Alexander Osterwalder: Sketching Out a Business Model | Summary and Q&A

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February 6, 2012
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Stanford eCorner
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Alexander Osterwalder: Sketching Out a Business Model

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Summary

This video discusses the business model of Nespresso and how it has evolved over time. It highlights the importance of key resources such as patents, high-end coffee, access to an international company, transportation and logistics, and brand. The key activities involved in Nespresso's business model include distribution, marketing, and production. The video also talks about the challenges Nespresso faced initially and how they had to pivot their business model to become successful.

Questions & Answers

Q: What is the main focus of Nespresso's business model?

Nespresso's main focus is on selling coffee pods, rather than the machines. They sell the machines through retail, mainly to households, and sell the pods directly through their own channels.

Q: Why did Nespresso set up physical stores, despite the availability of online selling?

Nespresso set up physical stores primarily for branding purposes. They wanted to establish themselves as a high-end brand and create a sense of prestige around their products, similar to Apple's strategy. Online selling alone wouldn't have allowed them to achieve this level of branding.

Q: What are some key resources in Nespresso's business model?

Patents play a crucial role in Nespresso's business model as they protect their pod designs and prevent competitors from easily entering the market. Additionally, high-quality coffee, access to an international company like Nestle, and transportation and logistics capabilities are important resources for Nespresso.

Q: What are the key activities involved in Nespresso's business model?

The key activities in Nespresso's business model include business to consumer distribution, marketing, and production. Notably, they had to develop new logistics to send small boxes of pods to households, which was a departure from their previous approach of sending pallets to retailers.

Q: How did Nespresso's initial business model differ from their current one?

Initially, Nespresso had a joint venture with machine manufacturers and sold the machines through their sales force to offices and companies. However, this business model didn't work as offices were not interested and the sales force didn't want to sell small machines. Nespresso eventually had to pivot to their current business model, focusing on selling pods directly to consumers.

Q: Why did Nespresso make the decision to pivot their business model?

Nespresso made the decision to pivot their business model because their initial model was not successful. The offices market and the sales force's reluctance to sell small machines led to poor results. The board decided to try something new because they had a surplus of machines in their warehouses. This eventually led to the development of a new business model centered around selling pods directly to consumers.

Q: How did Nespresso experiment with their new business model?

Nespresso experimented with their new business model by shifting the CEO, who was the original inventor of the previous model, back to research and bringing in a new CEO who came up with the current business model. This allowed them to explore and refine their approach, taking into account the lessons learned from their initial failure.

Q: What could Nespresso have done differently to minimize costs during their experimentation phase?

Nespresso could have minimized costs by experimenting with their new business model before investing heavily in the joint venture with machine manufacturers. By testing the new model on a smaller scale and gathering feedback, they could have potentially avoided the need for a major pivot and the associated costs.

Q: How important is branding in the consumer business?

Branding is extremely important in the consumer business. Without a strong brand, it is difficult for companies to differentiate themselves from competitors and gain customer trust. Creating a brand can be expensive but is essential for long-term success in consumer-focused industries.

Q: What are the potential challenges Nespresso might face in the future?

One potential challenge Nespresso may face is the expiration of their patents. As some of the patents are running out, competitors may be able to enter the market and offer more affordable alternatives to Nespresso's pods. Nespresso will need to evolve their business model to maintain their competitive advantage and continue generating high margins.

Takeaways

Nespresso's success can be attributed to its unique business model that focuses on selling coffee pods directly to consumers. By leveraging key resources such as patents, high-end coffee, and a strong brand, Nespresso has created a profitable business with high margins. The company's ability to adapt and pivot its business model when faced with challenges highlights the importance of experimentation and flexibility in the ever-changing market landscape. However, Nespresso will need to continue innovating and evolving its model to stay ahead of the competition and overcome potential future challenges such as the expiration of patents.

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