this cover and their final version of the extended essay to

is are not is

must must a a

J J

K K

H H

G G

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D D

F F

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B B

formal formal abstract abstract

holistic holistic

conclusion conclusion

reasoned reasoned

use use

introduction introduction

research research

of of

and and

evaluation evaluation

Examiner Examiner

use use

4 4

4 4

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Examiner Examiner

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4 4

2 2

4 4

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4 4

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Examiner Examiner 3 3 EXTENDED ESSAY Business and Management

Research Question:

Given its success factors, should N espresso implement strategic changes in order to tackle the increasing competition?

Candidate Name: IB Candidate Number: School Name: School Number: Adviser: Date Submitted: Fe)Jncary 22, 2013 Word Count: 3924 Abstract

The finality of this research project is to approach Nespresso's actual situation and reach a conclusion of whether the Swiss corporation should change its operational and marketing strategies to maintain its leading position in the capsule coffee market.

Throughout the essay this paper will aim to answer the question ''Given its success factors, should Nespresso implement strategic changes in order to tackle the increasing competition?"

With the use of analytical tools such as SWOT analysis, Life Cycle charts and the Ansoffs Matrix, this project aims to gain a deeper insight into Nespresso's company profile and its success factors to evaluate its performance within the sector as well as the company's possible future strategic moves.

Through the study of the market and the evaluation of Nespresso's market share and revenue, gathered through secondary research, this investigation reveals the effectiveness of the brand's pricing and distribution strategies which are based on the multi-channel but direct distribution to the end consumer, a trait that allows the corporation to gain considerably high margins of almost 80% in comparison with the other brands in the sector, which generate much lower margins of about 40%.

Motivated by the expiring ofNespresso's patents in 2012, and due to the reluctance of the court to protect the Swiss giant, Nespresso has to face the imminent emergence of fierce competition within the sector. This investigation thoroughly evaluates possible strategic changes that Nespresso could effectuate in order to tackle the competition, which seeks to gain a higher market share by means of aggressive marketing and pricing strategies.

After evaluating the researched information, this extended essay concludes that Nespresso should maintain its direct distribution to the end consumer, enhance its premium pricing and focus on important changes of product footures- to maintain its undeniable leadership within the capsule coffee market. WordCount: 300

1 Table of Contents

ABSTRACT 1

INTRODUCTION 3

BODY 4

Key Factors to Success 4

Nespresso's huge Market Share 7

Expensive Capsules, Affordable Machines 8

The Elite Experience 11

Patents expiring, Competition multiplying 12 The Eco-Wars 14 Nespresso's Next Step 18

CONCLUSION 20

BIBLIOGRAPHY 21

APPENDIX-I 22

2

3 3

to to

to to

be be

the the

and and

view view

paper paper

brands brands

can can

options options

success success

concept concept

of of

detailed detailed

strategic strategic

strategic strategic

order order

order order

analysis, analysis,

following following

to to

a a

this this

in in

in in

competitive competitive

in in

the the

point point

future future

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coffee coffee

findings findings

to to

SWOT SWOT

factors factors

successful successful

management management

possible possible

and and

the the

successful successful

as as

analysis, analysis,

changes changes

changes changes

emerged emerged

key key

the the

question question

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capsule capsule

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situations. situations.

profile profile

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tools tools

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from from

recently recently

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managing managing

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market market

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situation situation

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5 Nespresso's Nespresso's huge Market Share

Nespresso pioneered the Capsule Coffee sector, which today represents approximately 9% of the entire global market, as it is shown in Graph 2:

0 Instant Gaffe Sector. 0 Instant Coffee Sector. R&G Coffee Sector. R&G Coffee Sector. Capsule Coffee Sector.

Graph 1: World Coffee Market in 1975. Graph 2: World Coffee Market iJ12012.

One of the biggest strengths that Nespresso has is its relatively large control of the sector with a very high market share. As shown in Graph 3, Nespresso almost reaches 60% of the high margin single-serve coffee sector. 6

Nespresso OtJ;rers

Graph 3: Market Share in the Capsule Coffee

6 Nestle Nespresso SA. (20 12). Corporate Backgrounder, Vevey, Switzerland: Nestle Nespresso SA. 7 Expensive Capsules, Affordable Machines

Nespresso capsules are expensive, everybody knows that. But how expensive exactly? Below we have the price comparison between the Nespresso coffee and other important brands in the sector.

Nespresso capsules are available in boxes containing 10 units. In order to study the price tendencies, we will carry out the analysis in terms of price per capsule and price per kilogram.

Table I: Nespresso Capsules: Price per unit.

Nespresso Capsule Type Coffee amount Price per Capsule

Espresso Capsule 5g 0.36€

Lungo Capsule 6g 0.39€

Pure Origin 5g 0.40€

Hawaii Kona (Special edition) 5g 1.20€

Table 2: Price comparison per kilogram.

Bonka Lavazza Hawaii Kona Nespresso (Feuerberg)

72€/kg (5g Espresso) ·

65€/kg (6g Lungo)

8€/kg 21€/kg 54€/kg 80€/kg (Pure Origin)

92€/kg (Ristretto India)

240€/kg (Hawaii Kona limited edition)

We can observe a huge pnce difference of more than 60€ between the cheapest Nespresso coffee in the 5g espresso capsules, and the average Bonka Arabica coffee which is sold by Nestle as one of its R&G (roast and ground) coffee brands, being Bonka Arabica probably of a similar quality as the one we can find in the capsules.

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22 22

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16, 16,

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21, 21,

Ltd, Ltd,

it it

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2004). 2004).

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espresso-coffee­

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Fribourg, Fribourg,

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they they

Beverage Beverage

Bloomberg Bloomberg 2013). 2013).

Page. Page.

und und

Bell Bell

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2013). 2013).

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Switzerland: Switzerland:

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18, 18,

Sons Sons

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2011), 2011),

ueberholt ueberholt

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Nestle. Nestle.

before before

Vevey, Vevey,

(Oxford: (Oxford:

07, 07,

Wall Wall

Schweizer Schweizer

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Wiley Wiley

coffee coffee

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2011). 2011).

SRF SRF

Guide Guide

Companion Companion

estle-loses-latest estle-loses-latest

Company Company

John John

(March (March

Wade Wade

Switzerland: Switzerland:

people people

Commodity Commodity Volatile

(accessed (accessed

UK: UK:

Nespresso Nespresso

Redline, Redline, 2013). 2013).

11-03-16/nestl-s-recipe-

Coffee Coffee

Backgrounder, Backgrounder,

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Revision Revision

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Rivals Rivals

12, 12,

Nespresso' Nespresso'

Vevey, Vevey,

Magazine Magazine

2013). 2013).

Ethical Ethical

degustationen/konkurrenz-

(Munich: (Munich:

Time Time

Juggling Juggling for

skirmish skirmish

22, 22,

Corporate Corporate

(Chichester, (Chichester,

Creating Creating

Report. Report.

iiberholt iiberholt

Company, Company,

February February

Management Management

2011), 2011),

Feb Feb

(2013) (2013)

Management Management

core core

as as Reshuffles

Marke Marke

Gold.' Gold.'

looses looses

2013). 2013).

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(2012). (2012).

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and and

of of

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Coffee Coffee

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'Pod 'Pod

(accessed (accessed

'Nestle 'Nestle

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'Konkurrenz 'Konkurrenz

Grow Grow

2011). 2011).

(March (March

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'Nestle's 'Nestle's

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Ethical Ethical

'Nespresso 'Nespresso

Adrian, Adrian,

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