Nespresso Business Model and Growth Strategy

Nespresso is a fully owned company of Nestle. What is remarkable about their business model is that they were able to transform a traditional transactional business model and change it to one that generates recurring business revenues. What Nespresso does is sell proprietary pods of coffee through direct channels instead of directly through retail.

How did they manage to accomplish such a profitable change in such a short amount of time? It is because the Nespresso business model is more of a canvas. Instead of a rigid structure, the business canvas allows for greater levels of creativity to be experienced in every category.

There are nine points of emphasis in the business canvas model of operations.

1. Key Partners.

It is important to identify who will be supporting the new business enterprise, especially in its first stages. Identifying suppliers is also an important part of this step. To set the stage for the most profitability possible, identifying key resources that can be acquired from partners and suppliers is critically important. Identifying the key activities that must be performed by each supplier or partner will also help to create action.

2. Key Activities.

How can a new business secure revenue streams? It comes through an emphasis on identifying the key activities that must happen within distribution channels and customer relationships. Customers are going to require certain value propositions in order to want the product that is being offered. Identify those values and then communicate them throughout the entire chain.

3. Key Resources.

The resources that must be identified for value go through the same process as the activities that must be identified.

4. Value.

One of the most important parts of the canvas is to identify how value is delivered to the customer. In the Nespresso business model, value is defined as convenient pods of coffee that require less time from start to finish for a good cup. Cleanup is also part of the sales process. Those are the problems that were identified as needing a resolution. Other solutions may involve bundling goods and services. Determine what the minimally viable product will be for each situation, satisfy customer needs, and then look to improve each product or service from there.

5. Relationships.

Business doesn’t exist without a relationship with each customer. How will a business build them up and then keep them? Are there any existing relationships that can help to establish a new business venture? These questions must be answered because it is important to determine the actual cost of each relationship. If your product is $2 per unit and your customer relationship cost is $2.25 per unit, then you know there is some work to do.

6. Channel Segments.

Looking at how other businesses in a niche are targeting customer segments can help a business differentiate their goods or services. In the Nespresso business model, the point of emphasis was on retail coffee or premium coffee pods. Nespresso bridges the gap by providing a compromise between the two markets. Identifying the most cost-efficient, integrated channels will help businesses improve profitability as well.

7. Customers.

Each segment of a customer base sees value in a different way. Identifying the most important and valuable customers allows a business to clone those customers and maximize their profits.

8. Cost Structure.

It is important to locate the most expensive resources and activities that are required within the business model so that it can be successfully implemented. Critical costs then can be immediately budgeted and the remainder can be placed into the profit/loss expectations that are anticipated. Excessive costs within the structure can be effectively eliminated with this part of the canvas.

9. Revenues.

How much are customers really willing to pay for the value that they are seeing in the product? In the Nespresso business model, an evaluation of what customers were currently paying compared to what they’d be willing to pay helped to set a maximized price point for profitability. By periodically reviewing pricing tactics so that the highest amount of revenues can always be achieved, Nespresso is able to have a unique product, a fair price, and high demand.

The core of the Nespresso business model encourages creativity because it requires a complete examination of each customer segment before ideas are brought to fruition. This means problems can be solved for customers, enhancing the value of a brand, and this ultimately means a larger market share can be achieved.