Sara Lee launched last year its Nespresso-compatible capsules. In Paris only 100000 samples were given for free. In August Sara Lee announced that they had reached the 100m$ revenues with this product. Still, the question remains for me whether this can be considered a success.
Last year we already challenged this assumption on our blog and we are confirming our analysis today. What if this result was only the consequence of a temporary switching from Nespresso to alternative brands by consumers in search of less expensive products (a Nespresso capsule costs 0,33€ and a l’Or Espresso capsule 0,29€)?
However you just need to read consumers forums to see how this switching experience can be disappointing (for those of you who read French I recommend the excellent Miamz.fr blog). The price difference (only 0,04€) between a genuine Nespresso capsule and a competitor product may just be not enough to justify a less exciting experience in the mind of the consumer. This leads me to deal with a very important of consumer behavior, namely what is the threshold to make a consumer switch? If you or your company intend to enter the market with a new product / service and you face competition, you may want to read this twice. If your product / service is targeted at existing customers of the competition, what is the resistance you will have to face (and eventually overcome) if you want to make those customers switch to your product or service? The customer will always, unconsciously or not, do the math and judge whether the benefits of switching to your offer will overcome the disadvantages and pains I’ll have to undergo in the switching process and after. And guess what, those pains are not always financial. Think about banks for instance; it’s free-of-charge to switch banks and yet few consumers do it. Switching from bank is just an energy and time-consuming process and consumers prefer coping with non-optimal solutions rather than going through this process.
In the case of Nespresso, maybe does the 0,04€ not justify in the mind of the consumers the loss in terms of taste, experience … and status.
My take:
Nespresso announced last week a 20% increase of its revenues. The brand has never done so well since competition entered the market in 2011. Isn’t it a sign that Nespresso leadership is confirmed and that consumers are not convinced by alternative brands? I’m pretty sure that Sara Lee’s customers are mainly occasional coffee drinkers and that Nespresso, through its high-end positioning, attracts a more profitable clientele of coffee aficionados. The distribution strategy seems to me to be very important too, since Sara Lee is distributed in supermarkets (which tends to decrease the consumer’s perception in terms of positioning) whereas Nespresso continues to be sold in branded stores.
This story reminds me another very similar business case in French in the 80’s. You all know the BIC lighters. BIC had the great idea in the 80’s to sell a perfume for smokers that was sold in the shops as cigarettes. This product died after 3 years mainly because of the distribution which was done through the wrong channel (perfumes are luxury products which are sold in dedicated stores) and which was not giving the consumer the image he/she was looking for with a classic perfume
Posted in Strategy.
