Yesterday, I went to get some coffee, when something very interesting caught my eye. In spite of this being the middle of the afternoon on a monday, the store was full of people patiently waiting in line to be served. Something that struck me even more was that the line was almost exclusively made up of retired, well-groomed men and women who genuinely seemed to enjoy the experience …

Which made me wonder: why would any rational person wait in line to pay a five-times premium for a commodity product which is universally available through ubiqitous channels ? Enter Nespresso, the world’s premium coffee brand.

Through a superior brand management strategy and brilliant execution of their brand extension, Nespresso was able to successfully transform your everyday “cuppa Joe” into a desirable niche product for self-proclaimed “coffee aficionados”.

A business school darling case study, there are several things Nespresso does well:

• They have succesfully “servitized” a product – through the Nespresso club, they have managed to create a desirable social network around their brand, with exclusive offers and services at the disposition of its members;
• They understand where the money is really made – by partnering up with leading design brands (Alessi, Porsche Design) and outsourcing machine manufacturing, Nespresso was able to focus on their core business, and the “sweet spot” in terms of revenue generation: selling coffee capsules at a whopping five- to seven-times premium over “commodity” coffee brands;
• They succesfully align segments with channels - available only through licensed retail outlets and the Internet, Nespresso created a channel strategy entirely in line with its two main segments, the young and design-conscious and the older epicurians;
• They continue to extend their service offering through add-on services and products – from chocolat to sugar, over a line of exclusive coffees and premium “ambassador memberships, Nespresso understands the power of brand extensions;
• They create a seamless brand experience – in-store decoration, advertising, packaging, product quality, staff selection, store locations and online advertising all point to one thing – Nespresso has taken the traditional 4P model to new heights;
• They understand how to link worlds together - through their celebrity endorsement deal with actor George Clooney, Nespresso has succesfully extended its brand into the glamorous world of Hollywood

As always, the proof is in the pudding: according to their financial statements, Nespresso has enjoyed a Compound Annual Growth Rate (CAGR) of over 35% for the last seven years. Now, who said coffee wasn’t sexy ? The Nespresso model is uniquely suited for companies looking to create or extend their service offering towards the higher end of the market.

From private banking over luxury mobile phones through high-end watchmaking, entire companies have been built succesfully on catering to the wealthy. But entire industries have been built on catering to the “aspirationals”, those who look at the movers and shakers of this world, and feel they too deserve “a taste of luxury” – and are willing to pay top dollar for it.