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Writer's pictureDr. Marvilano

How looking out for strategy's performance helps Nestle ensures a Winning Strategy

In strategy, to achieve a goal, there are many options that a company can pursue. Therefore, the essence of strategy is to choose the best option for the company. This is why, in the GOSPEL approach, S only comes after O (where S = Focused Strategy; O = Options Assessment).


However, there are cases when your strategy doesn't work despite the hard work you put into it. In cases like this, you need to change your strategy (you should always stick with your strategy, but there are three exceptions to this principle; long-term non-performance is one of them). This is why L is an important part of the GOSPEL despite being the last phase of winning (where L = Vigilant Look Out).


Let's take a look at Nestle's Nespresso case, where it successfully changed its strategy following a lookout.


Nespresso changed its strategy after a look out
Nespresso changed its strategy after a look out

Photo from Unsplash.com



Nespresso is an espresso-making machine consisting of a coffee capsule and a machine. It was first introduced in 1986 as a joint venture between Nestle and Sobal. The new venture was called Sobal-Nespresso.


The strategy devised by Sobal-Nespresso was as follows:

  • Target Customers: Offices and restaurants.

  • Main products sold: Espresso-making system (i.e., both the coffee capsules and the machines).

  • Strategic approach: B2B machine distributorship.


Unfortunately, the business never took off and failed to make a profit. Even with the support of Nestle's sales and marketing team, offices and restaurants weren't interested in buying the espresso-making system.


By 1988, Nestle had considered closing the joint venture, but they decided to give it one last push by appointing Jean-Paul Gaillard as the Commercial Director.


After assessing the performance and situation, Jean-Paul realized that B2B machine distributorship is not Nestle's core competence. He, therefore, changed the strategy to align better with Nestle's core competence:

  • Target customers: Individual consumers (not businesses like offices and restaurants).

  • Main products sold: Coffee (not the machines).

  • Strategic approach: B2C coffee marketing.


By focusing on the coffee only, Nestle could focus on what it does best, i.e., creating high-quality coffee and marketing it directly to the consumers. In addition, because the coffee machine is expensive, Nestle needed to target high-end consumers and create an aura of luxury.


While Nestle could sell coffee capsules directly, the consumers would need the machines too. Jean-Paul solved this by partnering with other companies.

  • For example, the machine production was assigned to various premium manufacturers such as Krups, Tur mix, and Philips (whose competencies are in manufacturing). These competent manufacturers were able to produce high-quality and reliable machines at lower costs.

  • In addition, the machine sales were left to prestigious retailers such as Harrods, Lafayette, and Bloomingdale's (whose competencies are in retail sales). These competent retailers quickly provided exceptional sales experiences to the consumers.

These companies were willing to work with Nestle because they knew with Nestle's strong B2C marketing capability, there would be a strong demand for the machines. The impact of these changes was tremendous. Consumers were raving about the coffee. With over 3 million Facebook fans and 180k online customers daily, cult-like brand loyalty was fast emerging. So massive the success was that the number of employees jumped from 300+ to 10,000 people.


Jean's new strategy had turned a non-profitable business into a profitable one. He was rewarded for that: When the partnership with Sobal ended, Nestle set up the Nestle Coffee business and Jean-Paul was promoted to CEO of Nestle Coffee.


 

Sometimes, your initial strategy is not working. When this happens, review your strategy and decide if you need to change it.


Read more about how to make an effective strategy here.


 

Continue to explore the secrets of Winning Strategy here.

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