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Case studies: Nespresso and the coffee brand

Nestlé have discovered how to turn coffee into a Curve business. And they have done it not with an entry price of free, but an entry price of very expensive.

Nespresso coffee machines start at £130. They are stylish and elegant and the most expensive versions will set you back nearly £500. (US readers can substitute dollar signs for pound signs. That’s not fair on UK consumers, given the exchange rate, but that’s generally how it goes.) The machines are not the heart of the Nespresso business; the relationship with the coffee drinker is.

A coffee drinker might buy their coffee maker from a department store, a Nespresso boutique or from the web, but to use the machine, they have to buy pods of coffee, which are only available directly from Nespresso. Nespresso customers join The Nespresso Club, where they can place orders for pods containing 4g of coffee wrapped in foil packaging for around 50p (or 50 cents) a pod. They can order using their computer or mobile or buy in person from boutique Nespresso stores in major urban centres such as New York, London, San Francisco and Paris.

At a stroke, Nespresso has transformed the coffee business. Instead of being a retail business, where the retail experience is at the whim of the supermarket or grocery store, it is a relationship business that knows its customers and can talk to them again and again. A Nespresso customer drinking just one cup of coffee a day generates annual revenue approaching £200. Many will drink much more than that.

Nespresso also gets to experiment with other ways of satisfying its superfans. In October 2013 the company announced a new, limited-edition range of Hawaii Kona Special Reserve coffee pods, priced at $2, roughly four times the typical pod price.* It sold out within a few weeks, and the company has said that it will run similar promotions with premium coffee again.

Unusually for a Curve business, Nespresso seems to view its physical events as a marketing exercise rather than a revenue generator. I typically focus on using that which can be shared digitally for free, because although it may be expensive to create, it is often trivially cheap to distribute. And, indeed, Nespresso has a website full of information for a coffee connoisseur and produces a regular newsletter.

But Nespresso also runs those boutiques I mentioned, over two hundred of them worldwide. They were designed by French architect Francis Krempp, who combined ‘an eclectic mix of materials: the warmth of wood, the luxury of leather, the high-tech feel of metal and the purity of glass [with] two complementary geometric shapes: the square symbolizes the brand’s values: perfection, pleasure, aestheticism and simplicity. The circle evokes the coffee cup, discovery, tasting and the senses.’ At least, that’s what Nespresso’s gushing promotional material says. Each boutique is staffed by good-looking sales people dressed in elegant black outfits operating Nespresso machines, and serves both as a coffee shop and as a showcase for the Nespresso brand.

Those boutiques are also used to host events for the members of what Nespresso has branded its Connoisseur Club. It’s like wine tasting for coffee: ‘a fun journey into the skills and techniques the experts use to identify the Aromatic Profiles of the Nespresso Grands Crus families’. Club members can apply on a first come, first served basis to attend an hour-long experience at one of the boutiques. They are welcomed with a glass of champagne, introduced to coffee tasting and understanding what happens when we eat and drink ‘using all kinds of elements, including some weird and wonderful food essences and even jelly beans!’ They finish with tastings of three different coffees from the Nespresso range. And some chocolate. The events bring together superfans of Nespresso’s coffee and brand into an experience in a physical location. They serve to bring the willing evangelists of the Nespresso way together, before releasing them, like little marketing bombs, back to their towns and villages and suburbs.

Nestlé itself has focused on driving the ‘premiumization’ of its brands, moving away from a mid market where it had to compete on price and with the own-label brands of retailers. It has seen revenue grow by 6 per cent and margins improve to 15.2 per cent in 2013 from 14.4 per cent three years previously, an increase driven largely by the premiumization strategy.

The Nespresso strategy would have been hard to deliver in the era before the internet. It benefits from the direct relationship between Nestlé and its customers, enabling it offer high-margin consumable products – the pods – to a large and growing audience while also letting it experiment with premium offerings such as the limited edition Hawaii Kona Special Reserve. It has taken the razor-and-razor-blade model developed by Gillette and updated it for the internet age.

I suspect there is more that Nespresso could do with its free offering, with its customer relationship management and with premium experiences for its biggest fans. But it has great revenues, a high-margin product and a direct relationship with its customers. It’s a great product for the digital age.

 

Since The Curve was published in late 2013, many more examples of Curve businesses have come to my attention. I hope that this trend will continue. I shall carry on publishing case studies of new industries and new situations in which Curve ideas are implemented or demonstrated on the website. I hope they will help you think about how to apply the ideas of the Curve, especially to industries outside the obvious field of digital media.

Nicholas Lovell