How to outsmart the competition and make the imitations irrelevant? A story inspired by Nespresso's innovation
You are a dominant leader in the market, a monopoly when you have the first-mover advantage. Your products and services are unique and not easily irreplaceable. If you are a cost leader or the business model is highly capital-intensive. Otherwise, you are susceptible to competitions and imitations.Â
Let us say you have a unique product or a service provider in the market. You are a market leader until an IP protects your product, or a competitor will find a way to work around to provide similar products or solutions. Usually, this happens during the growth phase. The moment IP expires, you will see the copies or imitation flooding the market and wonder how they can sell at a lower price, less than the unit cost of the product incurred by you. As the product enters the maturity phase, you start to see your revenue declining, profitability shrinking, and market share. Furthermore, you get this question brainstorming in the boardroom or a strategy meeting -Â What's your competitive strategy when the competition and the imitations threaten your market leadership position?Â
How to outsmart the competition and make the imitations irrelevant?Â
Some firms still work to find an answer, while few are unable to and eventually perished. If you are one of the intelligent firms that monitor the product portfolio performance and the product's age in its life cycle, be aware of the market trends & external factors and constantly monitor the consumers' changing behaviors and requirements. You already know the answer to the question.  Â
As a marketer, product manager, and strategy enthusiast, I love learning and constantly looking for inspirations from almost everything I see.Â
This article is a story from my recent hunt for a good cup of coffee, how I ended up becoming a customer of Nespresso after what I saw inspired me. Their competitive strategy how Nespresso managed to outsmart the competition, and all their efforts to make the imitations irrelevant. I've written this article based on my perception and review of the product as a customer. I have to mention a spoiler alert already that there are no stats for nerds - just a story! Â
My journey from "Madras filter coffee" to Nespresso
Ever since I moved to Belgium, as much as I enjoyed the taste of the delicious dark chocolates and the best beers brewed on the planet, it took a while for me to settle on the coffee. I was trying to find the best match for the "Madras filter coffee," which is part of my life since childhood and very much lifeblood for any coffee lover from the south of India.
I have tried all the alternatives, including the instant coffee varieties from Nescafe, Douwe Egberts, but couldn't get the taste. I tried brewing decoction from the grounded coffees of Douwe Egberts, Jacobs, Lavazza, and illy and tried dark roasts from star bucks, using the drip-type filter I brought with me and the Machinetta I purchased in Antwerp. The taste was better, but I noticed I was spending more time preparing a cup of coffee as to brew the coffee, waiting for the boiling point, heating the milk, foam it up with a handheld milk frother; it was more time consuming when I had to clean up the place and do the dishes. The milk frother needed batteries to be changed frequently.
As working from home became a new routine, I must admit that the need for coffee was more than once per day, and I don't want to spend 10-12min preparing a cup of coffee. I wanted to have a good taste, rich aroma as well to brew it faster.
My final decision was to buy a fully automatic coffee machine that will brew from coffee beans. Still, an original espresso machine was over my budget, and it is also a time-consuming process to make a cup of cappuccino. I was also not sure if I can maintain it properly. All I needed was a simple, easy, convenient to prepare a cup of coffee in a short time.
I wanted a good refreshing taste, rich aroma and didn't want to spend much timepreparing a cup of coffee.
Whenever I want to buy something new, especially when it is a high-value item and for continuous/long-term usage, I always consider five key points before I make a purchase decision a) What's my purpose b) Buy the latest available product/technology, so I don't have to bother about obsolesce or upgrades for at least next X years c) Weigh and compare the solutions available in the market, look at reviews d) what's the next best alternative e) Ensure value for money I am willing to pay & low cost of usage and maintenance.
After several contemplations (pods over beans/grounded coffee, costs), I chose Nespresso for its convenience and many varieties of coffee flavors. Along with an electric milk foamer, it takes less than 2min to make a cup of refreshing coffee. I'd prefer to have one or two Nespresso shots during the weekends or the noons, and I like it with 85% cocoa dark chocolates or some cookies.
Finally, when I chose the right product matching my needs, I found the story/reasoning behind the product exciting, and I was able to find an answer to the question with a real-time example inspired by Nespresso's innovation
All right, I know you are focused on the question; let's get into the topic straight away.
The external factors that affected Nespresso, in my view.
Nespresso uses grounded coffee beans filled in an airtight capsule that goes into a slot inside a custom-designed coffee machine. Pressurized hot water will pass through the capsule, Which will perforate the capsules' cover and then brews coffee by passing through it, falling into your cup. These machines' key feature is to aerate the grounded coffee beans and produce a rich aroma and tastier coffee with thicker crema (foamy layer formed by cream from the coffee bean, very typical for an espresso) as good as an Espresso coffee machine.
Nespresso made these machines available from very top kitchen appliances manufacturers like Krupps, DeLonghi etc., with their branding on the machine. Several models are available based on the size of the cup or the portion of serving. Although the machine is a one-time sale to the consumer, their major part of the revenue stream is through the sales of the coffee capsules. These machines have custom-made cavity compatible only for the capsules from Nespresso.
1. The rise of competition and reusable capsules
The conflicts started when Nespresso started facing other manufacturers making machines for the capsules. It became more intense when other coffee brands started making capsules compatible with the Nespresso machines. It was because Nespresso patents began to expire in 2010w. More than ten players, including major players like Starbucks, Lavazza, L'OR espresso, Java, illy, Garibaldi, Gimoka, Givalia, Gran maestro Italiano, saw this as an opportunity to enter the segment and started selling their coffee flavors in the capsules compatible for Nespresso and started to get some incremental revenue. At the same time, Nespresso lost these consumers. A few added reasoning by promoting Aluminium capsules instead of plastic and recyclable/biodegradable capsules in addition to the price difference compared to Nespresso.
One can also argue that these brands' loyal customers might opt for Nespresso machine for convenience and enjoy their favorite flavor. Yes, it is possible.
Some reusable capsules manufacturers started promoting the need to reduce the usage of one-time use capsules. They made reusable stainless steel capsule designs compatible with the Nespresso original machines. They can be filled in with any grounded coffee flavors available in the market. Just by typing "Reusable capsules for Nespresso" in google search or on amazon.com, I could find at least ten different suppliers for these types of capsules, including all kinds of accessories.
As a consumer, this was one of the influencers for choosing the Nespresso machine to prepare a coffee cup faster than the machinetta using any grounded coffee. As a marketer, I felt it could threaten Nespresso capsules' sales and had my doubts about its performance. The reviews were of mixed opinions. I asked for feedback from few people in my network about these reusable capsules and their experience. Very few had tried, and the feedback wasn't good; they had the coffee flushed out as the lids were not working correctly, and it had spoiled the machine. I haven't tried it yet.
2. The need to address the demands of the local consumers
As I mentioned in the beginning, Madras filter coffee is a lifeblood for the South Indians; what I noticed in Europe people loved their espressos' shots with crema on top it. While in the United States of America, with my personal experience after traveling there frequently, I can say the style, taste, and requirement of the coffee portion was different from the above two consumers. E.g., I have noticed people filling up the coffee in a mug typically with a capacity of more than 120ml, 200ml, 350ml, and 400ml, and it goes by the name short, tall, grande, venti, etc. You can see them on the menu of popular coffee shops like Starbucks, Dunk-in donuts, etc. Nespresso must have realized the US market's potential; they could not address the market due to a lack of product suitable for the local consumers.
How did Nespresso address these external factors?
Nespresso launched its new VertuoLine of the coffee machine and an intelligent capsule design that addressed all of the above needs for the consumers to outsmart the competition.Â
My experience at the Nespresso Boutique
Nespresso has an omnichannel presence in major markets; one of the weekends during the lockdown when the shops are allowed to open, I decided to visit a Nespresso boutique at Antwerpen. After waiting in the queue, of course, with the social distancing, I got my turn to enter the boutique.
After reviewing the details online, I went inside with a mindset to get one, either the original or the VertuoLine. It was a shame, due to the COVID restrictions, the fun part of the experience where I could try the machine along with some coffee to choose the machine was missing.
The person who attended me explained the new machine without missing detail and answered all my questions. I was impressed with the new VertuoLine machines' changes, the technology behind the operation, and a new intelligent capsule design, and it certainly caught my attention. To influence my decision, the person reminded me about the introductory offer price of €79 compared to the regular price of the machine, €199, and the discount was applicable along with the purchase of 100 capsules in one shot. I see now the offer has changed to 200 capsules and only for the automatic machine.Â
The lowest price of the original machine is €99, and they had priced the new machines smartly to keep away anyone thinking about the cost of investment of the machine. Given the features of the new machine, it was a good deal. Purchasing 100 capsules in advance does not make a big difference as you need them for making coffee.
How did they outsmart the competition?
I went home and made myself a cup of coffee with the new machine. I have used Nespresso at the office and at various places I have visited but never thought about it or bothered it's behind the scene. While I was sipping my coffee, I couldn't resist my curiosity to know more about the journey of Nespresso and the evolution of the coffee in the capsule. As a marketer, this question was always in mind, and I wanted to know how Nespresso did it.
The answer to the question is "Continuously Innovate, this includes both the product and the business model, ADD VALUE, manage your customer experience and create your own market"
1. The new innovative coffee machine that impressed me
I bought the Nespresso Vertuoline Plus Silver Round, and it was completely different from the original versions of the Nespresso coffee machines. They said it operates with a new blend-specific new technology called "Centrifusion technology," which was their innovation that helps shift the market from the old version to the latest version. I recommend watching the short video I had linked below to understand the technology. Eventually, this will help address both the issues that I had mentioned earlier in the article.
In addition to the technology, I liked the simple design and very easy-to-use concept. The top head cover automatically raises when you pinch with your finger. You have to place the capsule inside the slot and tap the head again to close the top cover. Finally, press the button on the head of the cover. In a few seconds, you'll see the hot coffee falling into your cup, and this is the simplicity and convenience that I was looking for—no complications with many buttons.
It's been more than three months since I have been using it. The machine works flawlessly, and I have tried almost all the flavors. I must admit that I am not a coffee connoisseur; I cannot differentiate between the original espresso machine and the capsules, but I enjoy the rich aroma every time I brew them. The taste is fantastic.
2. The new smart Vertuo capsule design
As I mentioned, it is effortless, and they made it possible by providing intelligent capsules. These capsules have a barcode underneath the rim that communicates with the machine. These capsules are available in several sizes and flavors. As soon as it reads the barcode, the machine recognizes the capsule's size, the portion of coffee, and the type of coffee beans. "Its intelligent extraction system provides an extremely high level of precision as the system recognizes, through barcode technology, each Grand Cru and adjusts the extraction parameters such as temperature, flow rate, rotational speed, and the time that the water is in contact with the coffee to brew each blend in the most optimal way" as mentioned by Nespresso.
Nespresso believed this would revolutionize the North American coffee market with its new VertuoLine. The machine and capsules are ready to serve in a wide range of portions such as 40ml, 80ml, 150ml, 250ml, 414ml, and they were able to address the North American consumers' requirements.Â
Unlike other machines with different buttons on the panel for selecting different pouring sizes, Nespresso managed to get the above portions served after a click of one button. Notable, isn't it? Remember, this is what precisely I was looking for simplicity and convenience.
Initially made for the North American market, they launched the VertuoLine in France in 2016, enabling them to persuade customers to shift to the new machine and capsule design. It helped them create their market, attract new customers, and keep existing customers from staying away from the 3rd party capsule or reusable capsules. They also assured the best collection of flavors of coffee beans from around the world, which helped them make imitations irrelevant.
This is what is HBS refers to as reverse innovation! If you are interested to learn about the concept, click on the link to visit the Harvard Business Review page to watch a short video explanation.
3. Focus on sustainability
The new vertuo capsules are attractive and nicely packed in these airtight Aluminium capsules, making them more sustainable. Nespresso also offers recycling bags that can be deposited back at the boutique with the used capsules. They recycle the Aluminium and reuse it for making capsules and use the soiled coffee waste as a natural fertilizer for agriculture. If you are interested to know the journey of the Nespresso machines and capsules, I recommend visiting their website to learn more.
That's how Nespresso's innovation outsmarted the competition and made their imitations irrelevant.
As a customer, I am very much happy with my purchase. As a marketer, I am very much inspired by Nespresso's innovation.
What is your competitive strategy when the competition and the imitations threaten your market leadership position when you realize the revenue, market share, and profitability are declining?
Got an inspiring story? Or an example for sharing? Or have any feedback, please feel write in the comment box. Hope you enjoyed reading.