Renovation And Innovation In Organizations Marketing - Case Study Example

Renovation And Innovation In Organizations Marketing Table of Contents Introduction 1 About Nestle 2 Renovation and Innovation 4 The Future Road 8 Conclusion 11 References 12 Bibliography 13 Introduction In the modern world of today, the word ‘change’ is presumed to be the only constant word. The environment, both external as well as internal of almost all of the industries, are on constant change. With the massive development in the fields of engineering and technology and communication process, the world has become a smaller place to live in. To have sustainable growth of the company, it is extremely necessary that the companies should remain aware about the changes that are being taken place around the globe and should try and incorporate such developments of the product line as well as product base, as and when required. In simple words, the essential features of innovation and renovation should always be part of the companies so that the companies can stay aligned with the changing needs of the customers and develop their products like wise. About Nestle It was in the year 1860, when a pharmacist named Henri Nestle thought of preparing a food item that would benefit the children that missed the breast food. The first success of Mr. Henri Nestle was in the form of premature baby who could not have the milk of his mother and also not any of the normal substitutes. Soon the food item as developed by Henri became popular and the market accepted the product as it successfully saved the infant’s life. Soon, the product of the company was found to be sold all over Europe. The major breakthrough came in the year of 1905 when Nestle amalgamated with Anglo – Swiss Condensed Milk Company. The World War I created huge demand for the milk products and Nestle benefitted strongly from such demand. By that time, the company was found to be operating in United States, Germany, Britain and Spain. Though the end of the war reduced the demand of the dairy products, the company diversified in to the related products of chocolate and a new journey started. In between the years of 1938 to 1944, the company also brought up the product named ‘Nescafe’, which was the staple drink of the US troops. The end of war called for major diversifications for the company and it saw whole lot of mergers and acquisitions involving Nestle which included Maggi Seasonings and Soups, Crosse & Blackwell, Findus, Libby’s and Stouffer’s. Since then it has been almost a glorious run for the company (Nestle, “History”). Renovation and Innovation Innovation and renovation have been part of the Nestle since outset. And this can be further more evident from the statement of the CEO of Nestle Mr. Peter Brabeck who himself said that if any business aims to have sustainable development, it is essential for the organization to change itself faster than the change in the behavior of the consumer and if it is not possible to change faster, the speed of change in the organizational outlook should be at least same with that of the industry or the market. The CEO denoted the first situation as the innovation and the second condition as that of the renovation (Brabeck-Lethmathe, “Innovation and Renovation”). When the CEO himself maintained so high regards in terms of newer developments and innovations, it is evident that the company would also look for it. The innovation of the Nestle is essentially marked with the Nespresso system. The CEO of the company thought of attaining higher growth for the company through the means like new product development. The company aimed towards the growth of 4% where as the industry standard for the companies in the similar field was believed to be around 2%. To attain such high growth, the company banked upon the Nespresso system and separated it from the direct control of the company. The Nespresso was making and selling coffee capsules in aluminum foils as well as highly technical machines for the purpose of preparing such coffee. The company mainly targeted the office market and launched the product in the markets of Italy, Switzerland and Japan. But with full effort as well as support of the company, the Nespresso could not reach anywhere near the set target. The sales target of the coffee machines, which was manufactured internally by the company under license of Turmix, also failed miserably. The management of the company thought of bringing someone from outside with new thinking and energy which was much against the culture practiced at Nestle. This thought led to the recruitment of Yannick Lang, previously working with Philip Morris. Lang had previous experience of turning S Fr 20 Company to S Fr 100 within a year and it was regarded that the executive had tremendous marketing track record with solid commercial base. Quite unlikely of other top executives of Nestle who had lost all hopes upon the Nespresso system, Lang had tremendous belief over the potentials of the Nespresso methodology. The new in-charge of the unit of Nespresso almost wrote off the reports of the market research authorities regarding the future of the Nespresso. Rather Lang and his team of twenty executives focused upon the household sector. The longsighted Lang rightly noticed that the house hold market would love the espresso coffee (till then available only at restaurants) if prepared at home. But the management of the company including the CEO was skeptical about the move though that could not influence Lang. One of the initial strategies that Lang undertook to capture the household segment as the target market was that he provided the right of manufacturing of the coffee machines to certain manufactures through licenses and the company withdrew from drawing profit from machine sales though it retained the patent. In this way, the price of the machine considerably reduced for the end customer and the manufacturer and the retailer could earn extra commissions. The innovations brought by Lang included both the strategy and technicalities. Along with change in the target group of customer (from office to households), the company also could reduce the costing of the coffee capsules. The company rightly positioned its product as the premium product and made deals with the top companies like British Airways and Swiss Air so that they serve the same coffee in their flights. It had a huge positive impact upon the sales as the flights were considered as the mode of transport of the elite class and the Nespresso being served there could only add brand value of the espresso from Nestle. But still Nespresso was not getting the desired success. The innovation now had to be in the distribution channel. It was observed that the coffee capsules were not being sold successfully through the supermarket channel. So, another innovation in the distribution channel was due. Lang and his team came up with the idea of the Nespresso club. It was a huge success. Even in those early years of technological advancement, the farsightedness of Lang could understand the essence of marketing and he initiated whole lot of measures to ensure that the esteemed customers are always satisfied. Among the major innovative initiatives, few of the notables include round the clock service (24 hours for 365 days) and delivery of fresh coffee with in two working days. The company also provided expert service from the coffee specialists to the esteemed customers to understand the taste of their preference and help them to select them the befitting brand. All these measures again prove the innovative thought of the top management of Nespresso as the company thought of so much customized measures so early to satisfy the esteemed customers. One of the prime learning from the innovation of the Nespresso system has been that the company (or the department), in which innovation has to be carried forward should have the free flow of thoughts and not an army-like structure. The executives responsible for the innovation of something new, product or process should be able to brainstorm freely. The other important learning is that the there should be involvement of the executives and employees with the goal of the company. This can be observed in the effort of Mr. Lang to buy over the Nespresso system. He could do so only because he had tremendous faith upon the abilities of and potentials of the product. Trust among the group is another important feature required for the efficient management of the innovation process. In the case of Nespresso, it was evident that the executives of the company had absolute faith upon the leadership of the Mr. Lang. Apart from all the above points, it should also be understood that the conflict and debate is also an integral part of an effective innovation. In this case, it is found that often the CEO of Nestle did not agree with Lang and challenged him. But Lang had tremendous faith upon his abilities and potentials of the company and he took such challenges as the motivating factors. The conflict and debate with the management is also important as it helps to bring out the best of the executives and it can also be checked if they are deviating from the original organizational objective. The Future Road With the exit of Mr. Lang from the Nestle, Mr. Willem Pronk was made the chief of the Nespresso system. Mr. Pronk had been a manager of Nestle all through his career and prior to replacing Mr. Lang, he was in-charge of Nestle in the Netherlands where he earned huge applauses with his innovative marketing techniques. The change in leadership did not change the way of doing business at Nespresso by any major extent. Rather, the new in-charge also targeted the household sector to be the prime customers of the coffee. But the sales and the revenue figures were not at all encouraging. It was observed that the company could cater lesser to 1% of the global house hold market and most of the household customers comprised only from the elite class. In such a scenario, the company can take few of the below mentioned measures to fulfill the ambitious growth that it intended for: Diversification – There is little doubt that diversification is the mantra of the present world. As the terms of trade are fast changing and also the external environment, to ensure sustainable growth the companies have to diversify their product ranges as well as the distribution channel. It seems that the management of the Nespresso is too conservative with respect to diversification in the product range. In that case, the company should immediately diversify in to newer markets and not just stick to the European and the North American markets. Nestle should target the emerging economies like China and India that are registering economic growth year after year and therefore also having increased purchasing power. In order to do so, the company should have clear understanding of the culture and traditions of the target markets and if it can relate its product with the local culture, then the customers can easily identify themselves with the product (Nelson, “Coffee Policies in a Market Economy”). Promotions – Though many of the top executives of the company are skeptic about the mass marketing initiatives as they believe it is mere waste of money, yet the company should inculcate adequate marketing and promotional techniques to attract newer consumers and retain existing customers (Yoakim, “Innovation and Renovation”). The analysis of the customers of the Nespresso system had showed that only a minor part of the global coffee lovers are aware of the system. Sales promotion and extensive marketing can ultimately reach the company to much greater target group of customers. Also, if it would have been major wastage of money then so many of the leading companies all across the globe would not have resort to the promotional techniques. Apart from advertisements, the company can also think of several contests and awards to popularize the company and its products at its club. Through promotional techniques, the company should aim to make the various external stakeholders of the brand more involved with the Nespresso system. Celebrity endorsements can be an effective tool too. Through such a measure, the company can be sure of the positioning of the company as premium brand too. Tie-Ups – To reach the ambitious targets, the Nespresso system can also look for the tie-ups with various companies all around the globe. While selecting business partners, the company should keep in mind the target segment that it believes to be the prospective customers and should also verify if the partner company caters to the same market or not. From the scenario of the case, it seems that the management of the company wants to position the Nespresso system as a premium brand. So, for effective results the company can enter in to the tie-ups with those companies that have premium status in the market. It can establish relationship with various industries e.g. vehicles industry, airline industry, clothing giants, etc. Other methods – If the above mentioned three methods are not successful in taking the company to the desired position, it should then take certain desperate measures. Among such measures, the first is to reduce the cost. The company reports have stated that the Nespresso machine costs five times higher than the competing brands and also the coffee capsules are costlier. The company justifies it saying that being a premium brand it deserves to be so. But if ultimately the sales revenue fail to speak up for the figures, than all such notions fail. In that case, the company should reduce its price so that more of the general public can participate and relate themselves with the product. Conclusion As the several of the top executives of the Nespresso system (be it Lang or be it Pronk) had repeatedly said that there is nothing hard and fast rules in the field of innovation, the same is applicable for the purpose of marketing too. Any of the initiative that is successful in one of the target market might not work in another market. Therefore, it is not prudent to comment upon any particular strategy as if only that is the best. Rather, a mixed bag of many of the strategies should be implemented to attain the desired results. The company could well reduce cost of the machines and also it should find out the effective sales promotion and marketing techniques that suits to its purpose. The company can also emphasize on the service quality offered. Tie-ups with similar minded companies could be a very effective strategy to gain additional market share and to enhance the market reach. The company can also look forward to diversify into the emerging markets. With all the stated alternatives, a perfect balance has to be made and an effective marketing mix has to be developed to attain the desired success. References Brabeck-Lethmathe, Peter., “Innovation and Renovation”. 11 December, 2009. The Nespresso Story. 18 March, 2009. Nelson, R. F., “Coffee Policies in a Market Economy”. 11 December, 2009. International Coffee Organisation. 2005. < http://www.ico.org/event_pdfs/wcc2/presentations/nelson.pdf> Nestle, “History”, 11 December 2009, All About Nestle, No Date, Yoakim, Alfred. “Innovation and Renovation”. 11 December, 2009. The Nespresso Story. 18 March, 2009. Bibliography Knowledge @ Wharton, “What’s Behind the Food Industry’s Appetite for Mergers?” 11 December, 2009. Marketing. 5 July, 2005. http://knowledge.wharton.upenn.edu/article.cfm?articleid=211> Markides, C. C., “A dynamic view of Strategy”. 11 December, 2009. MIT Sloan Management Review. 15 April, 1999. http://sloanreview.mit.edu/the-magazine/articles/1999/spring/4035/a-dynamic-view-of-strategy> Oregon State University, “A Dynamic View of Strategy”. 11 December, 2009. Nespresso. No Date. http://74.125.153.132/search?q=cache:1sQyJBVwbJ8J:classes.bus.oregonstate.edu/fall-07/ba569/Dibrell/Twelve%2520o%27clock%2520class%2520slides/Chapter%252010/07%2520569-presentation%2520ch%252010.ppt+strategy+of+nespresso+site:Edu&cd=3&hl=en&ct=clnk&gl=in> Wheeler, Michael. “Coffee to 2000: A Market Untamed”. Economist Intelligence Unit. 1995. Read More