The coffee industry in the UAE can be viewed as highly competitive because of the popularity of coffee among Emiratis, and Nestlé Nespresso is a leader in the market. Nespresso was formed as a separate division of Nestlé Group in 1986 to focus on the production of coffee machines that can be used in coffee houses and at home. Currently, the brand dominates the premium coffee market with its presence in 70 countries and the employment base in more than 13,500 employees (“Our company,” n.d.).
The coffee industry in the UAE develops actively, and more customers become interested in using coffee capsules and machines for preparing high-quality drinks (“Coffee in United Arab Emirates,” 2019). Thus, the purpose of this marketing report is to present an efficient plan for Nespresso’s further promotion in the UAE market, addressing influential macro-environmental and micro-environmental factors.
Macro-Environmental Analysis
The macro-environmental analysis is important to determine what factors can influence the effectiveness of marketing strategies applied by Nestlé Nespresso in the UAE. This analysis allows for identifying potential threats to and opportunities for the company’s development in the local market (Kotler, Keller, Brady, Goodman, & Hansen, 2019). Factors that need to be discussed in this context include demographic, social, cultural, political, technological, and natural ones.
Demographic Factors
The population of the UAE as a federation of seven emirates is 9.77 million people, according to the data for 2019. The demographic profile of the UAE is characterized by the high percentage of immigrants and expatriates (more than 90%), and nearly 85% of the country’s population lives in the largest emirates: Abu Dhabi, Sharjah, and Dubai. The population tends to grow annually because of active migration processes in the UAE, and the annual change rate is about 1.5% (“United Arab Emirates population 2019,” 2019). It is also important to note that the population of the country is diverse in terms of ethnicities as immigrants usually come from other Arab and Middle Eastern countries, Asian countries, and Western countries.
People in the UAE mostly speak Arabic and English, along with other languages of different ethnic groups. Other important factors that can influence marketing trends in the country are the median age of Emiratis, which is about 30 years, and the unequal number of females and males in the country with a focus on the fact that men represent about 70% of the overall population (“United Arab Emirates population 2019,” 2019). These aspects have an impact on forming a target audience for different categories of products.
Social and Cultural Factors
The marketing of Nespresso products in the UAE highly depends on certain social and cultural factors, which include the age of customers, income, education, lifestyle, and traditions. In the UAE, the practice of drinking coffee is widely spread, and Emiratis are famous for a range of recipes for making this drink using the best types of coffee beans (“United Arab Emirates population 2019,” 2019).
The quality of coffee beans and the technique are very important for Emiratis, and certain traditions of drinking coffee exist in the Emirati society. Additionally, expatriates have also contributed to spreading the popularity of hot drinks in the UAE, preferring large coffee portions. As a result, the current coffee market in the UAE develops dynamically in association with the lifestyle of young and active coffee consumers who choose high-quality branded products with rich tastes and flavors (“Coffee in United Arab Emirates,” 2019). Coffee houses have gained enormous popularity in the UAE recently.
Political and Economic Factors
In the UAE, the consumption of coffee increases every year, as well as sales of different types of coffee products and related goods, including coffee machines. The industry develops following the local regulations and separate trade agreements with coffee exporters because the UAE did not sign the International Coffee Agreement. Product quality regulations adopted in the UAE control the market in terms of approving only those companies that set high standards for their products and services.
In spite of governmental regulations for coffee products trade, the economic situation in the country allows for the active growth of the market as sales increased by about 8.5% during the period between 2011 and 2016 (“Recent trends in UAE coffee market,” 2017). Furthermore, multinational corporations, like Nestlé, are not limited in their opportunities to perform in the UAE’s coffee market. Thus, the UAE takes an active role in setting a corridor for coffee trade in the region.
Technological Factors
The development of technologies in the production of hot and cold coffee drinks has led to the strong competition among the brands of coffee machines that can be used in coffee houses and at home. The availability of innovative solutions for coffee machines and the production of coffee capsules has provided Nestlé and its competitors with more opportunities for improving the quality of prepared drinks while facilitating customer experience (“Our company,” n.d.). Thus, technological factors mainly have a positive effect on the industry of manufacturing coffee machines and related equipment.
Natura/Environmental Factors
Environmental factors that can influence the market include the natural conditions affecting the growth and quality of exported coffee beans for producing pods for coffee machines, waste management, and recycling issues. The production of coffee machines and required capsules is associated with a lot of waste. Companies pay much attention to developing waste management and recycling programs to decrease negative effects on the environment (“Frequently asked questions,” 2019). Furthermore, companies in this industry actively choose the sustainability path to increase customer loyalty.
Identified Opportunities and Threats
The analysis of the industry’s macro-environment allows for identifying a range of opportunities for Nespresso to succeed in the UAE market. Thus, the key opportunity is the potential increase in the number of customers with reference to the annually increased number of well-educated city dwellers who prefer to drink high-quality coffee. Nespresso products can be widely used not only in coffee houses but also in the workplaces, at home, in hotels, and other types of organizations (Coffee in United Arab Emirates, 2019). The market demand and the pace of its development can be regarded as positive tendencies for Nespresso. There is also the demand for the introduction of more new products and the opportunity for differentiation and diversification. However, there are also threats associated with an active rivalry in the industry and a high number of more available substitutes. Thus, Nestlé has to compete with such global leaders as Senseo and Tassimo.
Micro-Environmental Analysis and SWOT
In addition to the macro-environmental analysis, micro-environmental analysis based on determining an organization’s strengths and weaknesses is essential to set objectives for the marketing strategy. In this sub-section, the discussion of strengths and weaknesses associated with Nestlé’s marketing strategy will be presented. The ways to capitalize on the identified strengths and the approaches to overcoming weaknesses should also be analyzed (Kotler et al., 2019). The results of the analysis need to be summarized in the SWOT table.
Strengths
Nestlé Nespresso is the leader of the UAE and Middle Eastern market of coffee machines and related products. Therefore, the key strengths include customers’ loyalty and interest in products, as well as the focus on premium-level customers. Nespresso boutiques attract coffee drinkers as they are associated with first-class experience and quality because the best baristas and experts can help customers to make the right choice there.
The orientation toward the premium segment allows the company to set high prices for products and develop the image to attract more fans of coffee. In boutiques, customers can receive personalized services and join the Nespresso Club. Furthermore, the company promotes the recycling strategy to get rid of capsules to improve its image within a community (“Frequently asked questions,” 2019). Finally, one more strength is Nestlé’s active sponsorship at different events and festivals.
Weaknesses
Weaknesses that can influence the market positioning of Nespresso include the lack of Nespresso boutiques in the country and the lack of the UAE market-oriented products. Thus, customers can choose to visit other popular coffee houses and shops to taste products. Limited distribution channels can significantly decrease sales because of customers’ restricted access to products. The problem is that Nestlé mostly proposes products and services that are also available in other coffee houses. Another weak point to pay attention to is the incomplete recycling strategy that can be regarded as restricting because not all produced pods can be recycled (“Frequently asked questions,” 2019). Table 1 lists all the mentioned strengths, weaknesses, threats, and opportunities.
Table 1. SWOT Analysis.
Competition in the Market
In the UAE, competition in the coffee industry is realized among international companies and brands. For Nespresso, the key rivals are Nescafé Dolce Gusto (another Nestlé’s brand), Senseo, Keurig, L’OR and Tassimo. Other competitors are Starbucks as a chain of coffee houses and Phillips and Braun as the manufacturers of coffee machines. The key strengths of these competitors are their pricing strategy, diversity of products, and differentiation.
Weaknesses include positioning and sustainability, as well as brand recognition (“Our company,” n.d.). Nespresso can benefit from these weaknesses while strengthening its premium positioning and introducing more bonuses for Nespresso Club members. The company also pays much attention to guaranteeing all their capsules are recyclable, and the negative effect on the environment is minimal. Additionally, the company facilitates brand recognition through effective advertising campaigns and sponsorship.
Nespresso’s Mission Statement
Nespresso is oriented toward guaranteeing the exclusive experience to customers who choose their products. The company’s mission is to deliver premium quality coffee to customers at home, in the workplace, and in other facilities while ensuring their experiences are unique in terms of received products and services (“Our company,” n.d.). Therefore, much attention is paid to promoting Nespresso boutiques and the Nespresso Club that add to creating the image and accentuating the exclusivity of experiences.
Nespresso’s Marketing Objectives
Although Nestlé still dominates the coffee market in the UAE, the competition involving international brands is strong. This situation is associated with the necessity of developing an effective marketing strategy for Nespresso to preserve the leading position in the market against less expensive brands. The focus on differentiating offered products is important for the company to gain the larger market share with reference to selling not only well-known coffee machines and capsules. The effective marketing strategy should be based on the following objectives:
- By March 2021, to increase the number of customers through expanding brand awareness and recognition in the UAE by 10% in comparison to the number of unique buyers in 2019.
- By June 2020, to expand the brand product base by 10% by launching a Nuovo VertuoLine coffee machine for the UAE market.
- By the end of 2020, to increase the net sales of different types of Nespresso products (coffee machines, capsules, accessories) by 12% with the help of developing a differentiation strategy and proposing new varieties.
- By March 2021, to increase customer satisfaction by 18% in comparison to the data measured in 2019 with the help of improving the brand image and offering Nuovo VertuoLine coffee machines.
Along with presenting specific and measurable targets, the proposed marketing objectives include the description of steps that should be accomplished to achieve these goals. The set objectives are strictly aligned with the company’s strategic goals oriented toward increasing annual sales in the UAE to compete in the market. Furthermore, the objectives are linked with the company’s program for improving the brand image and stimulating potential customers’ interest in existing and new products.
Market Targeting
Nespresso’s target market and the used marketing strategy should be discussed with reference to analyzing its customers, market trends, and reasons for selecting these particular segments. In the UAE, Nespresso follows the strategy used in other regions because of similarities in targeted customers. In this section, it is important to analyze market targeting with reference to the promotion of more varieties of Nespresso products to attract more customers.
Market Definition and Trends
The UAE market of coffee machines and associated products is dominated by Nespresso, and currently, the company can cover only this market because of the limited variety of proposed products. Today, Nespresso proposes two lines of coffee machines for being used at home and in organizations and about 20 types of coffee capsules, the majority of which are recyclable (“Our company,” n.d.). However, to effectively compete in this market, Nespresso needs to expand its product variety, add innovation to coffee machines to make them oriented toward customers in the UAE, and broaden the assortment of accessories because of current market trends.
The consumption of espresso in the UAE and globally tends to decrease in comparison to the rising popularity of coffee drinks with added milk. Furthermore, sales of coffee drinks with different flavors and decaffeinated drinks also increase, which makes Nespresso propose new varieties of capsules (“Coffee in United Arab Emirates,” 2019). Furthermore, there is also the necessity of improving its VertuoLine machines to add opportunities for preparing other drinks.
Customers
In the UAE, Nespresso targets 25-45-year-old customers, primarily men, who belong to upper middle and upper classes and value quality and unique experience. These potential and actual customers are interested in satisfying their need in receiving exceptional services and experience to accentuate their status (“Our company,” n.d.). However, if some years ago the accentuation of the unique quality of offered products and personalized services were enough for customers to choose the limited number of products offered by the brand, today differentiation is required. Customers received an opportunity to buy similar but diverse products proposed by other manufacturers.
Thus, more attention should be paid to proposing more large-cup and favored coffee varieties to customers and new machines (Nuovo VertuoLine) to make different types of coffee drinks. Additionally, the number of customers who want to purchase Nespresso but represent a middle class also increases.
Differentiated/Segmented Marketing
The segmentation criteria selected for the marketing strategy applied by Nespresso include the orientation toward different incomes, lifestyle, and purchasing behavior. Differentiated or segmented marketing is selected because Nespresso premium products serve the needs of only a limited segment of customers, but the focus is on diversifying their experience and addressing middle-class customers without changing the brand position (Kotler et al., 2019). Thus, the focus only on the upper-class customers can be shifted to the focus on customers selecting a premium-class lifestyle and purchasing high-quality trendy products related to the culture of coffee consumption despite their income.
The reason for selecting this market and strategy is provided by experts in the field. They state that, in the UAE, many potential customers can afford a unique coffee experience, but they are also interested in product varieties and trying something new (“Coffee in United Arab Emirates,” 2019; “Recent trends in UAE coffee market,” 2017). In this country, “Nestlé remained highly competitive through fresh ground coffee pods by introducing new ranges with better filtration and foaming technologies and continued to focus on its coffee machine” (“Coffee in United Arab Emirates,” 2019, para. 4). More focus on differentiation can be viewed as a positive solution for Nespresso to increase its sales in the developed coffee market.
Positioning Strategy
Nespresso products take the premium position in the market because of the price of offered coffee machines and capsules and the associated image of guaranteeing the ultimate and high-quality coffee experience. Furthermore, the key focus is on providing tools for preparing high-quality espresso, and only in recent years, the company has begun to produce machines and capsules for making coffee drinks (“Frequently asked questions,” 2019). In comparison to competitors, Nespresso does not address the needs of the middle-class segment with its high-end products, and the current focus is only on the upper middle class and higher.
The company’s selling position can also be described as unique as products can be bought only in the company’s stores and on their website. The focus is on delivering perfect services in Nespresso boutiques, on aesthetics in the design of coffee machines, and on addressing community needs using recycling programs (“Our company,” n.d.). In spite of high prices and the limited assortment of proposed goods, Nespresso preserves a leading position in the market of coffee machines in the UAE because of providing top quality coffee products designed according to the latest trends and technological advancements and offering exclusive services.
Marketing Mix
The marketing mix includes several components that are known as 4 Ps: Product, Price, Promotion and Placement. The marketing strategies related to each of these components guide companies on their paths to achieving marketing objectives and increasing sales (Kotler et al., 2019). The effective marketing strategies that are appropriate for promoting Nespresso products and a Nuovo VertuoLine coffee machine in the UAE should be discussed in detail, along with analyzing associated distribution approaches.
Product Strategy
Nespresso offers a comparably narrow range of products according to the principles of premium positioning in the market. The company produces two lines of coffee machines (Original and VertuoLine), different types of capsules (Espresso, Pure Origine, Lungo, and Decaffeinato lines), accessories (cups, capsule holders), confectionary, and sugar. Additionally, exclusive services are delivered to the members of the Nespresso Club (“Frequently asked questions,” 2019). To reach the market of diverse coffee drinkers in the UAE in contrast to predominantly male coffee drinkers from the upper class (accentuated by advertisements), it is necessary to develop a Nuovo VertuoLine coffee machine for the UAE market as an innovative variant of VertuoLine machines.
VertuoLine machines are most popular today among Americans and other Westerners who prefer large coffee drinks. A Nuovo VertuoLine coffee machine introduced in the UAE market will guarantee young consumers among expatriates and Emiratis that they can easily make different popular types of coffee drinks (with milk and flavored). Therefore, this product can gain popularity in the UAE with the orientation toward young expatriates, and it is important to shift the focus from offering traditional espresso to proposing new highly popular coffee drinks made out of high-quality coffee beans.
Additionally, it is also necessary to develop more varieties of associated coffee capsules to make drinks with different flavors and expand the range of decaffeinated capsules as they are popular today among customers to be used in Nuovo VertuoLine coffee machines. Competitors also propose a wider range of accessories related to their main product lines (“Coffee in United Arab Emirates,” 2019). Thus, to increase customer satisfaction and loyalty, it is possible to broaden the assortment of produced accessories with a focus on their types, colors, and materials.
Pricing Strategy
Nespresso should follow its main premium pricing strategy based on the high cost-low turnover method. Following this strategy, the company succeeds when relying on the customer base of Nespresso Club members who regularly purchase Nespresso products for their home coffee machines. To preserve the competitive advantage and a high position in the marker, as well as popularity and the image among customers, Nespresso should not change the pricing strategy and offer new products within the following price range:
- Coffee machines (2 lines) – AED 500-2,500.
- Nuovo VertuoLine coffee machines – AED 1,500-2,000.
- Nuovo coffee capsules – AED 25-40 (for a pack).
- Accessories – AED 30-1,600 (“Frequently asked questions,” 2019).
Promotion Strategy
The promotion strategy used by Nespresso is based on the idea of spreading the image of an exclusive experience and a luxurious lifestyle. Advertisements of Nespresso products are broadcasted and used in business magazines and newspapers to attract the target audience (mainly high-status men in the UAE). Since 2006, the advertising campaign has been based on using the image of George Clooney as a brand ambassador.
This practice has led to increasing sales in the North American market and globally (“Our company,” n.d.). In recent years, the company has shifted from using only traditional channels of promotion like advertising in the press and on television to social media marketing. Currently, Nespresso effectively uses Facebook, Twitter, and Instagram to spread advertisements and messages to attract millennials. To promote Nuovo VertuoLine coffee machines in the UAE market, much attention should be paid to inviting Instagram influencers because this approach is important to increase the customer base and their satisfaction.
Nespresso also refers to the promotion of products to retain regular customers with the help of offering premium services in its boutiques. The members of the Nespresso Club regularly receive Nespresso Magazine and emails informing them about special offers and openings of new stores (“Frequently asked questions,” 2019). Another approach to promoting products in the high-class segment of customers is sponsorship of different sport and cultural events in the community. During these events, the information about the UAE market-oriented Nuovo VertuoLine coffee machines should be spread.
Placement Strategy
Nespresso has developed an effective placement strategy oriented toward loyal customers that is based on selling products only in boutiques and on the company’s website. It is also possible to order products by phone in the UAE (“Frequently asked questions,” 2019). This approach allows for attracting only those customers who are interested in buying the exclusive experience associated with Nespresso products. In the UAE, there are 14 Nespresso boutiques serving local customers’ needs. In the boutiques, there is a special pleasant atmosphere created with the help of top-class decorations, smells and offered confectionaries. The placement of Nuovo VertuoLine coffee machines in Nespresso boutiques is reasonable depending on this strategy.
Conclusion
The strategic marketing plan for Nestlé Nespresso has been developed with reference to the analysis of demographic, political, economic, technological and environmental factors that influence the coffee market in the UAE. It has been found that Nespresso is not limited by the competition in opportunities to expand the customer base and increase sales. The analysis of potential threats and opportunities for the business has also supported these conclusions.
The evaluation of strengths and weaknesses has allowed for identifying directions for the marketing strategy to address a wider target audience and improve their satisfaction through the development and launching of unique Nuovo VertuoLine coffee machines for the UAE. Thus, it is recommended to preserve the premium class position and pricing strategy along with expanding the variety of products and offers.
References
Coffee in United Arab Emirates. (2019). Web.
Frequently asked questions. (2019). Web.
Kotler, P., Keller, K. L., Brady, M., Goodman, M., & Hansen, T. (2019). Marketing management (4th ed.). London, UK: Pearson UK.
Our company. (n.d.). Web.
Recent trends in UAE coffee market. (2017). Web.
United Arab Emirates population 2019. (2019). Web.