How the luxury brand Nespresso managed to tie an impressive number of over 10 million customers with a concept of club membership and its “belonging to an elite group” approach.
Launched in 1986, Nespresso is the worldwide pioneer and market leader in high-quality portioned coffee offering innovative coffee machines and 16 flavours of “Grand Cru” capsules. It is an autonomous global business unit of Nestlé, the world’s largest consumer goods company. Nespresso caters to both private consumers and the business segment. The latter generates the lion’s share of Nespresso’s turnover and has grown impressively. With its 20% annual growth rate and double-digit sales increases in world markets; Nespresso is Nestlé’s fastest growing operating unit. It also belongs to Nestlé’s famous billion dollar brands with a turnover of CHF 3.2 billion in 2010.
Positioning and Strategic Approach
Nespresso has adopted a differentiation strategy through an image of exclusivity, based on high-quality products, an extensive customer service, and premium pricing. A key driver of Nespresso’s exclusivity approach is its route to market: Machines are widely available through a network of retailers whilst capsules can only be purchased via the e-commerce platform, a network of 215 high-end boutiques and 100 Customer Service Centers. The brand emphasises that it offers a whole lifestyle with its products. Consumers believe that buying Nespresso products makes them members of an exclusive club of like-minded “café connoisseurs”. Thus the company positions itself as a luxury brand and creates a sense of belonging to an elite group of customers which justifies prices that are considerably higher than market average. Nespresso’s coffee machines only accept the brand’s capsules protected by a plethora of patents which will start to expire in February 2012 though. This is likely to drastically change the competitive landscape as several companies have already developed Nespresso-compatible capsules that sell for a considerably less than Nespresso’s.
The Nespresso Club
At the heart of it’s the brand’s customer relationship management and thus a core driver for its tremendous success is the Nespresso Club which provides its members with a broad range of services, enabling them to place orders, receive company news and seek advice from coffee experts. The Nespresso Club serves as a comprehensive database for all of its members. Precise consumer information is collected through its obligatory membership concept: To buy the capsules both business and private customers need to become members of the club by providing contact details and machine characteristics. This allows Nespresso to approach customers even before their first purchase, to collect accurate data and to build a personalised relationship from the very beginning. Nespresso thus can deliver personalised services to specific customer segments and communicate and share information on an individualised level with every customer, based on purchasing behaviour and monetary value.
Furthermore, Nespresso involves customers by communicating the feeling to belong to an exclusive network. Through special events, like sports tournaments, coffee tasting and cooking classes, Nespresso develops the feeling of being an exceptional person supported by the Nespresso Club. This way, customers are emotionally more connected to Nespresso than to conventional brands, are interested in product news and want to participate in events. The brand, for instance, regularly includes customers in advertising activities. In the past, it has asked them to supply ideas for TV-spots or let them chose between two pre-produced spots to decide which one would be broadcasted. This “being part of a big family” approach develops a feeling of pride and thus, creates positive and credible word-of-mouth effects. The fact that over 50% of new members first experience the brand through existing ones and the steep growth of club memberships in general indicate the high effectiveness of Nespresso’s positioning and its approach to enhance customer loyalty.
Even though Nespresso’s retail and customer relationship approach surely is costly and sometimes is even described as “consumerism gone mad”, it apparently creates a strong bond between customer and brand, leading to loyalty and customer retention. This innovative membership concept is a key competitive differentiator and one of the main pillars of Nespresso to be one of Nestlé’s most profitable and fastest growing brands. Since the capsule market will open soon with ensuing fiercer competition Nespresso will have to reaffirm its legitimacy as a reference brand and capitalise on it. Further enhancing its relationships approach will help fostering the sense of exclusiveness and giving its “café connoisseurs” the opportunity to help maintain its pioneer role as an elitist luxury brand.