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Case 19
Nespresso
Case Objectives
1) To demonstrate the importance of channel control as an integral part of marketing
strategy.
Problem Situation
Nespresso, a division of Nestle’s SA, pioneered the development of the single serving coffee
machine in 1986. By 2009, Nespresso had achieved sales of over $2.6 billion with double-digit
growth projected for the next several years. From the outset, Nespresso’s business model was
based on the sale of its exclusive coffee pods which were protected by numerous patents. This
method was used to generate most of the sales and profits for the company on the sales of the
coffee pods rather than on sales of the machines themselves.
Teaching Suggestions
With over 200 company owned stores known as Nespresso Boutiques, Nespresso is attempting to
build upon its premium brand image. The Nespresso Botiques seem to add a touch of upscale
Case Discussion
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Bringing in other channel partners would loosen Nespresso’s death grip on its marketing strategy
of exclusivity, especially for the coffee pods which represent an ongoing revenue stream for
Nespresso. The Nespresso business model relies heavily on direct and exclusive distribution to
build the premium brand image and regulate the sales of its coffee pods. The pod to coffee
machine relationship is analogous to the cartridge and printer whereby the printer manufacturers
rely on sales of print cartridges for the bulk of their revenues and profits.
Actions by Sara Lee Corp. and Ethical Coffee Co., threaten to block Nespresso’s exclusive grip
on sales of coffee pods for Nespresso machines. These actions challenge lucrative sales of its
brand of coffee pods by offering lower cost substitutes for its machines. Therefore, Nespresso is