Marketing Management and Strategy
The term ‘shared value’ was first introduced by Michael Porter and Mark Kramer in an article for the Harvard Business Review (HBR). The aforesaid term essentially means creating value for the business in a way that also creates value for the society by addressing its requirement and challenges to the business entities (Kashani and Miller, 2000). Many business entities including Nespresso have adopted the approach of shared value. Various objectives of adopting the approach of shared value are described below:
Risk Prevention
This approach is helpful in preventing the potential business risk and ensures that the business is not contributing to unacceptable level of harm to the society and environment. Thus, adopting the approach of shared value is helpful for companies to prevent risk to the external environment (Sirianni, Bitner and Mandel, 2013).
Nespresso Corporate Reputation Management
Developing an image of responsible corporate citizen has become prime objective of the contemporary organization to achieve long term sustainability. A positive corporate image appeals to regulators, investors, customers that is helpful in maintaining dignity of the entity in the market. Thus, shared value approach enables company to develop a positive image in the eyes of its stakeholders.
Resource Efficiency
Another important objective of creating shared value by the businesses is to reduce the consumption of scare resources such as energy, water and other materials. This will not only help company to become responsible citizen but it will also be helpful in reducing cost to the company (Klepper, 1996).
Nespresso has also adopted shared value approach to achieve above described objectives. It is the brand name of Nestle Nespresso S.A. which is an operating unit of Nestle group. At the heart of Nespresso’s success as a brand lay its commitment to exceptional cup quality. Chief Executive Officer (CEO) of Nespresso has already committed the organization with the concept of shared value as an operating principle. Share value approach recognizes societal needs in addition to the conventional economic needs (Nespresso and Alliance, 2003). Furthermore, it also recognizes social harms and weaknesses that frequently create additional internal cost to the company in terms of energy waste, costly accidents and the need for remedial training. It is evident that coffee industry is facing significant social and environmental challenges therefore; companies like Nestle have adopted the shared value approach. The principle of shared value was developed by Harvard professors Michael Porter and Mark Kramer in year 2006. According to this principle, companies do not only have responsibility towards shareholders but for communities also in which they operated from farmers to customers and ultimate consumers.
Nespresso concept was developed on the basis of an espresso extraction system that enables discerning espresso coffee consumers for preparing excellent quality espresso coffee at home. The Nespresso business model is based on a threefold commitment to the unique extraction system that is an innovative and efficient direct to consumer club membership model (Markides and Charitou, 2004). Thus, Nespresso brand has created iconic luxury brand image along with exceptional quality and use of advanced technology. The shared value approach is strategically relevant to the brand because customers were found motivated with the different aspects of brand and product that also includes a group of 16% consumers who define the brand as ‘eco committed’. Customers of this brand believe in liking good things but in a responsible way. Thus, shared value approach has helped company to reel in greater number of customers because they are significantly interested in sustainability program of Nespresso.
Figure 1: Perspectives of value (Source: Porter and Kramer, 2011)
There are various perspectives of shared value which can be discussed in context to Nespresso. The company has its own key drivers of Free Cash Flow and Weighted Average Cost of Capital that can be placed by strategies intended to create shared value. Nespresso offers eco-friendly coffee products in form of outputs which creates societal value. The assessment of the case of Nespresso reveals that the unique features of the Nespresso business model has led exponential growth rate i.e. 30% per annum in recent few couple of years (Lovell, 2014). As a result of this, Nespresso has become Nestlé’s fastest growing businesses as the company has managed to grow at a faster pace. One of the major strategic challenges which are faced by Nespresso is to manage the growth in all areas of its business including human resource, supply chain management and marketing.
Michael Porter and Mark Kramer have addressed the reasons for carrying out sustainability programs by the company. The shared value approach provides that companies are required to identify the connection between activities of a company and activities and needs of the society. This will help company to attract new customers and secure higher level of brand loyalty as customers are inclined towards eco-friendly products and services. Thus, the creating shared value has been adopted by Nestle that uses the framework for creating value for different stakeholder groups including society (Porter and Kramer, 2011). Hence, Nespresso has identified water, rural development and nutrition as main strategic shared values by using the model of Porter and Kramer for shared value. Thus, this coffee brand has identified its own social opportunities with wider society. Nespresso has launched an integrated shared value framework, “Ecolaboration” in order to group together its sustainability efforts in varied areas such as carbon footprint reduction, sustainable coffee farming and spent capsule recycling (Alvarez, Pilbeam and Wilding, 2010). Thus, this business unit of Nestle has used this framework to successfully implement its business strategies and achieve its mission and vision. From the above discussion, it can be said that Porter’s and Kramer’s shared value model has significant strategic relevance to the case of Nespresso.
Critically Evaluating Nespresso’s Positioning
Nespresso’s marketing campaigns seek to convey a brand story that positions Nespresso as ultra-premium coffee brand. The positioning strategy of this coffee brand of Nestle has been discussed in relation to its Product Life Cycle (PLC). In marketing management, Product Life Cycle is an important concept which is used in the development of appropriate strategy. It is essential to have clear understanding of PLC and its stages for discussing positioning strategy of a company in relation to its PLC for achieving sustainability (Matzler, Bailom and Kohler, 2013). Every product goes through four stages in its life including introduction, growth, maturity and decline. The sequence of these stages is known as Product Life Cycle which is used for developing strategy in order to achieve mission and vision by the company. The four stages of Product Life Cycle are explained in brief under the following heads:
| Stages | Description |
| Introduction stage | This is the most expensive stage in the life cycle of a product because it is launched with heady expenses on advertisement. In addition to this, company is required to spend higher amount for customer testing and research & development activities. Nespresso is a globally managed business which was established in 1986. The product consisted of high quality coffee packed in aluminium capsule in specially designed machines for exclusive use (Staff, 2009). Thus, initial stage of this product demanded higher expenses on research. |
| Growth stage | It is the second stage which is generally known by a strong growth in sales and profitability of the company. This is because company gets benefit from economies of scale in production. It is helpful for the company to invest more money in various activities related to marketing and product promotion (Anderson and Zeithaml, 1984). Nespresso is one of the fastest growing businesses of Nestle and its many products have passed from this stage. |
| Maturity stage | It is a stage in which product is well established in the market and the aim of the owner of the company becomes to maintain the same market share as in growth stage. Thus, it becomes a competitive time for the company as wise decisions regarding investment in product are required to be taken (Achabou, 2014). In addition to this, significant changes in the products are also made in order to maintain the market share. |
| Decline stage | This is the last stage of a product’s life cycle as market starts shrinking in this stage. There can be various reasons of shrinkage of market such as entrance of new brand, consumer switching or saturation. In this stage, rather than expending on marketing, companies are recommended to adopt less expensive production methods to make some profit (Matzler, Bailom and Kohler, 2013). |
The above discussion on stages of product life cycle provides insightful information regarding strategic relevance of assessment of PLC of a company. Nespresso can also analyze its product life cycle in order to make strategic decisions. The positioning strategy can also be discussed in relation to PLC for sustainability of the brand. This coffee brand has positioned itself as a premium brand which creates high quality coffee products. Furthermore, it has adopted differentiating positioning strategy with an image of exclusivity due to high quality service and extensive customer service. Thus, the company has positioned itself as a high quality luxury brand and created a sense of belongingness to an elite group of customers which justifies the price (Day and Payne, 2014). This positioning strategy may not be appropriate in the introduction stage of its PLC because it requires huge investment on advertising and marketing activities.
The products and services offered by Nespresso are costly as the company targets elite group and additional expenses on marketing will increase overall cost to the company. For any business entity, profitability is the prime concern for achieving sustainability but in introduction stage, this positioning strategy may not be appropriate. Nonetheless, complete cost of marketing is charged by ultimate consumer therefore, it may not be appropriate to associate cost with the sustainability of the company. In the similar fashion, the positioning strategy of the company can also be discussed in context to growth stage (Sheinin, 1998).
Most of the Nespresso’s products are in the growth stage where company earns profit with considerable market share growth. As described above, growth stage in PLC assists company to invest more money in advertisement as company witness strong growth. Positioning of Nespresso as luxury brand can offer even stronger growth and prosperity to the company. In this stage, this positioning strategy can said to be appropriate from the perspective of sustainability of the brand in long run. In this stage of Product Life Cycle, benefits of economies of scale can be achieved by the company therefore; more investment can be made in marketing and advertising activities (Staff, 2009). This would help company to establish itself as a strong and premium brand by investing in campaigns based on the approach of shared value and Corporate Social Responsibility (CSR).
In the similar fashion, positioning strategy has also been critically examined for other stages including maturity and decline. In these two stages, the discussed positioning strategy of the company may not be appropriate because in this stage, customers start switching over other brands and find alternatives. Thus, investment in marketing does not remain workable and therefore, companies need to cut the cost and find the cheaper ways to make some profit (Achabou, 2014). In such a case, Nespresso may not sustain if it continuous to offer those products with premium brand appeal. Nonetheless, new products can be introduced or modifications can be made to retain customers. Thus, from the above discussion, it can be said that positioning strategy is effective and correct from the perspective of sustainability.
References
Achabou, M. A., 2014. Brand influence on consumer preference for environmental labels. ICT.
Alvarez, G., Pilbeam, C. and Wilding, R., 2010. Nestlé Nespresso AAA sustainable quality program: an investigation into the governance dynamics in a multi-stakeholder supply chain network. Supply Chain Management: An International Journal. 15(2). pp. 165-182.
Anderson, C. R. and Zeithaml, C. P., 1984. Stage of the product life cycle, business strategy, and business performance. Academy of Management journal. 27(1). pp. 5-24.
Day, C. and Payne, D., 2014. God and Devil Terms in Corporate Discourse: Shared Value and the Transformation of CSR. In Academy of Management Proceedings. pp. 53-56.
Kashani, K. and Miller, J., 2000. Innovation and Renovation: The Nespresso Story. IMD, Lausanne, IMD case study.
Klepper, S., 1996. Entry, exit, growth, and innovation over the product life cycle. The American economic review. pp. 562-583.
Markides, C. and Charitou, C. D., 2004. Competing with dual business models: A contingency approach. The academy of Management executive. 18(3). pp. 22-36.
Matzler, K., Bailom, F. and Kohler, T., 2013. Business model innovation: coffee triumphs for Nespresso. Journal of Business Strategy. 34(2). pp. 30-37.
Lovell, N., 2014. Case studies: Nespresso and the coffee brand.
Nespresso, N. and Alliance, R., 2003. Memorandum of Understanding between Nestlé Nespresso and SAN.
Porter, M. E. and Kramer, M. R., 2011. Creating shared value. Harvard business review. 89(1/2). pp. 62-77.
Sheinin, D. A., 1998. Positioning brand extensions: implications for beliefs and attitudes. Journal of Product & Brand Management. 7(2). pp. 137-149.
Sirianni, N. J., Bitner, M. J. and Mandel, N., 2013. Branded service encounters: Strategically aligning employee behavior with the brand positioning. Journal of Marketing. 77(6). pp. 108-123.