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Nespresso doing digital right, says expert

30 Mar 2016

Article by Mark Raskino, VP at Gartner Research

In early March 2016, one of the business world’s most admired companies introduced something rather special. 40 years after the invention of the Nespresso machine, the latest models are going digital. It’s a pivotal example of digital business in action.

The Nespresso business of Nestle is one loved by all management schools and MBA students. It’s the gift that keeps on giving. It’s a great example of disrupting your own industry, of disintermediation, of e-business, of design thinking and a whole lot more.

Some have suggested the gross margin on a Nespresso capsule is around 85%. Over 80% of Nespresso coffee capsules are sold direct – evading the control of big supermarket retailers – half by e-commerce and another 30% through its own boutique stores. Just like other great “academy” firms such as P&G and GE, Nespresso is one that everyone watches and many copy. Whatever will they do next? Well now we know. It’s called Prodigio and it makes your Nespresso machine a loosely affiliated part of the internet of things.

Nespresso’s latest kitchen counter pod coffee machine connects to an app on your phone via Bluetooth LE – but you should not be impressed by that. In fact you should initially be quite skeptical. After all, the world is awash with pointless failed big brand apps and the Internet fridge is second only to the flying car as a symbol of failed futurism.

The question in your mind should be – what is that app for and how does that help Nespresso’s business? “It’s cool” isn’t sufficient value proposition. The new generation of millennials just setting up home won’t be impressed by a superficial novelty app. This app solves a simple but real problem. We forget to reorder.

The app will alert your phone when the coffee machine needs service maintenance or needs a water tank refill – hmm, that’s fairly useful I suppose. The app will also let you set a time for the machine to make coffee – that’s more useful – for early morning starts. These are quite good ideas. But the killer is coffee capsule reordering. Nespresso want and need you to depend on them alone for direct supply.

However their target market is full of classic cash-rich / time-poor people with very busy lives. Going to the Nespresso store, or even remembering to go online to order by e-commerce is yet another of life’s small and easily forgotten chores. How many millions of un-caffeinated consumer business moments slip by each year because machine owners didn’t have enough of the right capsules, right there, right then? That’s the revenue opportunity Prodigio goes after.

The machine keeps count of how many capsules you used. The app ‘knows’ how many you ordered. The app alerts you when you are running low and offers a one touch re-order button. Your own perfect little sensor enabled kitchen supply chain management system.

This is digital business. It is a piece of new business design that blurs the digital and the physical. It is digital remastery at work – taking digital to the core by making it part of the product itself.

Article by Mark Raskino, VP at Gartner Research

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