Nespresso: the same capsule failed in offices and won at home

Nestlé brought Nespresso to market in 1986, in Switzerland, Italy, France and Japan, with a sealed aluminium capsule and a machine that made espresso at the push of a button. The first target was offices, and the launch met with little interest. In 1988 Jean-Paul Gaillard took over the business, at a moment when the unit was well below its sales budget and its future was in question. Over the following years the business moved its focus to affluent households, lowered machine prices while keeping capsules premium, and built a members’ club through which customers ordered capsules directly from the company, which gave Nestlé a customer database long before e-commerce made that common. The capsules were sold only through Nespresso’s own channels.

The first Nespresso boutique opened in Paris in 2000, and from 2006 George Clooney fronted the brand’s advertising outside North America, with the line “What else?”. In 2012 the first key patents started to expire, and compatible capsules from other companies reached supermarket shelves, followed by legal fights in several countries, including France, where a Paris commercial court ruled in June 2014 that Nespresso had competed unfairly against one maker of compatible capsules (Nespresso said it would appeal).

A category built around the capsule

The capsule was almost the same object in 1986 and in 1996, and the category around it had been rebuilt. In our method category design comes before the offer: the frame of reference through which people judge a product can be designed, in three moves we call Frame, Name, Claim. In an office, Nespresso competed with filter jugs and vending machines on cost per cup, and an expensive capsule loses that comparison. At home, among people who loved espresso and could not make it well, the same capsule answered a different question: how do I get a café-quality espresso in my kitchen without the skill or the machine of a barista?

That frame changed what the price meant. A capsule that is expensive next to filter coffee is cheap next to a cup at a café, and Nespresso placed itself next to the café. Each element built later, from the tasting notes on the colour-coded range to the language of grands crus, served the same frame and kept the reference point high.

The club was the channel and the premise

The club did more than sell capsules. It created a direct relationship at a time when consumer brands reached people through retailers, and it filtered the audience. Joining the club meant committing to a machine and to ordering from Nespresso, a small cost of entry that kept out people who wanted the cheapest cup and kept in those willing to treat coffee as a small ritual. In the books this is the premise at work in its strongest form, a turnstile that customers accept on their own, which works better than a sign telling the wrong customer to stay away.

The boutiques extended the same idea into physical space. A shop that sells only capsules and machines, designed like a jeweller’s, makes no sense as retail logistics. It makes sense as proof: it tells customers that the product deserves the setting, and it gives the category an address. The Clooney campaign then gave the brand a face that matched the frame, at a time when the system was already in place.

What protected the category after 2012

Patents protect a product for a fixed time. A category built on a frame, a channel and a membership lasts as long as the company keeps paying for it. When compatible capsules arrived, they could copy the format and undercut the price, and they did. What they could not easily copy was the club, the boutiques and the habit of ordering from Nespresso, the parts of the system that justified the premium in the first place. Our reading is that the category held its premium because the moat had moved from the legal layer to the experience layer years before the patents expired.

The lesson concerns timing. The repositioning that saved Nespresso came from changing who the product was for and where it lived, well before any campaign ran. If your offer is struggling in its first market, the answer may be a different frame for the same product, and that is where what we do usually starts.