Nespresso Case Study: Adoption Of Innovative Strategies
Question
Task:
Your tasks are as follows:
Read the Nespresso Case Study.
Having read the case study, please address the following questions in your assignment submission:
- What lessons could be learned about innovation or renovation from the Nespresso story
- What must NCS do now to reach its ambitious growth targets
Answer
Introductionto Nespresso Case Study
The 21st century business environment is constantly witnessing strong competition from other players in the market. Apart from this, organizations operating in several industries are also facing challenges due to change in the needs and desires of the customers. To cope up with these challenges corporate leaders are emphasizing on brainstorming sessions so that they can launch innovative product/services in the market. Innovation not only help organizations to gain competitive advantage but it also marked as the driver of knowledge economy in the modern world (Cano-Kollmann, Hannigan and Mudambi, 2018). There is no exception in case of Nespresso. Nespresso was one of the major players in the portion coffee industry and it has been a part of Nestle. It was responsible for producing coffees and it brought major benefits to Nestle. The aim of this report is to describe the innovative strategies that have been adopted by Nespresso to become one of the leading players in the global market. The report will also discuss about strategies that Nespresso should adopt to reach its current target of growth.
Lessons learnt about innovation and renovation of Nespresso
The case study suggests that Nespresso has brought major innovations in the coffee market that further helped the venture to gain competitive advantage. The aluminum capsule was made by Nestle, and the Nespresso system combined machine and capsules to provide unique and high-quality coffee to its customers.
Fig. 1 Nestle competing in the global market
Source: Park, 2018.
Workplace supporting innovation
The first lesson that have been learnt from this case study is creating an organizational climate that supports innovation is the primary step that has to be taken by the corporate leaders if they want to bring new change in the market. An organization that supports and motivate innovative behavior among the employees is also known as innovative climate. Organizational climate is important because it connects the behavior of an individual or employeewith the organizational policies and procedures (Bos-Nehles and Veenendaal, 2019). Therefore, it can be said that Nespresso has also focused on aligning innovation with organizational policies. Lang who has been marked as one of the tough managers always believed that everyone who is working in Nespresso has the ability to make intelligent decisions that can often be unique. The corporate leaders also motivated to each and every employee so that they can start brainstorming within the organisation.
Transformational leadership
In addition to this, another important lesson learnt from this case study is the inventor of the idea cannot help the company or the venture grow. It is his/her leadership quality and charisma that motivates other employees within the organisation to take part in innovative activities. It can be said that transformational leadership technique played a major role in bringing innovation within the workplace of Nespresso. The objective of transformational leaders is to inspire and motivate the employees of the organization so that they can provide better solutions to make the workplace innovative and creative (Ghasabeh, Soosay and Reaiche, 2015). Similarly, the charisma of the corporate leaders of Nespresso, motivated and trained other employees within the organisation so that they can come up with innovative solutions within the workplace.
Choosing skilled employees for innovation
Furthermore, an organisation tends to have large number of employees. With large number of employees within the workplace, the skills also vary significantly. Thus, it is another responsibility of the corporate leaders to choose the correct set of employees and include them in the innovative activities within the workplace. When skilled employees are engaged in the core activities of an organisation then it fosters environmental innovation within the workplace (Aggarwal and Sharma, 2015). Peter Brabeck who was the CEO of Nestle believed that it is the utmost responsibility of the senior management team of an organisation to foster change within the workplace. He also though that selecting employees who have potential to bring innovation for the company is the job of the senior management team. Thus, Brabeck personally looked after the careers of employees within the organisation. The objective behind this scrutiny was to choose employees who have skills that can help them complete hard tasks and growth their career through it. Therefore, from the above scenario, it can be said that engagement of senior management team of an organisation is important for fostering innovation within the workplace. Senior management team has the potential to scrutinize the background of the employees that can further help the organisation to be launch unique product in the market.
Innovation with renovation
In addition to this, another major lessons that can be learnt from the case study is that innovation along with renovation is necessary to serve customers uniquely. There is a slight difference between innovation and renovation. Innovation means investing in research and development that helps the company to serve unique product in the market. On the contrary, renovation means sharpening the already established manufacturing process that can help the firm to develop the quality of the product more efficiently. If the Nespresso case study is taken into consideration it can be seen that the management team of the organisation is constantly focusing on renovating the coffee making process that can further satisfy the need of the customers.
Emphasizing on product quality
Furthermore, another major observation of the CEO of Nestle can also be marked as one the lessons. Brabeck who was the CEO of Nestle said that innovating within an organization and creating new products and launching them in the market is not sufficient for gaining competitive advantage. It is the responsibility of the employees and the manager to focus on innovation and simultaneously focus on developing the quality of products. High quality products or services have the ability to strengthen the identification of an organization (Lindsey Hall, et.al., 2016). Thus, Brabeck made sure the quality as well as the security of the product produced by Nestle. This thinking of Brabeck has also been followed by the senior team leaders of Nespresso. Alfred Yoakim who was the senior manager of the development team of Nespresso said that while staying in the ivory tower a person cannot innovate, the one thing that the person can do is constantly modify the products that have been innovated. This can also be termed as innovation. Moreover, Alfred emphasized more on innovation. The head of the department said that employees should be given freedom to think. This can help them to innovate more efficiently. Thus, from the above analysis it is clear that innovation along with renovation bring major benefits to the organisation. It increases the quality of the product and sales.
Fig 2 – Sales growth of Nespresso
Source: Nespresso, 2014.
Overcoming challenges with structured management
Finally, another lesson learnt from the case study of Nespresso is challenges that are faced by the senior team of Nespresso. When a small organisation grows and make innovative movements in the market, then it faces intense competition in the global market. There is no exception in case of Nespresso. Once, the company started growing it faced pressure to improve its operational efficiency. Operational efficiency can be achieved by several organisations across the world with the help of lean manufacturing (Belekoukias, Garza-Reyes and Kumar, 2014). When the senior team of an organisation emphasizes on maximizing productivity and reducing generation of wastes it is termed as lean manufacturing. Thus, to survive in the competitive business environment lean manufacturing strategies could have helped Nespresso. In addition to thus, Nespresso and its senior team members were also finding it difficult to control costs. Controlling the cost of an organisation has become necessity and is also one of the concerns of the senior managers. Controlling several aspects of business including costs help a firm to achieve long-term success (Plenkina, Taubayev and Lenkova, 2012). Apart from cost controlling, the management team of Nestle was also finding it difficult to enhance the quality of product within the market.
To meet these challenges and help Nespresso sustain in the market, the career-long manager of Nestle was appointed. The person who was appointed was William Pronk. This manager suggested that to overcome the challenges that are being faced by Nespresso, the organisation should have a structured management team. Structured leadership or management team has the ability to reduce team conflicts and agency problem and it also helps the employees within the organisation to focus on overcoming challenges that the firm is facing (Yoo and Reed, 2015). Therefore, a structure management team of Nespresso can help the firm in forecasting expenses and growth of the organisation. This can enhance lean manufacturing and can also control costs within the workplace. Furthermore, the CEO of Nestle also focused on developing the condition of Nespresso by emphasizing on technological development. Advanced technology has been also included in the marketing department. In the current business environment, the capabilities of IT have a huge impact on the marketing capabilities (Yu, Jacobs, Chavez and Feng, 2017). This strategy helped the organisation to overcome challenges and increase the reach of the product among a greater number of customers. Thus, from the above sections, it is clear that innovation within an organisation is not possible without interference of senior management team of the organisation along with other employees within the organisation.
Strategies for NCS to reach its ambitious growth targets
Increasing brand awareness through IMC
It was represented in the case study that NCS only had an average awareness rate of ven less than 5% in the international households and it had only penetrated only 1% of the households. This showed that only few coffee consumers were aware about the Nespresso system. This makes it essential for the company to enhance its inadequate brand awareness in the international markets that can be achieved with the help of integrated marketing communications (IMC). IMC comprises of the union of different marketing tools, resources and approaches in the company for maximizing the impact on consumers’ minds (Brunello, 2013). The integration of all promotional tools like direct marketing, internet marketing, public relations, advertising and others are helpful for focusing on various consumer insights and developing a strong relationship with them. Alongside this brand-consumer relationship, it also becomes effective in enhancing their brand awareness by delivering valuable information, educating the target market and advancing the brand image in the market. Advertising can target large audiences for NCS in the market through TV, radio, prints, posters and others, while direct marketing includes telemarketing, brochures, online display ads and others (Blakeman, 2018). Furthermore, NCS can use digital marketing by using search engine optimizations, sponsorships, blogs, website marketing and others for reaching wide range of customers. Sales promotion can be undertaken for both consumer-oriented and trade-oriented promotion and public relations for maintaining a positive brand image.
Attracting customers by Omni-channel marketing
From the case study, it has been observed that NCS had limited number of consumers, which had to be changed for achieving its ambitious growth strategy in the near future. For this purpose, the company can undertake Omni-channel marketing for attracting various customers from the international markets. This is because it is essential to build a strong, loyal and large customer base for surviving in the competitive business environment (Shankar and Kushwaha, 2021). Omni channel marketing indicates a multichannel and strategic approach that NCS should undertake for providing customers with a seamless and unified brand experience across all the customer touch points. Personalized and consistent shopping experiences across all channels are valued by customers. Customers remember their feelings after such encounter with the brand at various touch points. NCS should use this positive and memorable impression created in the minds of the customers for attracting others from the market. Customers having seamless experience with the brand will provide positive word-of-mouth to their friends, families and acquaintances, which in turn would be suitable for attracting new customers to the brand (Berman and Thelen, 2018). This positive feeling is of utmost importance gained through Omni channel marketing that induces customers to take actions, purchase products and tell their friends about their experience. Thus, NCS should use both traditional and digital marketing channels for offering seamless message and consistent experience to attract new customers.
Targeting customers of different income groups
It has been pointed out in the case study that NCS only targets the affluent group of consumers accounting for the top 10% households in the markets. These customers are capable of affording the highly prices espresso machines and coffee capsules. This makes the target customers of the brand limited to only the high-income groups. Thus, it is essential for the company to expand its target market for surviving in the market for long-run (Camilleri, 2018). NCS needs to target customers of different income groups like middle and higher-middle income groups. In this regard, it would neither have to drastically lower the prices of its products or services nor adopt a cost leadership strategy in the market. Instead, the company can undertake a competitive pricing strategy by setting its prices marginally higher than that of the other brands in the market (Kienzler and Kowalkowski, 2017). This would make the products more affordable for the middle and higher-middle income groups of different nations. Besides, it would attract these new customers to the brand and consequently, NCS would be able to compensate for the lower prices with increased revenues from these new customers. Additionally, the company would also be able to expand and strengthen its customer base in the market.
Undertaking a selective distribution strategy
From the case study, it has been evident that NCS needs to change its distribution strategy for serving a wider market. The exclusive distribution strategy of the company focused on selling products to customers through only Nespresso clubs, thereby making the brand completely invisible to the non-users. This strategy was not proving to be beneficial for gaining access to wider market. On the other hand, an intensive distribution strategy by selling through traditional food retailers would not also be suitable for the brand as it would have to give away around 25% margins leaving fewer profits. Thus, a selective distribution strategy would be more suitable for NCS to serve wider market for achieving its ambitious growth strategy. This is a type of distribution strategy that lies between both intensive and exclusive distribution (Deepakand Jeyakumar, 2019). Here, the company can use more than one but fewer distributors and intermediaries in markets where it has no presence. These intermediaries would carry and sell the products based on the specific rules set by NCS. In this way, the company can gain various advantages like expanded market coverage, reduced costs and increased control over the intermediaries. Thus, this strategy would be beneficial for venturing into wider markets.
Diversifying into related products
It has been observed from the case study that NCS thought that the introduction of non-coffee products would dilute the original concept of the brand. However, for its ambitious growth strategy, it is essential for the company to diversify into new products and survive in the competitive market for long run. In this regard, NCS can consider diversifying its product portfolio into related products of coffee beans and espresso machines. These might include coffee mugs, coffee brewing tool, ice cube tray, coffee makers and double-walled thermo glasses. Diversifying into these related products might help to attract new customers from both existing and new markets (Dhirand Dhir, 2015). This would also ensure that the fundamental concept of the brand remains associated with coffee despite introducing these new products. Here, the company would undertake a concentric diversification strategy by adding similar products to its existing business. This would enable it to enhance its expertise in a related area by diversifying into businesses of strategic fit to its original concept of coffee. The firm would further exploit the activity-cost chain interrelationships existing with these related products for capturing the benefits of the strategic fit. Thus, this concentric diversification would be beneficial in both gaining access to wider markets and new customers.
Creating barriers to competition
Despite having majority share in the global market, it is essential for NCS to develop strategies for blocking competitors and keeping them at bay. This is because various new and existing brands are expected to become a threat to the company if it fails to target larger audiences and wider markets. It is essential for the company to create various barriers to competition and continue to remain as the industry leader in the global market. In this regard, NCS can create four different types of barriers, namely, investment, owning benefits, customer relationships and linking the brand (Blue, 2011). Investment barrier should be created for making it both financially and economically impossible for other brands to compete because of huge capital requirements. It should also develop various persuasive benefits through its products for attracting new customers (Blue, 2011). The company should further strengthen relationships with its customers and develop new ones by addressing their personality, passion and common interests. In addition, it should effectively create a clear link between the brand and categories or subcategories of product for becoming exemplar in the global market.
Conclusion
The report here aimed to identify lessons of innovation and renovation from the Nespresso story and consequently, recommend suitable strategies for achieving its ambitious growth target. In this regard, various lessons were evident from the case study. Effective organizational climate, appropriate leadership strategy, choosing correct set of employees, focus on renovation and sustained quality of the products are essential for making the innovation strategies successful within a company. These were observed from the story of Nespresso. Furthermore, the company was facing various issues and thus, suitable recommendations were suggested that would enable it to achieve its ambitious growth target. These suggested recommendations were increasing brand awareness through IMC, attracting new customers through Omni-channel marketing, targeting customers of different income groups, undertaking a selective distribution strategy, diversifying into related products and creating barriers to competition. These strategies would be beneficial for the company in effectively addressing the persistent issues and eventually, gain more new customers and wider market for surviving in the competitive environment. In this way, it would be able to attain its ambitious growth target.
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