Strategic Marketing Management
Word Count: 2011
Anonymous Code: Z0957486
Submission Date: 19/01/14
Word Count: 2011
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Nespresso’s buoyant growth and impressive results (Anderson,2012), clearly display its product as highly desirable in the coffee industry (Ernst et al,2010), which, successfully supported by aspirational branding efforts, arguably adheres to the impression-focused trends within society (Jackson,2010,cited; Bennie et al,2011). However, recent loss of market share and the ubiquity of Nespresso in the mass-market, which conflicts with it’s concept of best-in-class service, best quality and premium brand identity, suggests that issues are prevalent within the company’s marketing strategy (Varadarajan,2010).
Nespresso’s critical marketing issue is that its product innovations no longer offer necessary opportunities for differentiation, which has arguably lead to increasing competition and the questioning of Nespresso’s capability in exceeding its competitors. The issue has materialized through a rapidly growing market segment (Appendix i), which has attracted competitors, particularly due to the low entry barriers (Porter, 2008), and the new understanding of the company’s non-entitlement to patent rights on their capsules. This intense competition from substitute capsules, poses reasoning behind the most critical strategic marketing issue as Nespresso’s products are inherently similar to those of competitors and are correspondingly up to ‘50% cheaper than Nespresso’s own capsules’ (Anderson,2012,p10), meaning that the company not only no longer possesses a differentiation advantage, but direct competitors may prevail from a cost advantage (Hill, 1988).
More specifically, offerings from competitors such as the Ethical Coffee Company are meeting market demand of its targeted ‘coffee connoisseur’ customers by adhering towards recent trends of an ‘authentic, more environmentally-friendly, coffee culture’ (Anderson,2012,p10). Mattson(2008) suggests that a maintainable marketing strategy is based upon delivering and integrating true value at a strategic level, as opposed to the selling of an artificial image, which Nespresso has arguably been culpable (Anderson,2012,p9), through its arguable ‘greenwashing’ of its recycling efforts (Peterson,2013). This absence of assessing changing customer needs, new customer targets and exploiting new production technologies, whilst direct competitors are doing so, indicates a lack of spurred innovation (Hooley et al,2008,p.372).
The highlighted insufficiency in product innovations, suggests that Nespresso currently lacks the attributes to outperform its competitors in the future and benefit from sustainable competitive advantage (Anderson,2012), which is key to a company’s long-term organisational success (Drummond et al,2008). Furthermore, the issue is particularly prevalent as Nespresso’s revenue logic appears to be built around the razor-blade model (Gobble,2014), whereby profit is solely made from capsule sales and not from the machines. This is the company’s most critical strategic marketing issue as it can easily change the nature of market exchanges and Nespresso’s effectiveness in the quickly...
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