: brand awareness, perceived quality, brand associations, and brand loyalty (Aaker & Joachimsthaler, 2000). The objective of Nespresso's brand plan is to improve each of these brand equity components in order to increase market share.

Brand awareness is foundational to influencing consumer perception and is essential in purchase decision-making. Without brand awareness, consumers cannot or will not buy a brand because they are simply unaware of its existence (Peter et al., 1996). Nespresso centers its brand equity model on several platforms: an endorsement-focused strategy, boutique development, advertising, and sponsorship programs emphasizing major global events, sports associations, social media, and mobile applications.

Nespresso has used endorsement strategies as a core component of its brand-building program. George Clooney, the brand's ambassador, embodies the brand's high positioning. He is elegant, seductive, stylish, and widely recognized. He has strong appeal to both male and female audiences, and his charm is particularly powerful with middle-aged audiences who are financially able to afford luxury consumer goods and therefore fall squarely within Nespresso's target market (Brainair, n.d.).

Nespresso also partners with and sponsors world-class events in sport, art, design, and food, including: the Cannes Film Festival; the St. Moritz Polo World Cup and the US Polo Open; the French Open tennis tournament, Swiss Indoors ATP World Tour, and Montreal Masters; the Global Champions Tour of Valencia (racing); the America's Cup (sailing); the Ryder Cup (golf); the Nespresso Design Contest and 100% Tokyo design fair; and the London and Sydney International Food festivals. These partnerships help Nespresso generate awareness across diverse media channels and audiences.

Nespresso's advertising strategy was designed to create a dominant media presence. The brand message communicates that a small cup of strong, European-style coffee makes its drinker feel assured and confident in any situation (Brainair, n.d.). "The Clooney Saga"—a series of short-form advertising episodes featuring Clooney as brand ambassador, including the episode in which he teams up with John Malkovich—combined with the "What else?" slogan made a significant impact on audiences and won numerous advertising awards. According to Teather (2010), Nespresso's sales in the UK grew by 35.5% after the Clooney campaign aired.

Nespresso boutiques in major cities worldwide form the foundation of the brand's experiential marketing strategy (Primo, 2012). Each boutique is designed around quality, innovation, elegance, simplicity, aesthetics, and excellence in customer service. The environment is warm and welcoming; potential customers can taste different coffee flavors, try espresso machines, and receive guidance from specialized staff, creating a holistic sensory experience.

According to D. Aaker (1991), perceived quality is central to building and maintaining brand equity. It is defined as "the customer's perception of the overall quality or superiority of a product or service with respect to its intended purpose, relative to alternatives." Perceived quality directly influences purchase decisions and brand loyalty. When customers believe in or are satisfied with a brand's quality, they tend to repurchase repeatedly. Achieving high quality perceptions requires understanding what quality means to each customer segment (Daye, 2009). Nespresso builds quality perceptions through: the highest quality Grand Cru coffee capsules; product varieties customized to individual preferences; smart, easy-to-use machines with innovative design; personalized customer service; round-the-clock Nespresso Club functionality; and the exceptional coffee experience offered in the boutiques.