Blue Ocean Strategy – Nestle Nespresso Digital Transformation to survive

Nespresso is an operating unit of  Swiss food and drink company, Nestlé that sells coffee machines, flavored coffee capsules and other coffee-related accessories around the world through its site, nespresso.com. Nestle created a blue ocean market uncontested market space within the gourmet single-cup coffee market. Nespresso created and dominated this  entirely new coffee category and product consists of high quality, individually-portioned coffee in aluminum capsules for use in specially-designed machines, sold at household appliance retailers and the Nespresso shop. 

Nespresso had become Nestle’s fastest-growing product line, growing at 40% annually, and the company continued to expand its coffee expertise by creating unique new blends. Nespresso was regarded as an example of Nestle’s spirit of discovery and ability to innovate and Nestle built a new consumer experience with the unique “razor-razor blade model” for coffee, technology, machine, and capsules. Nespresso was a highly profitable unit with margins of up to 50% and annual growth of 40%.

Nespresso blue ocean strategy in terms of Eliminate Raise Reduce and Create (ERRC) framework, eliminated the need for visiting high end coffee cafes with highly skilled coffee making professionals, same experience can be had at home with this machine & capsules. Raised the number of options in terms of coffee flavours in capsules, convenience at home and the high quality coffee from various regions of world can be has in the comfort of own house. Reduced the requirement to have coffee at high priced and often crowded cafes and sacrifice the satisfaction & taste that comes with instant coffees. Created a new machine that requires no expertise to operate, half prepared capsules that just need to be inserted for the best coffee experience. Created membership clubs and digital formats where consumers interact and purchase and also added direct selling channels both online and offline

By 2012, Nestle dominated the single-cup coffee market with a 34% revenue share and chief amongst the competition was Keurig Green Mountain, who had become the dominant player in the North American market. In addition, Nespresso’s patents began to expire in 2012, gradually allowing competitors to release similar machines and capsules. As competitors continued to chip away at its market share, Nespresso has been spending heavily on marketing and R&D to stay ahead, two areas in which the company is known to excel.

In the Red ocean market, Nespresso has created a transformative experience for its customers. Overall, they have enabled simple digital transactions, drove personalization and customization across channels, leveraged digital media to craft and deliver is brand, and blended digital and physical channels for a meaningful experience.  Nespresso has made strides in its digital transformation is the creation of the Prodigio machine, which makes the Nespresso machine a part of the IoT revolution.

The Prodigio connects the machine to smartphone via Bluetooth technology and additional benefits through the use of its app. The Nespresso app alerts your phone when the coffee machine needs service maintenance or water tank refill and also lets you set a time for the machine to make coffee. Furthermore, the app lets you reorder capsules before you know you need them, allowing you to order with one touch. Because the individual capsules are at the core of Nespresso’s business model, the Prodigio allows Nespresso to go after this revenue.

Deployed a cloud-based customer engagement solution that integrates all consumer data (web and app orders, in-store orders, behavioral analytics, interactions with Nespresso kiosks) all in one integrated customer view that  lets company to make recommendations and target media. Nespresso Cube, a digital and fully automated boutique, which offers consumers state-of-the art personalized shopping experiences and limited-edition flavors. After placing their order on a digital screen, consumers can watch robots process their orders at incredible speeds and Use of big data to derive insights and personalize products for consumers.