What are the strategic options open to Nespresso in responding to copycat capsule rivals? Which of them do you think they should pursue and why? What are the pros and cons of launching a Nespresso-lite for sale in supermarkets?
Around 2004, problems aroused for the Nespresso brand as new companies such as Sara Lee and Kraft introduced new espresso machines to the market at lower prices. Also, this machines required as a complement lower priced capsules which were sold not only online and in specific stores but also in supermarkets. The problem increased in 2009 when compatible capsules were released in the market at lower prices than Nespresso capsules and when Jura automatic coffee machines were sold with an even more exclusive positioning than Nespresso.
Due to the increase in competition in the market, Nestle seems forced to react to overcome the problem and to perceive high revenues from the Nespresso brand. In order to do so, there are many alternatives that can be taken into account as strategic options to stay as leaders in the market. It is clear that low cost competitors have changed the structure of the market and even though they do not target exactly the same public as Nespresso it would be a huge mistake to ignore them.
One strategic option that Nespresso has is to start a price war with the low cost competitors. However this will not only be a failure to the brand as it will fight against the premium concept, but it will also be a hard battle as low cost companies business models are designed to have low costs, hence they are able to make money at low prices which doesn’t occur in the case of premium brands. Also, if Nespresso decides to win the battle by causing “dumping”, this will lead to legal matters as it goes against the law.