International Strategy: Nestle Nespresso on East Markets

Introduction

Like in many industries, there is stiff competition within the coffee industry. As discussed by Brettschneider (2009), the coffee market is very volatile and unstable. Before a company considers a new market, a proper market analysis is imperative. A proper analysis helps in identifying the hurdles the company is likely to face on its entry into a new market and the opportunities to harness for growth. This report provides a market analysis of areas into which Nestle Nespresso plans to venture. In this report, the different factors are critically examined in order to determine the feasibility of and the type of strategies Nestle Nespresso can use to enter the Eastern parts of Europe and China.

The company under consideration, Nestle Nespresso, has been in the market for years now and it enjoys a huge customer base in the Western Europe. Some people from Eastern Europe and China may have already heard about Nestle Nespresso. However, its presence in Eastern Europe and China could have only been felt through the internet and no further. In order to establish a strong presence in the aforementioned areas, the company intends to within a period of three years establish 150 boutiques in the areas. Tentatively, Nespresso would like to expand its Internet side of the Club in order to reach out to the prospective customers in the areas.

To achieve its aim of successfully expanding into Eastern Europe and China, Nestle Nespresso should have a clear understanding of what it means to trade in those areas. It is through proper analysis of the Eastern Europe and Chinese market that Nestle Nespresso will be able to position itself strategically towards reaping awesomely (Baker, 2008, p. 27).

Environmental Analysis

When doing an environmental analysis, both internal and external factors have to be put into consideration. Both internal and external factors are important because the market is influenced by both factors within and from outside the organization. The internal factors are those issues from inside the organization that affect a company’s operations in the market. For instance, for Nestle Nespresso one such internal factor is a strong established brand.

Nespresso’s mission is to internationalize its unique coffee concept. Over the years, the company has registered success due to issuance of exclusive and premium coffee brands to its customers. Through such a strategy, Nespresso has successfully maintained a strong market presence in the western parts of Europe. In its approach to the market, it has grown brand salience such that its is preferred over almost all other brands.

Another internal factor that is likely to influence Nestle Nespresso’s entry into Eastern Europe is the exclusive coffee experience associated with it. Over the years, Nespresso has mastered the art of providing an exclusive coffee experience to its customers. This is achieved through the provision of easier means of obtaining a daily coffee experience. Through research and development, the company has over time come up with very easy ways of preparing refreshing coffee that suits the tastes of different customers. The efforts to provide an easy but awesome coffee experience led to development and provision of ‘capsules’ i.e. well prepared and packed measures of coffee, which are already engineered for customer consumption.

Moreover, Nestle Nespresso is likely to ride on already established internet presence. The company has been working on its internet presence and this is likely to play a critical role in its international market forays. By investing in internet presence, the company is able to receive subscribers who register and interactively learn more about the company and its products. This marketing forum helps the company to communicate about its brands and in so doing they are able to develop long-term or loyal customers for the company.

Market entry involves the identification of the “countries to enter and mainly depends on the financial resources of a company, the product lifecycle and the product itself” (Lymbersky, 2008, p.364). Nestle Nespresso has already identified China and Eastern Europe as the future destination markets. Therefore, in considering the external environmental factors, the characteristics of those countries or areas have to be analysed. It is the unique characteristics of the target areas that will determine whether a business succeeds or not.

Nestle Nespresso is likely to find it easy entering into the new markets due to high availability of independent distributors. There exist numerous partners, especially the coffee appliance manufacturers, with whom the company is able to promote the use of its copyrighted coffee to its customers are a major boost.

Onkvisit and Shaw (2008)’s strategies for foreign market entry are helpful and worthy putting in mind when analysing a foreign market. The strategies include technical innovation, low price strategy, product adaptation, conformity and total adaptation, as well as the security availability strategy considerations (Onkvisit and Shaw, 2008, p.31). In other words, it is important that the Nespresso Company becomes aware of the transport network in those Eastern Europe and China regions, the issue of currency, and the general level of development in those areas. In this case, the use of the Euro makes it even easier to operate having a unified currency.

Eastern Europe, according to the United Nations, is a region that inhabits a number of countries including Bulgaria, Belarus, Czech Republic, Moldova, Hungary, Russia, Poland, Slovakia, Romania, and Ukraine (United Nations Statistics Division, 2010). The separation between Eastern and Western Europe is attributed to the Cold War. However, the termination of Iron Curtain during the 1989 period led to peaceful relations among the Eastern and Western European countries (Kalweit, 2008). This in itself indicates a favourable political environment for market entry due to presence of independent states free for international marketing. Similarly, China is also an independent state which enjoys political stability and a very promising economy.

Opportunities and Challenges

One factor that has to be looked into for both opportunities and threats or challenges is technology. European countries have been found to be technologically developed in many aspects. There are many companies in the region, coupled with great developments in the transportation sector. The presence of many industries and companies in the region under scrutiny promises numerous avenues through which Nespresso can, anchoring on technology e.g. social media, successfully market itself. Nespresso already uses the internet as a marketing platform. The use of internet as a major marketing tool requires that many people be exposed to modern means of communication and technology. Considering that the targeted areas are technologically advanced, internet marketing will play an important role given there are numerous modern internet communication tools.

Nespresso strategists have to make a decision in terms of how to enter the foreign market. The company could easily target those countries by exporting its products to them. Export trade is best understood when analysed in the light of Piercy’s conception of exogenous and endogenous motivating elements (Piercy, 1982). In the case of Nespresso, the motivating factors are largely endogenous even though the exogenous factors also play a very significant role in influencing the pursuance of business in Eastern Europe and China. One of the endogenous factors as had earlier been mentioned is the strong coffee brand. Nestle brand is very sophisticated and well backed by major coffee machine manufacturing organizations.

The risks associated with exportation are high due to the machine models that are bound to be exported. Hence, the company has to resort to the establishment of coffee processing centres in the respective destinations in order to contain the immense costs associated with export ventures. Consequently, farmers in those areas should be encouraged to engage in large scale coffee farming.

This approach will serve both the marketer and the farmers. For the farmers, this would be a very important venture to enable them improve their livelihood. Consequently, the approach of building coffee processing centres in respective countries is the most desirable as it will positively impact on the livelihood of the communities among which the company sets base. The positive impact will result in more good will towards Nestle Nespresso’s products.

Nevertheless, establishment of own subsidiaries is not the only option. The marketer need to analyse and consider other options such as pursuance of joint ventures, the licensing aspect, contract manufacturing, and the issue of ownership.

Advantages and Disadvantages of Project

The advantages of project are numerous. For instance, the project is bound to have a long-term investment opportunity. Moreover, based on the fact that it utilizes modern technology, the marketing of the Nespresso’s premium coffee experience is bound to progress with improvement in technology (Czinkota and Ronkainen, 2007, p.607).

Secondly, the project is inclined to offer increased career opportunities to both the marketer’s parent country and the destination marketing regions. Third, the project is less bureaucratic thus providing for improved efficiency (Fisher and Siriani, 1984). To join the Club, one is only required to subscribe on-line, or to call the customer desk. Individuals can also become customers by simply purchasing the capsules from the 175 proposed centres worldwide. Finally, the use of database marketing enables for easier customer management procedures in the sense that the company is able to keep track of all its customers.

However, the project has disadvantages resulting from its nature and scope. For instance, it is costly to purchase those coffee machines, implying that the only people who are bound to benefit would be the premium customers. The company would also suffer from competition in those Eastern European countries.

The Application of the Nespresso Club Concept

The countries to be pursued include but are not limited to Switzerland, France, Italy, Germany, United Kingdom, Japan, Russia, and China. These countries are already developed and thus a company can successfully leverage on technology and successfully market its products. Moreover, due to the use of a common currency in Europe, doing business becomes less costly. Additionally, the intended unification of business operations and financial accounting information will prove very convenient. Moreover, due to inclination of many companies towards international partnering, the company is likely to get many strategic partners in the new areas. Further, the use of the internet in carrying out marketing is set to receive major boosts as production and use of high-tech gadgets increases.

Conclusion

Nespresso Corporation’s bid to go into new foreign countries stands to gain a lot from the use of customized but sophisticated machines. Additionally, by establishing own subsidiary factories in the new areas, the company is likely to generate a lot of good will. Moreover, establishing subsidiaries will help mitigate exportation costs thus improving profitability levels for the company. As discussed by Bennett and Blythe (2002), companies experience different difficulties in export trade. The level of difficulty depends on level of activity in the market. Activities in the export market can be categorized either as aggressive activities, minor activities or minimal activities. When venturing into aggressive export activities, companies have to focus on many aspects. These aspects include the product to be exported, distribution factors, advertising or promotion factors and the research needs consideration.

Eastern Europe and China are emerging markets with huge economic potential. Considering the market entry strategy options available to the company, the adoption of the Nespresso Club concept is the most appealing since it also creates a sense of ownership among customers. The concept is also dynamic given it is easy to adopt both the product and the company’s mode of operating to customer needs or market characteristics.

References

Baker, M., 2008. The Strategic Marketing Plan Audit 2008. Cambridge Publications: Cambridge.

Bennett, R., and Blythe, J., 2002. International Marketing: Strategy Planning, Market Entry & Implementatio. 3rd Ed. Kogan Page Publishers: London.

Brettschneider, J. F., 2009. Nespresso, What Else? (WordPress). Web.

Czinkota, M. R., and Ronkainen, I. A., 2007. International Marketing. Thomson: Boulevard.

Fisher, F., and Sirianni, C., 1984. Critical Studies in Organization and Bureaucracy. Temple University Press: Philadelphia.

Kalweit, D., 2008. The fall of the Iron Curtain & the Rise of non-traditional Security Threats: an Analysis Regarding the Security Architecture in Post-Cold War Europe. GRIN Verlag: Munich.

Lymbersky, C., 2008. Market Entry Strategies. Management Laboratory Press: Hamburg.

Onkvisit, S., and Shaw, J. J. 2008. International Marketing: Strategy and Theory. 5th Ed. Taylor & Francis: New York.

Piercy, N., 1982. “Company Internationalisation: Active and Reactive Exporting”. European Journal of Marketing, Vol. 15, No. 3: 26-40.