The case of Nespresso shows that in a consumerist economy, the successful company perceives its activities through the eyes of consumers. Value in the economy is consumer value, and utility is consumer utility. The new product, Nespresso, creates new opportunities for Nestle and its market position. Thus, the consumer power is not an initiating force. Instead, it is a force that reacts to situations originated and developed by business decision makers — manufacturers, wholesalers, and retailers.
The case of Nespresso vividly portrays that consumers, reacting as a group, eventually approve or reject business decisions, placing management in the uncertain position of predicting consumer reactions. A manufacturer can carry out extensive research, invest vast resources in designing and making a product, offer products for sales in the marketplace, develop supporting marketing programs, and yet find consumers unresponsive (Bearden et al 98). There are few buyers, the product then has relatively little value, and resources have been wasted. Although this approach may appear to decrease economic efficiency, such a system maintains the consumer’s freedom of choice, and has led to the achievement of the highest standard of living known to mankind. But in a market-focused economy, there is a trade-off between more efficient manufacturing processes and the free exercise of consumer choice (Hollensen 22). The major responsibility of Nespresso marketing is to deliver and maintain the highest possible standard of living, to see that products and services offered for sale are those desired by consumers, and to distribute them in the most effective manner possible from the point of view of both consumers and companies. Therefore, the delineation of profitable market segments becomes critical for individual companies. A -continuing goal of marketing management is that of assessing market niches, or groups of consumers, and developing products that are especially appropriate, thereby adding economic value (Bearden et al 76).
The other lessons learned from Nespresso are that the company should carefully select its market and evaluate its potential. This strategy would emphasize changing profit opportunities available for perceptive executives because of the dynamics of marketing environments. Nespresso stresses the necessity of striving for the creation of differential advantage in the marketplace. It underscores the primacy of planning and programming innovation on a continuing basis to adjust company offerings to the changing competitive scene (Kotler and Keller 28). Competition, in marketing terms, refers to the creation of differential advantage particularly by the effective management of innovation to meet changing marketing opportunities. Programmed innovation is the corporate method of achieving continuous market adjustment; competition is its stimulus. Keenly competitive situations stimulate new products, new processes, new services, new ideas, and new techniques as well as price adjustments. The degree of competition is suggested not only by quantitative measures of newness and number of competitors, but also by qualitative considerations. In thinking about competition, Nespresso consumers tend to be retrospectively oriented. They often have past or previous models of competition and competitive situations in mind (Perreault et al 72). They often conceptualize competition in terms of an emerging industrial society rather than a maturing industrial society, in terms of price competition rather than convenience and service competition, in terms of an economy of scarcity with relatively low consumer purchasing power rather than an abundant economy with widespread discretionary purchasing power, in terms of manufacturers and sellers completely controlling and dominating the marketplace rather than an economy governed to considerable extent by consumer sovereignty, and in terms of intraindustry competition rather than interindustry competition. Sometimes they even conceive of competition in terms of an agrarian economy of pure competition rather than a highly industrialized economy where only imperfectly competitive situations exist (Kotler and Keller 55).
For a new product, price decisions are crucial for success. Nespresso did not take into account its pricing strategy and proposed very expensive product to the new markets (both restaurant and household markets). Still, the emphasis on price that stems from past economic situations was misplaced. This does not mean that price competition is no longer important. It does mean, however, that ours is often a competitive situation in which price obscurity and not price clarity is the rule. The general situation where consumers face clearly defined competitive price offerings in the marketplace, and must exercise rational economic judgment by becoming human price calculators, is not the norm. In its stead we find reductions from list prices, trade-ins, coupons, allowances, special discount prices, service variations, packaging differences, and a multitude of brands (Kotler and Armstrong 41). They tend to obliterate price information, to reduce the emphasis on so-called “rational price behavior,” and to alter our concepts of competition. Competitors must be viewed as both instigators and receptors of competition. As instigators, they must perceive their environments, accurately assemble marketing intelligence, and draw inferences about competitive reality. As receptors, they must be prepared to launch counterstrategies to those taken by others. The normal competitive cycle of a business becomes one of programmed innovation and counter-innovation. The stimulus for innovation at any time may be curtailed because of either external or internal resistance. Internal resistance may stem from inertia, lack of capital, fear of counter competitive consequences, or a host of real or imagined obstacles perceived by company personnel. External resistance, which raises the most substantial barriers, includes consumers’ resistance in the marketplace (Perreault et al 43).
In order to reach its ambiguous growth targets, Nespresso should reduce price and attract wider target audience. It may involve students, factory workers and low level managers in service and industrial settings. For Nespresso, the external factors that place a limit on competition and innovation include various types of governmental regulation, accepted industry practices and agreements, and the social and cultural environment. Limits exist beyond which consumer resistance will be great; for example, when a product is totally new, and extensive marketing effort is required to overcome resistance to change (Kotler and Armstrong 55). As factors limit or restrict innovative opportunity, they affect competition directly. Marketing acknowledges that human motivation has an impact on economic and corporate growth and on development. It concentrates on achievement as a significant stimulus for economic advance. Marketing recognizes that consumers, stimulated by the achievement motive, try by increasing productivity to satisfy their desires for consumption and to improve their standards of living. The utilization of resources is not determined merely by availability and technological advancement. To a large extent marketing is responsible for efficient systems of production and for the implementation of much technology. It is impossible to understand our culture without a comprehension of marketing as an institutional force. Nespresso should take into account that marketing is an institution of social influence in much the same sense, but not of the same degree, as the school or the home. It exerts an extensive influence that can lead to the betterment of social and economic life (Perreault 54).
Today, Nespresso’s customers mature and demands more innovations. Under these conditions, marketing becomes an even more significant. Many of the fundamental precepts underlying buyer and consumption behavior are now changing because our basic life-style constraints have shifted. Consumption is no longer exclusively a home-centered activity, since consumption of many goods outside the home has become common. Inherent values of thrift and saving are now challenged by prosperity through spending. It holds that an emphasis on extending consumption, on generating a desire for consumers to increase their store of material possessions, can also be a force for social and cultural betterment. It emphasizes that consumers should not feel guilt-ridden because they lead a comfortable life. Regardless of the viewpoint accepted, it seems clear that Nespresso consumption must not be considered happenstance. In order to proceed on a continuing and orderly basis, we must establish the necessary considerations for consumption. New marketing tools that encourage continuing rather than irregular production, such as sales on a replenishment basis and the placement of consumer orders in advance, must be developed. The roles of aggressive advertising and personal selling become increasingly important in regard both to dollars expended and economic tasks performed. Product development, consumer credit, branding, packaging, and merchandising should be emphasized by Nespresso.
Works Cited
Bearden, William O, Thomas N. Ingram, Raymond W. LaForge Marketing, Prentice Hall, 2005.
Hollensen, Svend. Global Marketing: A Decision-Oriented Approach. Financial Times/ Prentice Hall; 4 ed, 2007.
Kotler, Phillip, Armstrong, Gary. Principles of Marketing. Prentice Hall; 11th ed, 2005.
Kotler, Phillip, Keller, Kevin. Marketing Management. Prentice Hall, 2005.
Perreault, William D. et al Marketing: Principles and Perspectives. McGraw-Hill/Irwin; 4 ed, 2003.