Three years ago, Nespresso launched the Prodigio, a connected appliance. The latter, under the guise of a few “gadget” features, actually controlled your coffee consumption and prepared the automation of orders. Since this marketer’s dream did not come true, Nespresso opted for a more user-friendly solution and has just launched a subscription-based package. What has changed? Not much. In today’s article, we analyse Nespresso’s subscription offer in light of the item we published yesterday on the evolution of the subscription business model.
How Nespresso’s subscription offer works
In the subscription offer launched this week the price of the machine is at €1, and you must undertake for 12 months to pay €19 or €29 each month. This amount constitutes a “credit” by which you can buy pods online at the regular price. There is, therefore, no particular advantage except to receive the appliance at 1€. However, this type of offer where the cost of the machine has been reduced has existed in the past, without being subject to any subscription conditions.
The marketing strategy followed here is in line with the one initiated by Gillette with its cheap razor and overpriced blades, or inkjet printer manufacturers whose cartridges are sold at prohibitive prices.
The value proposition
The value proposition is based entirely on the machine at €1: the more expensive the machine, the higher the monthly flat rate. The UK subscription offer even includes a flat rate of £45 per month (at €0.38 per pod this means 130 coffees per month), a relatively high sum that gives you access to machines usually sold for over £200.
The advantages offered are limited to free 48-hour delivery for 50 pods (instead of 100 for non-subscribers).
In the end, the value proposition is relatively low since the subscriber has no particular advantage over what constitutes the bulk of his expenditure: the pods. In the end, the deal seems to us to be of little benefit to the consumer.
Loyalty: Nespresso’s obsession
With the arrival of competing pods, Nespresso is, of course, trying by all means to defend its share of the market. Building customer loyalty is, therefore, an appropriate strategy. In this case, however, Nespresso “forces” customer loyalty by creating this subscription program and combining relatively low benefits (lower than the usual free-order threshold). And they also hope that the retention rate at the end of the initial 12-month period will be high. Nespresso also provides, in a somewhat sneaky way, for a tacit renewal under the same conditions if the customer does not notify us by registered letter. The hurdle to cancellation is therefore high.
With the arrival of competing pods, Nespresso is of course under pressure. The purpose of the subscription offer is to prevent the customer from seeing the competition by ensuring his or her loyalty in advance. In addition to the recurrence of revenues, Nespresso obtains forced loyalty without granting huge advantages since the margin achieved on the pods sold naturally broadly covers the price of the machine offered at €1. It remains to be seen whether consumers will find the offer attractive and, if so, whether they will renew beyond the initial 12 months.
Tags: customer loyalty