Nespresso was now affordable for the vast majority of coffee gourmets. Demand soon began to respond.
But Kwakman was far from finished. “Our awareness remains low in priority markets,” he complained. “Word-of-mouth is a slow process. We have to find other means of making the Nespresso concept known.”
A logical solution was advertising. But Nespresso’s print ads in magazines had produced little impact on demand. In rethinking the advertising strategy, Kwakman and his team focused on the power of trial. Could advertising somehow simulate the opportunity to try the Nespresso machine, thereby triggering action rather than mere brand awareness?
The solution: shift from print ads to television commercials. More expensive, yes—but this medium allowed the beauty, simplicity, speed, and elegance of the Nespresso machine to be vividly demonstrated rather than merely described. The impact was remarkable. When the first commercials debuted in time for the 2000 Christmas season, demand responded with a severalfold increase.
Even in the indirect form of a televised demonstration, trial was once again revealing its power to trigger demand.
KWAKMAN’S APPRECIATION for the power of trial kept growing—and so did the ingenuity with which he and his team made it available to potential customers.
They induced more airlines to offer Nespresso to their first-class passengers. By 2000, some 1,100 planes flown by twenty different airlines were using the machines, and 3.5 million travelers had the chance to experience the aroma and flavor of Nespresso each year.
But even better than sipping espresso prepared by a flight attendant was the opportunity to test the machine oneself. Nespresso began working intensively with retailers, encouraging them to do much more than simply display their handsome machines. By 2000, retailers throughout Europe as well as in the United States were being provided with extensive training in demonstrating the devices. Nespresso developed target lists of stores by asking customers, “If you were thinking of buying an espresso machine, where would you go to buy it?” Then they made sure the stores consumers named were signed up as distributors. Soon hundreds of retailers were showing off Nespresso machines, offering trials that demonstrated the fun and ease of using the devices.
Kwakman and his team also discovered a crucial new element that could make the trial trigger even more effective. It was simple, really. Many retailers demonstrated the Nespresso machines. Others went one step further: They actually served coffee brewed from Nespresso coffee pods.
The results were staggering. Retailer surveys revealed that stores providing customer trials of both the machines and the coffee generated six times as many sales as those that merely demonstrated the machines.
It might seem obvious that tasting Nespresso and trying the machine is crucial to triggering demand. It is—in hindsight. Consider: Between 2007 and 2010, hundreds of thousands of customers bought Kindles without ever seeing one. (Until their arrival at Target stores in mid-2010, Kindles were not available in retail outlets.)
For the would-be demand creator, figuring out what kind of trigger will convert fence-sitters into customers is not about reasoning from a priori logic or even from the evidence of other businesses. It’s about seeing what happens when you try. Some products don’t require trial. Others, like Nespresso, depend upon it. Give customers a chance to love it, and many will. But without trial, “nothing happens”—the two most dreaded words in the universe of demand.
The six-to-one multiplying power of trial opened the demand floodgates for Nespresso. Taking a page from the playbook of high-end cosmetics manufacturers like Yves Rocher, company executives approached department stores with a proposition: “Give us twenty square meters of your valuable floor space. We will create a Nespresso store-within-a-store, with our own host and hostess trained in offering product demonstrations and sample cups of coffee. We’ll do the staffing and sell the machines, and the revenues will flow to you.”
The famous Galeries Lafayette in Paris was the first department store to accept the offer. Sales of Nespresso machines at the store rose from around fifty per year to around seven hundred. Soon every major retail chain in Europe was asking for its own Nespresso shops.
This success led directly to the development of an even more unconventional and audacious demand creation strategy, being played out today on the leading commercial boulevards in two hundred of the world’s most stylish cities—the launch of a chain of Nespresso retail stores. It was yet another unprecedented move for the conservative Nestlé organization.
Once again, the Nestlé board must have had some qualms—and once again, they accepted the dare. A single Nespresso boutique was commissioned on an experimental basis and opened in the heart of Paris in 2001. When sales far outstripped expectations, Kwakman got the green light to replicate the concept. Designed by leading architects in gleaming polished woods, metals, and glass panels, the Nespresso boutiques—now two hundred in number—are located on the grandest avenues in many of the world’s most glamorous cities, from Zurich, Milan, and London to Tokyo, Rio de Janeiro, and New York. Staffed by specialists who advise customers on machine purchases, help them sample coffee varieties, and even serve snacks and pastries that complement the coffees, Nespresso boutiques provide the single most compelling way for people to test the machines and taste the product.
On busy mornings, the original Nespresso store on the Champs-Elysées has lines around the block—just as many of the gorgeous Apple stores do when a hot new device is available for a test drive. And the Nespresso sales curve took a sharp upward tilt after the launch of the boutiques—28 percent annual growth in 2001, then 34 percent, then 37, then 42—that bears an uncanny resemblance to the sales spike enjoyed by Apple products when the first of more than two hundred Apple stores opened later that same year.
Today, with a steadily expanding network of well-staffed boutiques, fully 80 percent of Nespresso employees work in direct contact with consumers, providing an invaluable stream of voice-of-the-customer feedback that can help the company stay ahead of the changing shape of demand.
Many casual observers today attribute Nespresso’s success to its current advertising program, featuring the debonair actor George Clooney, and its high-glamour sponsorships of events like the America’s Cup yacht race and the Cannes Film Festival. But the Clooney ad campaign, launched in 2006, is not the central driver of Nespresso’s growth. Advertising has helped to build awareness of Nespresso, but the trial-generating machine—from airline galleys to department stores to freestanding boutiques—is what really creates the customer.
Converting fence-sitters to customers remains a challenge for Nespresso, as it does for many companies. Fifty-seven percent of customers we surveyed reported a time lag of a year or more between hearing about Nespresso and finally buying a machine. Without a couple of powerful triggers, the emergence of real demand might never happen. Today, about half of new Nespresso purchases are triggered by word of mouth, while the other half come through free trial, whether in an appliance store or a Nespresso boutique.
Like density for Zipcar and delivery speed for Netflix, trial has become the crucial trigger that supercharges demand for Nespresso.
Triggers are not mutually exclusive—they can often reinforce one another. This is particularly true of word of mouth, which is one of the most effective triggers, yet also one of the most difficult to create. Fortunately, since magnetic products have strong story elements that spark great customer conversations, the same triggers that increase a product’s magnetism can stimulate word of mouth and increased sales, setting off a self-reinforcing spiral of positive effects. Nespresso exemplifies this dynamic. Today, 50 percent of Nespresso’s new customers come from referrals. After all, what’s more natural than sharing a delicious cup of coffee with friends and family? The inevitable result is curiosity about the great coffeemaker—and, often, another sale.
In his understated way, Henk Kwakman demonstrated even more creativity and courage than the iconoclastic Gaillard. He
discovered the crucial importance of emotionalizing the product, and he invested the time and effort in transforming the look of the Nespresso machine to make it stylish and sexy as well as efficient. He spearheaded the creation of an advertising and design program that reinforced that glamorous image. Above all, he leveraged the power of trial through the creation of Nespresso stores-within-stores, and convinced his colleagues to invest in freestanding Nespresso boutiques. It was a huge bet that none of Nespresso’s rivals dared to try—and one that has proven to be a huge winner.
THE NESPRESSO DRAMA hinged on the discovery of triggers that made potential demand real. But of course demand is multifaceted, and an important element in the continuing success of Nespresso is the growing array of backstory features that combine to make the customer experience remarkable.
We’ve already touched on many of these features—the technical ingenuity behind the brewing system, the high-quality service provided by the Nespresso Club staffers, the training of retail hosts and hostesses to make product trials fun and accessible, and so on. But yet another, which reflects the long-term orientation that is one of Nestlé’s great gifts, is the commitment to building a world-class dedicated supply chain for Nespresso products.
Henk Kwakman gives much of the credit to Nestlé executive Rupert Gasser, whom he describes as “an old coffee man” and a longtime internal supporter of the Nespresso project. By 2000, with Nespresso entering its period of intensive growth, Gasser decided the time had come for Nespresso to stop relying on its corporate parent for its coffee supply. “If you’re going to run an art gallery,” he told Kwakman, “eventually you have to learn something about art. If you’re going to run coffee boutiques, you will have to learn about coffee.”
With Gasser’s encouragement—and a significant investment from Nestlé—Nespresso began building its own supply infrastructure. Coffee experts were added to the company staff to monitor product quality and pass on their knowledge to Nespresso’s marketers and service people. A dedicated factory to produce Nespresso coffee pods was opened in Orbe, Switzerland, in 2002. And today, Nespresso has a network of field experts visiting coffee plantations from Brazil and Colombia to West Africa, meeting with brokers and farmers, selecting fields, and choosing coffee crops—all with the goal of maintaining ultrahigh product standards even as demand for Nespresso continues to expand.
No one at Nespresso wants to see the day when their customers can no longer get the intense “tango on the tongue” they’ve come to expect from their products. They’re investing in backstory infrastructure today to make sure it never happens.
Kwakman moved on to fresh assignments within Nestlé in 2002. His successors at the Nespresso helm have pushed the growth of the business still further. By 2007, Nespresso’s CEO Richard Girardot was talking about more than doubling the number of boutiques into the five hundred range.
When we asked Girardot how Nespresso tries to track how the customer is changing, he paused for a minute. “Our number one job is to listen,” he explained. “We have ten million customers. They communicate to us all the time, telling us what they like, what they don’t, and they are constantly generating ideas. You have to remember that our customer is our number one salesperson. They really care about this product.”
He pointed to his iPhone and said, “I received three letters from customers just today. That’s what we have to focus on. Most of the answers are there. We just have to listen.
“One message that always keeps coming through from them is their fanatical love of the quality. That’s why my teams and I spend so much of our time traveling the world in search of the very best coffee farms, today and tomorrow. We have built relationships with forty thousand farmers, but we’re always looking for new ones and helping set them up if necessary. Finding the absolute best sources of coffee is where the magic of Nespresso begins, and, like our customers, we are quite fanatical about it.”
Today, Nespresso is Nestlé’s fastest-growing brand, with annual growth greater than 30 percent from 2005 to 2010 (right through the Great Recession). In 2009, its growth accounted for fully one-fifth of the overall growth (excluding acquisitions) of its giant corporate parent. With more than 10 million Nespresso Club members, Nespresso is the European market leader in single-serve coffee; in April 2010, the company proudly announced it had surpassed sales of rival Lavazza in Italy, “the cradle of espresso.” Nespresso’s annual revenues are nearing $3 billion, and though this does not yet rival Starbucks’ $10 billion, Nespresso actually sells more servings of coffee every year than the Seattle-based chain.
Nespresso now faces challenges on several fronts. One is a legal battle to keep the demand stream it has created from being diverted. Despite the patents that are supposed to protect the exclusivity of the Nespresso design, at least two companies intend to sell coffee pods designed to fit Nespresso machines—one of them is the Ethical Coffee Company, a start-up headed by none other than Jean-Paul Gaillard himself.
The stakes are high. The price of a Nespresso capsule is fairly modest, currently ranging from fifty-five to sixty-two cents a shot, but multiply that by the daily consumption of 10 million Nespresso drinkers and you have a very nice revenue stream that is well worth protecting—and fighting over.
Nespresso is prepared for the challenge, aware that its decades of experimentation and the triggers it painstakingly developed have given it a unique set of advantages. “If a competitor wants to enter this market,” Girardot declares, “I say good luck to them. I do not want to sound pretentious, but the work done by the Nespresso team over twenty years is not easy to imitate.
“Our response,” he adds with a smile, “is not to respond.”
A second ongoing challenge for Nespresso is the quest to expand its success beyond Europe—in particular, to grow beyond a mere toehold in the North American market. While other competitors, including Keurig (owned by Green Mountain Coffee), Flavia (part of the Mars candy empire), and Italy’s Lavazza and Illy, have a head start in penetrating the U.S. market, none have Nespresso’s upscale image or a comparably magnetic product.
However, an even bigger challenge for Nespresso may be the nature of that market itself. Unlike Europeans, most Americans aren’t espresso fanciers—at least not yet. According to the National Coffee Association, while 68 percent of American adults drink coffee at least once a week, the corresponding figure for espresso is just 8 percent. But the U.S. market is evolving rapidly, and Nespresso may turn out to be well positioned to both drive and ride the future growth of espresso in the States. In the last five years, U.S. sales have grown from $15 million to $150 million.
Nespresso’s history has been a remarkable one—a tale of exploration in uncharted territories. Demand creation is largely about respecting, discovering, and then reshaping the unknowable. Nespresso has had to do that repeatedly, and is looking ahead to doing so in the future. As Henk Kwakman puts it: “If you pioneer something new into a market, there is no example, there is no roadmap, so that the key thing is that you have to try. Nobody knows what will happen, so the more you try, the more you discover, the faster you learn, the faster you go.”
One gets the distinct sense that despite its enormous success, Nespresso’s commitment to discovery remains undiminished.
5.
Trajectory
(truh-JEK-tuh-ree) noun 1. the rate at which the magnetic characteristics of a product are enhanced over time 2. rapid performance improvement (technical, emotional, affordable, content) as the key that unlocks new layers of demand
GETTING SMARTER FASTER: TEACH FOR
AMERICA’S DRIVE TO RESHAPE
EDUCATIONAL DEMAND
Novelist and social critic Aldous Huxley, author of Brave New World, had a favorite motto: “Nothing short of everything is ever really enough.” We’ve seen this principle at work repeatedly in the world of demand. For the demand creator, building a magnetic product is essential, but it isn’t enough—you also need to understand the customer’s hassle map
and figure out how to connect the dots in ways that reduce those hassles or eliminate them altogether. Making an emotional connection with the customer is crucial, but it isn’t enough—you also need to make certain that all the backstory elements are in place, so that you can be sure to avoid the Curse of the Incomplete Product. And even that isn’t enough—you also need to find the most powerful triggers and deploy them effectively if you hope to overcome consumer inertia and transform potential demand energy into real demand.
What’s more, great demand creators instinctively understand that even creating a powerful stream of demand isn’t enough—not unless you make a commitment to intense, ongoing improvement so as to meet, and exceed, the ever-rising expectations of your ever-changing customers. Like Olympic athletes who work year-round to shave another tenth of a second off their best time—and occasionally invent the dramatically new technique that revolutionizes their sport and catapults performance to a startlingly higher level—demand creators are always in training, constantly seeking ways to get better faster.
The rate at which a product gets better after its first release is its trajectory. The steeper the trajectory, the better for customers. Some products improve at a shallow, 5-degree angle, others at a more formidable 45-degree slope. A steep trajectory makes current customers happier, and gets new customers to join. It also sends a daunting signal to would-be competitors: If you want to tap into the demand we’ve created, it’s not good enough to produce a product that matches ours—because by the time you reach the market, we’ll be two miles further up the mountain.
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