Nespresso Business Model Innovation

1. Prof. Francesca Vicentini A.Y: 2015/2016

2. Introduction of the Nespresso Club concept 1986 – 1994 PIONEERINGYEARS: TRIALAND ERROR 1995 – 1999 START-UPPHASE: LAYINGTHE FOUNDATION 1989 1991 1995 1998 First aviation Nespresso machine First e- commerce platform Introduction of recycling in Switzerland Creation of Nespresso 5 employees First machine & 4 Grand Crus The Beginning 1999

3. Evolving Sustainability 2000 2003 2004 2010 2012 Boutique RecyclingGeorge Clooney Boutique AAA Sustainable Quality Program Nespresso opens its 200th boutique in Shanghai Achieves their 75% recycling capsule capacity objective one year before time. George Clooney becomes the brand ambassador of Nespresso. First Nespresso Boutique opens in Paris

4. 01 02 03 04 05 06 07 08 09 Strategic Analysis Filter – Teece (2009) Segmenting the market – WHO? - Nespresso: differentiation strategy - Companies + private households

5. 01 02 03 04 05 06 07 08 09 Strategic Analysis Filter – Teece (2009) Creating a value proposition for each segment – VALUE? - Broad variety of choices - Convenience of being able to prepare it in less than a minute - Unique Nespresso coffee experience

6. 01 02 03 04 05 06 07 08 09 Strategic Analysis Filter – Teece (2009) Designing and implementing a mechanism to capture value – HOW TO CAPTURE? - The razor-blade model - Two types of capsules: for offices & private households - Continuous capsules sale: lock-in effect

7. 01 02 03 04 05 06 07 08 09 Strategic Analysis Filter – Teece (2009) Figuring out and implementing isolating mechanisms – HOW TO PROTECT? - Intellectual Property System - Holding patents to protect their competitive advantage

8. 01 02 03 04 05 06 07 08 09 Profiting from Innovation Framework Teece (2009) 2 Modes: 1. Integrated Business Model 2. Outsourced Business Model Nespresso has a hybrid model..

9. 01 02 03 04 05 06 07 08 09 Profiting from Innovation Framework Teece (2009) Coffee machines: • Licensees for producing coffee machines • Selling through direct and indirect channels Coffee capsules: • Production of the coffee beans: raw materials

10. 01 02 03 04 05 06 07 08 09

11. 01 02 03 04 05 06 07 08 09 Cost Structure Creating sustainable business success Creating long- lasting consumer relationships Creating highest quality grand cru coffee • 1-2% off the entire world production of coffee • Close contact with farmers • AAASustainable Quality Program • The Poistive cup • The Nespresso club • Brand ambassador Strategy

12. 01 02 03 04 05 06 07 08 09 Cost Structure • Patents • Brand image • Sustainability • Systems, processes and assets that is hard to replicate • Level of Opacity • Cannibalizing existing sales and profits Protective Measures

13. “A business model describes the rationale of how an organization creates, delivers and captures value.” A. Osterwalder & Y. Pigneur

14. 01 02 05 04 03 06 07 08 09 The Business Model Canvas

15. 01 02 03 04 05 06 07 08 09 Customers Segment B2C – BUSINESS TO CONSUMERB2B – BUSINESS TO BUSINESS • Companies and firms looking for qualitative coffee • Hotels • Restaurants • First class airlines • 18-65 years old • Niche market • Medium-high income • Average of 7 coffee per week • Looking for quality • Looking for a status

16. 01 02 03 04 05 06 07 08 09 Value Proposition CAPSULES EXPERIENCE Create the perfect cup of coffee, with exquisite cream, a tempting aroma and full-bodied taste… …at home in a convenient and consistent way SMART MACHINES: • Affordable • Clever in size • Technology • Design • Best Quality • Variety of choice • Luxury image • In-shop experience • Lifestyle

17. 01 02 03 04 05 06 07 08 09 Channels OWN CHANNELS PARTNER CHANNELS Retailers: Only machines are sold even in electronic stores Nespresso wants to bring the machines into your house Boutique: Popular chic departmentstores and major cities Rightbalance between coffee experience and retail Online: E-commerce Reserved to Nespresso Club Members 48 hours delivery when ordering <200 capsules Telephone: Advise on the selection of Grand Crus and machines Delivery service suited to individual needs Reserved to Nespresso Club Members

18. 01 02 03 04 05 06 07 08 09 Customer Relationships BOUTIQUES DIGITAL EXPERIENCE NESPRESSO CLUB • Advices from coffee experts • In-shop experience • Broad range of services • Feeling of belonging to an exclusive network • Database for all of its members • Clear website • Products assortment • Online orders • Support CALL CENTER • Enabling them to place orders 24/7 • Provide technical support

19. 01 02 03 04 05 06 07 08 09 Revenues Stream LOCK-IN STRATEGY Strategy that instigates the repetitive sales of capsules FIXED MENU PRICING Strategy of predefined prices based on static variables Price range for machines: from 99 to 699 euros Price range for capsules: from 0,37 to 0,45 euros CAPSULES 92% of the company’s turnover is represented by the capsules MACHINES 4% of the company’s turnover is represented by the machine and the cross-selling of coffee accessories

20. 01 02 03 04 05 06 07 08 09 Key Resources FINANCIAL: Nespresso belongs to Nestlè Group Access resources and capital of an international company PHISICAL: 3 production center in Switzerland 410 boutiques worldwide INTELLECTUAL: 1700 patents gave to the company a competitive advantage HUMAN: 1,500 coffee specialist in their Customer Relationship Centers 10,500 employees worldwide

21. 01 02 03 04 05 06 07 08 09 Key Activities PRODUCTION: • 63000 farmers in 11 countries • Coffee processed and capsuled • Manufacturing activities 100% in Switzerland • Quality checks MARKETING & BRANDING: • Marketing campaign • Brand ambassador & Celebrities • Web presence B2C DISTRIBTION: • Direct distribution strategy • Worldwide distribution • In-house delivering R&D: • Focus on creativity, design and innovation • Improving sustainability • Quality and different tastes

22. 01 02 03 04 05 06 07 08 09

23. 01 02 03 04 05 06 07 08 09 Key Partnerships MACHINE MANUFACTURERS Krups, Delonghi, Siemens, Magimix, Gaggia COFFEE BEANS SUPPLIERS Farmers provide to Nespresso the coffee as raw (IUCN) International Union for Conservation of Nature “Alucycle Program”: sustainability through value chain

24. 01 02 03 04 05 06 07 08 09 Cost Structure US $100.00 US $300.00US $200.00 FIRST PACK THIRD PACKSECOND PACK Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum PRODUCTION COSTS R&D COSTS B2C DISTRIBUTION COSTS MARKETING & BRANDING COSTS• Farmers • Production process • Quality controls • Production centers • Coffee specialists R&D TEAM: Network of experts focused on designing more innovative, high- performing and greener machines • Shipping products worldwide • Provide the same service • Provide machines to retailers • Testimonials • TV advertising • Social media presence • Boutiques in the best locations • Newspaper advertising

25. A successful Business Model Bringing machines into your house LOCK-IN Repetitive sales of capsules

26. Competitors are now allowed to produce compatible capsules EASIER TO FIND CHEAPER

27. 01 02 03 04 05 06 07 08 09 Cost Structure US $100.00 US $300.00US $200.00 FIRST PACK THIRD PACKSECOND PACK Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum FLAVORS SUSTAINABILITY The company is increasing the variety of tastes of their capsules’ lines The company is improving their commitment in environmental and social responsibility “AluCycle Program” Nespresso is already responding to this threat: QUALITY The company is trying to increase the perception of coffee quality

28. A new generation of business model is needed Nespresso should focus on what really make their customers loyal to them: The Customer Relationship “Nespresso Elite Club” Luxury club really involving customers

29. 01 02 03 04 05 06 07 08 09 Cost Structure US $100.00 US $300.00US $200.00 FIRST PACK THIRD PACKSECOND PACK Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum Lorem - Ipsum GOLD CLUB PLATINUM CLUBSILVER CLUB 2500 capsules New machine for free Stimulant to be a loyal customer Implicit perception of discount Silver member€ 50 per year Exclusive service: Luxurious treatment in any Nespresso boutique 5000 capsules Sophisticated coffee machine Access to the Gold Club service Invite two friendsTaste coffee before time to market “NESPRESSO ELITE CLUB”

30. 01 02 03 04 05 06 07 08 09 The effect on the business model Cost structure • Increase in CRM costs • Giving free machines Revenues • Customers staying loyal • New customers Key partnerships • Newspapers suppliers • Mobile devices suppliers Key activities • In-shop entertainment

31. Thank you for your attention!!! Thank you for your attention!!!