Lessons from Nespresso
From an economy of mass to an experience economy
By Nicolas Colin (Co-Founder & Director) | The Family
Below is the translation of a Twitter thread that I published in French in 2014. Some things have changed and some sources are outdated, but I still think that Nespresso is an interesting precedent of successful corporate innovation, from which many lessons can be drawn.
By the way, something that’s not in the thread but that a prominent executive told me is that Nespresso, which was the result of a series of accidents and misunderstandings, wouldn’t be able to happen given the current state of Nestlé’s much tighter governance. Yet over the course of 30 years it has become one of their most critical growth drivers! Makes you think 🤔
0/ The future doesn’t belong to engineers inventing processes, but to entrepreneurs creating experiences.
1/ Thanks to a stimulating meeting yesterday [in 2014], I learned a lot of things about Nespresso.
2/ At the beginning, it was a method for preparing coffee invented by Eric Favre in the 1970s.
3/ For 10 years, it never took off, as they focused on trying to sell machines, which nobody bought.
4/ And that without noting that it was also competing with Nescafé, another of Nestlé’s flagship products.
5/ Then, in the 1980s, Jean-Paul Gaillard invented “Le Club”, creating an EXPERIENCE around Nespresso.
6/ And that’s when Nespresso started developing. The technology passed into the background, eclipsed by the experience.
7/ (Neutralizing, along the way, some issues regarding intellectual property that had been the subject of numerous battles.)
8/ George Clooney (and Jean Dujardin) brought the experience to life, so pleasant and accessible to all.
9/ Nespresso showed how value was being repositioned: from those who create and distribute goods to those who create experiences.
10/ People have always created experiences, but the value was found primarily on niche markets, notably in the luxury industry.
11/ It’s only been recently that those experiences started to be expanded to mass markets.
12/ Because even if it isn’t itself a luxury, Nespresso takes all of its codes from that market (just as Apple does).
13/ Exclusive distribution deals, knowing the client, a privileged relationship, emphasizing experience… the product is simply an accessory to all of this.
14/ Consumers appreciate being treated as if they’re in the luxury market. They flock to businesses that serve them that well.
15/ That’s especially true in France, as Laetitia Vitaud explains here: Customer Service in France: A Privilege for the Few, Not the Many.
16/ And the digital economy has changed the game, as it allows one to create real experiences at a very large scale.
17/ Uber, for example, is an experience — the car itself is simply in the background. Taxis didn’t realize that.
18/ And Uber, as a tech company, could deploy that experience globally — fuelled by increasing returns.
19/ Today, when an entrepreneur tackles a big problem, they always end up creating an experience.
20/ The floor is no longer held by engineers, who invent processes, but by entrepreneurs who create experiences.
21/ We French have had a lot of trouble understanding that: we’re blinded by our passion for technology.
22/ On experience markets, the customers’ emotions are sensitive — so companies need to drastically increase their efforts to satisfy them.
23/ This creates a giant reversal in the power relationship between customers and shareholders.
24/ New values are emerging at the heart of these new value chains centered on the experience: …
25/ … authenticity, sincerity, trust, foresight, loyalty, personalization, fluidity, innovation, accessibility, reactivity.
26/ We’re still lacking the vocabulary to describe this economy: on-demand economy, everything-as-a-service, etc.
27/ Personally, I simply call it the “digital economy”, but maybe one day it’ll be necessary to really highlight the idea of the experience.
28/ Just like the oil revolution, which gave birth to the automobile industry, revealed an economy of mass…
29/ … the current technological revolution pushes us into an experience economy.
30/ During the transition, we leave an economy dominated by possession, entering an economy dominated by experience.
31/ The key signal: young consumers don’t want to own things, possession degrades the experience.
32/ And as has been noted in scientific studies, living an experience makes us happier than possessing a thing.
33/ In this experience economy, we always need to build things, to keep the trains running…
34/ … but all that becomes trivial as value continues to shift toward the experience.
35/ Businesses that refuse to create, or that fail at creating, experiences will be marginalized within their value chain.
36/ The Family just published a study on the different strategic options available to companies. [In fact, better to read this one these days.]
37/ Some may give up the battle for an experience and try to flee up the value chain. That’s the “Intel Inside” strategy.
38/ But that strategy requires a strong hold on an exclusive asset, and being able to guarantee its value on a market that is constantly innovating.
39/ For all the others, the goal is to hurtle down the chain and, by creating intimacy with consumers, meet the challenge of creating an experience.
40/ The competition is stiff: lots of space is already being taken up by the giants of the tech world, all American companies.
41/ Can French (and European) companies succeed in this transition, becoming leaders in the experience economy?
42/ My co-author @Henri_Verdier already wrote about this subject in 2010 — a time not so long ago when the impact of an experience wasn’t particularly evident outside of the culture industry. [In French.]
