SMELL THE COFFEE

I had my first coffee jitters last week. Oh boy! That liquid literally shook me so I have since stuck to savouring the aroma since then. In some related news dating far back in 1986, Nestle launched a line called Nespresso. The idea was simple, make perfectly shaped coffee with technologically sound and easy to use machines.

So, for Nespresso, Nestle started making machines and coffee. As a result, Nestle who is renowned for food production got heavily involved in machine production. Go figure…it was a classic mess, and 2 years later they decided to quit the Nespresso line. 

In 1988, Jean-Paul Gaillard joined Nestlé, highly motivated to join the Nespresso unit and save the project from crisis. As Commercial Director and later CEO of Nespresso, he introduced the strategy that eventually brought enormous success to the company. He asked a simple question. ‘Why is Nestle building machines? What if we outsourced the machine production to a machine production and distribution firm while Nestle focused on the capsules?' 

They outsourced the espresso machine productions. Now this is where it gets interesting. They did not only outsource it but they agreed to pay the partners a certain amount on every machine sold. 

I can picture the partners’ excitement and disbelief at Nestle’s generosity. They were already making money selling those machines and now Nestle is going to pay them additional amounts per machine sale! They were literally into Dollar printing business. Flat! They produced, marketed and sold these machines like the prosperity of their unborn generations depended on it. Nestle was using a subsidy model. They knew the more the machines got sold, the more capsules got bought!

By 2011, Nestle had done 3Bn in annual revenue and they’ve sold 20Bn capsules, enough capsules to circle the earth 14 times. Talk about innovation and capturing value in new ways. Same product, different business model.

As the 'rona' veil begins to lift, take a longer look at your models. At times, innovation is not a different thing, it might be a different way of doing the same thing. Smell that coffee.