The methodogy used to analyse Nespresso Business Model is ‘Business Model Generation’ by Osterwater and Pigneur 2009. The methodology uses a model named Canvas, which divides the business model into 9 segments. The concept is simple, relevant, and understandable to analyse a company. This concept has been applied and tested around the world and is already used in organizations such as IBM, Ericsson and Deloitte. The nine basic building blocks are shown in the logic of how a company intends to make money.
The nine blocks cover the four main areas of a business: customers, offer, infrastructure, and financial viability. The business model environment of the company is analyzed in the external analyses using a mythology designed by Osterwater eg. The four main area of the environment are; Industry forces, key trends, market forces and macroeconomical forces. External analyses In this section the external environment influences on a company such as Nespresso are analysed into a treat or an opportunity depending on the implication on the E-business strategy of Nespresso.
1. Market forces
1. 1. Global coffee consumption is growing World consumption has been growing at an average of 2. 5% annually since 2000. This development indicates an opportunity for Nespresso as consumers will purchase more coffee.
1. 2. Sustainability in the coffee market is a must An article on podia, food industry trends, stated that the current buzz words in the coffee industry are ‘organic’, ‘shade grown’, ‘sustainable and fair-trade certified’. According to the Organic Trade association, the organic coffee market is now a billion dollar industry. Research of UTZ certified indicated an increase in the first quarter 2010 of 35% in fair trade coffee consumption compared to the same period last year. The below figures show that growth started already in 2006. This trend can be an opportunity for Nespresso as long as they stay ahead of the competition.
2. Industry forces
2. 1 ‘Industry brothers’ are making moves Sara Lee makes coffee under the “Maison de Cafe” brand launched L’OR Espresso, which uses plastic capsule, retails at the equivalent of about USD 0. 37 in supermarkets. It fits the personal espresso machines from Sara Lee and the Nespresso system. The rising competition with a similar product is a major treat for Nespresso competitive position.
3. Key trends Social – Cultural trends
3. 1 Consumers want more status According to trendwatching. com sources of status in mature consumer societies are moving beyond the BIGGER, FASTER, HARDER sphere. The vast mass of increasingly sophisticated, increasingly wealthy, increasingly urban consumers are ever more try-out-prone, more demanding and more daring as they search for the next big thing or the next big STATUS STORY to dazzle or discuss with people (online). The implication on the Coffee market is that coffee drinkers have become increasingly sophisticated and are encouraged to expand their coffee palate by trying out specific blends and brews. This can be a major opportunity to build customer relationship for company as Nespresso.
3. 2 ‘Living’ and spending online According to CIA factbook 2008 the internet use of The Netherlands is located on the 26th place of world ranking list. According to research of The Next Web 2009, 16% of the Dutch people find it easier to buy online. 5% prefer a real life shop and 24% is neutral. This trend has major implication on the buying behavior of consumer and business therefore every business needs to focus on online development. Nespresso has adapted this trend into its business model and therefore it can be seen as an opportunity.
4. Macro economical forces
4. 1 US coffee market is changing Due to the current economical situation Starbucks faced a drop down in location in urban blocks. Home consumption is likely to increase as the credit crunch takes its toll on coffee shops. The market research company NPD Group’s Consumer Reports on Eating Share Trends (CREST) has found 75 percent of American workers rely on coffee convenience and will “only travel a quarter mile or less for their daily brew,”. This creates an opportunity for Nespresso product to enter the US Market.
4. 2 Coffee prices are rising Due to damaged harvest in Colombia the coffee prices increased with 30%. The world supply situation appears to be somewhat tight, particularly in view of the low level of world stocks (International Coffee Organization (ICO). Similarly, with growing world consumption, the replenishment of stocks may be limited. The rising coffee price is a treat for Nespresso coffee. This analysis appraises the 8 building blocks of the business model. The strength or weakness is defined by if it Customer segments “The Customer Segments Building Block defines the different groups of people or organizations an enterprise aims to reach and serve (Osterwalder eg. )” Nespresso coffee & machines targets 2 behavioural segments: . Home ‘user’ Business2consumer 89%: Household 2. Out of home Business2business 11%: High-end restaurants, hotels, catering businesses, airlines or for offices. Both segments varying in needs and problems. The out of home segment is small and can be focussed on more Implication on ebusiness environment. Value proposition “The Value Propositions Building Block describes the bundle of products and services that create value for a specific Customer Segment” (Osterwalder eg. )”. Nespresso sells espresso machines and pods to the high-end of the market.
It can be divided into 2 values: * Quantitative value: exclusive coffee quality, great customer service, * Qualitative value: global brand community, exclusive customer relationship, and distinctive design of coffee machine, innovation, Nespresso has encouraged growth by marketing a lifestyle brand, promoting a premium coffee product through its exclusive sales locations and clever marketing. The value proposition is strength as Nespresso is seen as not only coffee supplier but also a lifestyle brand, which can be intergraded into the e-business strategy.
Channels “The Channels Building Block describes how a company communicates with and reaches its Customer Segments to deliver a Value Proposition”. Distribution Channels * Website (direct): It provides a 24-hour ordering system for coffees, machines and accessories in 23 different languages with orders shipped to homes or offices within 48 hours. * Shop (indirect): Nespresso offers tailored shopping experiences in exclusive boutiques & locations. * CRC (direct): Customers have access to coffee specialists via the Nespresso Club’s Customer Relationship Centers. Figure ..
Sales channels Nespresso Nespresso has the right mix of Channels to satisfy majority of their customers. Internet is direct channel that maintains control and high margin. Exclusive locations create brand experience. CRC will strengthen customer relationships and creates loyalty. Depending on logistics in the supply chain. Recently Nespresso changed its transport company, which resulted in enormous delays in delivery of online orders. The decency on transport companies, the limitation of locations and the expiring patent has major implication on the customer satisfaction.
Customer relationship “The Customer Relationships Building Block describes the types of relationships a company establishes with specific Customer Segments”. Nespresso Club membership reached in 2010 more than 7 million people worldwide. Nespresso states that they will roll out a new customer service model need imput Revenue streams “The Revenue Streams Building Block represents the cash a company generates from each Customer Segment “. fixed pricing stategy Nespresso has an average sales growth of 30% growth since 2000. Coffee is a major income of Nespresso.
Other resources such as coffee machines are smaller. Nespresso achieved major growth numbers in terms of revenue. Key Activities The Key Activities Building Block describes the most important things a company must do to make its business model work Key resources The Key Resources Building Block describes the most important assets required to make a business model work The concept (machine, capsule, service) is protected by 70 patents and allows Nespresso to create an economic model closed to competition. In 2012 those patents will expire which makes Physical and intellectual resources Human, financial) Brand Own production Key Partnerships ‘The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work’. Nespresso Ecolaboration programme provides a networking framework to bring together key stakeholders, thinkers, consultants, technical experts, NGOs, business partners and others to collaborate around new ideas and innovation, which will serve to improve the sustainability performance of Nespresso. The Cost Structure describes all costs incurred to operate a business model
The Production Marketing Distribution Value driven company Conclusion Confrontation Matrix The OT’s and the SW’s are put into a confrontation matrix to evaluate their relationship with each other. A relationship occurs when a S or W will be intensified or weakened due to the O or T. This can be found by asking the following questions. * Does the O intensify or weaken the S? * Does the O intensify or weaken the W? * Does the T intensify or weaken the S? * Does the T intensify or weaken the W? Then the OT’s and SW’s will be scored upon the extent of the relationship.
The OT’s that have the strongest relation with the SW’s will be used to identify the strategic challenge. In order to give an idea of how the confrontation matrix works an example will be given:O: Growing harbour of Rotterdam versus S: Good business positioning Because of the growing harbour, the business in Rotterdam will grow which will bring more business guests. Because of their good business positioning, HR can anticipate very well on this O as they have a lot to offer the business guests. This is seen as a high relationship and therefore 3 points have been given. Following table shows the confrontation matrix.