Nespresso's patent strategy: a bitter aftertaste

Coffee anyone?

I like mine black: no sugar, no milk.

My brewing method? A trusty, old-school coffee maker that's seen its fair share of grounds.

Fancy, pod-brewing machines like Nespresso? Not a chance.

Space is a premium in my tiny 7-square-meter kitchen, and those capsule contraptions take up way too much real estate.

But the biggest turn-off? Their business model. Nespresso locks you in with their proprietary machines, designed to only work with their patented coffee pods. It's like a printer selling only its own ink cartridges. Razor-thin margins on the machine, sky-high profits on the single-use pods. Not exactly my cup of tea (or should I say, coffee?).

I'll stick to my classic brewer and the freedom to choose my own beans.

The espresso revolution

The quest for quality

1975, Rome. Eric Favre, an employee of the Swiss Nestlé, stumbles upon a coffee game-changer. His mission? To craft a machine that bridges the gap between comfy home brewing and the top-notch espresso experience. After all, who wouldn't want that café quality without the hefty price tag and fancy barista skills?

Back then, home coffee was a two-horse race. You either went the flavorful but messy route with ground beans and a contraption like a French press or filter machine. Or, you sacrificed taste for instant gratification with the questionable flavor of instant coffee. Favre's brainchild needed to be both delicious and dead simple, justifying a premium price tag.

On holidays visiting Rome, Favre noticed a bustling cafe near the Pantheon. A long line snaked outside, unlike its neighboring shops. What was their secret? Inside, the barista revealed a crucial detail: unlike others who used a single pump, these guys went for multiple pumps. This meant more water and air hitting the beans, leading to richer flavor and that coveted crema (the foamy goodness on top of a perfect espresso).

Eureka!

Back in Switzerland, Favre set out to design a machine that replicated this technic.

Portioned coffee systems weren't exactly new (think the 50s), but no one had truly pursued them. Favre envisioned a world where anyone could enjoy espresso at home.

The idea? A machine and sealed pods filled with fresh grounds.

The design was ingenious. The pod would be pierced by a needle, allowing high-pressure hot water to flow through. As the pod pressurized, the foil would burst inwards, releasing a perfect espresso – all thanks to that strategic air infusion mimicking the Roman pump technique.

A revolutionary business model

The business model was unusual too.

Nespresso wasn't playing by the usual coffee shop rules. Their exclusive brand status made them stand out. Customers felt like they were in on a secret club, creating an account and getting the royal treatment before loyalty cards were even a thing. Nespresso was perceived as a luxury brand.

This is how they bypassed the traditional supermarket scene, avoiding the significant markups imposed by distributors (think 30%!). Instead, they went straight to the web and own boutiques, cutting out the middleman. But this strategy meant upping the marketing game. They even brought in the big guns like George Clooney to spread the Nespresso word.

Patent Puzzles and Trademark Troubles

Nestlé created the Nespresso brand in 1986. The naming is smart, a mix of Nestlé and Expresso, a common characteristic across Nestlé’s bands, like Nescafe and Nesquik.

In 1992, they file a stack of patents, aiming to lock down the single-serve coffee game. The plan? To corner the market with their fancy machines and those special pods, keeping the competition at bay.

Fair enough, right? Well, almost.

Patents have a built-in expiration date: 20 years.

Fast forward to 2012: POOF! Nespresso's tech becomes public property, free for anyone to use.

Here's the twist: the competition wasn't exactly napping. They saw the writing on the wall and started brewing up their own solutions way before the patents fizzled out.

Come 2012, the market was flooded with Nespresso wannabes. All thanks to a little thing called planning and a dash of anticipation.

So, what happened to Nespresso's dominance? Let's just say their single-minded focus on patents left them with a lukewarm cup of success.

Time marches on, and even Nespresso can't stop it. Extending their patents was a no-go, so they brewed up a different plan: premanent trademark protection!

Seems like a sweet deal, right? Well, not quite.

Nespresso went after a competitor, Dualit, whose pods were designed to work with Nespresso machines and were even eco-friendly (bonus points!). Nespresso’s claim? Trademark infringement.

But the judge wasn't buying it. Nespresso appealed, hoping to change the verdict. No dice. The Swiss Supreme Court shut it down.

Why? Because a capsule's shape alone doesn't automatically grant trademark protection. Turns out, shape alone isn't enough to scream "Nespresso" to consumers.

Strategic Shift

Back to Nespresso's game plan. They cornered the market by selling their machines and keeping anyone else's coffee pods out. But when the patent fizzled out, not just other coffee brands flooded in, but tea and even chocolate pods started popping up.

Here's the kicker: Nespresso could have played this way smarter. They could have licensed their fancy tech earlier. This would have meant raking in extra cash, without hurting their coffee business. Plus, it would have made their machines seem like multi-talented marvels, increasing their value in customers' eyes.

Nespresso decided to switch up their strategy. Now, you can either buy their machine outright or grab one on a lease-to-own plan. The twist? The entire lease amount gets converted into vouchers for their pods. Clever, right? This way, you're basically locked into their coffee ecosystem. It's no secret Nespresso isn't sweating over the machine margins; it's all about those pod profits.

And for my part, I’ll keep using my traditional coffee maker.

Takeaways

In essence, Nespresso's story highlights the importance of:

• Proactive planning: Think beyond the immediate and strategically prepare for the future. Imagine what the market might look like down the road and prepare proactively to stay ahead of potential challenges.
• Adaptability: Being flexible and willing to adjust business models to address changing market dynamics. Don't be afraid to experiment and embrace change to avoid getting stuck in the past.
• Openness to partnerships: Collaborating with others can foster mutual benefit. This can unlock new market opportunities, foster innovation, and create a win-win situation for everyone involved. Think of it as building a network of allies to expand your reach.

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About the author:

Elsa van Garderen is a strategy consultant for startups and SMEs.

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