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Triggering Demand: How Coffee-Maker Nespresso Turned Drips Into Gushers

Nespresso, the product that lets you brew the perfect cup of espresso at home, has made parent company Nestle the leading seller of coffee in Europe. But that success was a long time brewing. Nestle bought the basic design for a single-serve espresso machine in 1974 and introduced a machine in the 1980s. By the late 1990s, the business was still touch-and-go. Today, though, Nespresso enjoys revenues of $3 billion and 10 million Nespresso Club members.

What took it so long to succeed? The biggest problem was simply getting customers to try the "Armani of coffee," as former Nespresso CEO, Henk Kwakman, once described his kitchen appliance. Without some sort of a trigger—an event that spurs people to take action—consumer inertia rules the day. To convert potential demand into real demand, Nespresso needed the right triggers.

Taking the helm in 1997, CEO Kwakman made finding them his priority. First, he switched from print advertising to TV: When the elegance of the Nespresso machine was demonstrated rather than merely described, demand increased several-fold. Next, he expanded a pilot program offering Nespresso to first-class airline passengers. By 2000, some 1,100 planes flown by 20 different airlines were using the machines, and 3.5 million travelers a year had a chance to sample the product.

But sipping espresso prepared by an attendant was not the same as preparing a cup yourself. So Nespresso worked diligently with retailers to encourage in-store testing. Retailer surveys revealed that stores providing customer trials of the machines and tasting the coffee generated six times as many sales as those merely demonstrating the machines.

Taking a page from the playbook of high-end cosmetics manufacturers, Nespresso marketers approached department stores with a proposition: "Give us 20 square meters and we'll create a Nespresso store-within-a-store, with our own host and hostess." The famous Galeries Lafayette in Paris was the first department store to accept the offer; sales of Nespresso machines at the store rose from 50 per year to 700. Soon major retail chains all over Europe were asking for Nespresso shops.

Nespresso's in-store success led to an even more audacious demand-creation strategy—the launch of a chain of Nespresso retail stores. Today, more than 200 gleaming Nespresso boutiques thrive in cities such as Zurich, Milan, London, Tokyo, Rio de Janeiro, and New York. On busy mornings, the original Nespresso store on the Champs-Elysees in Paris has lines around the block—just as Apple stores do when a hot new device goes on sale.

With the boutiques, the Nespresso sales curve took a sharp tilt upward—28% in 2001, then 34%, 37%, 42%—again, not unlike the super success of Apple stores. Today, fully 60% of Nespresso employees work in direct contact with consumers, providing the company with an invaluable stream of customer feedback. Many casual observers attribute Newspresso's success to its advertising with actor George Clooney, but that campaign was launched in 2006, following the growth sparked by trial at boutiques.

Nespresso is now Nestle's fastest-growing brand, with annual growth better than 30% per annum from 2005-2010. Nespresso outsells rival Lavazza in Italy, "the cradle of espresso," and sells more servings of coffee every year than Starbucks.

With the demand triggers firing well, Nespresso continues its boutique expansion under current CEO Richard Girardot, with plans for 250 boutiques by the end of 2011. Meanwhile, the focus has shifted to coffee, to ensure its customers get a "tango on the tongue" with every brew. Girardot spends much of his time traveling the world in search of the very best coffee farms to source inputs for Nespresso's dedicated pod factory in Switzerland. "We have built relationships with 40,000 farmers," says Girardot, "and are always looking for more."

For the would-be demand creator, figuring out what kind of trigger will convert fence sitters into customers is not about reasoning from a priori logic or even from the evidence of other businesses. "When you pioneer something new in a market, there is no example, there is no roadmap, so that key thing is that you have to try," says Kwakman. "Nobody knows what will happen, so the more you try, the more you discover, the faster you learn, the faster you go."

Adrian Slywotzky is a partner at the global management consulting firm Oliver Wyman and a best-selling author. This article is based on material from his new book, Demand: Creating What People Love Before They Know They Want It (Crown Business), to be released on October 4, 2011. Follow the Demand blog at www.demandthebook.com.

[Image: Flickr user anieto2k]