According to the case (p. 607): \"Analysts who have examined Nespresso\'s busine

Question

According to the case (p. 607): "Analysts who have examined Nespresso's business model liken it to the classic razor/ razorblade system...." Explain the razor/ razorblade business model in your own words (4-5 sentences). [For answering this question, you may conduct internet or library search, as needed].

Nespresso Direct Channel Strategy and Brand Equity Nespresso manufactures espresso machines and dedicated capsules (pods), each of which produces a single serving of espresso or a larger cup of coffee referred to as "lungo" (see Exhibits 1 and 2). Nespresso prides itself on being the quality leader in the rapidly growing market for single-serve coffee. The Nespresso machines and Nespresso pods produce a perfect cup of espresso or lungo coffee with outstanding crema (the hallmark of great espresso), excellent aroma, and robust taste equal to or better than coffee served in the finest coffee shops in Europe. But actually making this superior coffee with the Nespresso machine and pods is simple and foolproof. One need only turn pod (pods are color coded and come in a wide variety of strengths and flavors), place it in the machine, and then press one butt espresso or lungo coffee is ready to enjoy. Although many single cup machines have appeared on the market in recent years, none has come close to Nespresso's superior quality and ease of use. The world's finest coffee can be made by anyone literally by pushing a single button. on the machine, select a on. In about thirty seconds, a cup of world-dlass History of Nespresso Nespresso was established in 1986 as a fully autonomous subsidiary of Nestle SA, the world's largest food company headquartered in Switzerland. The first patent application for the process of extracting coffee from capsules of finely ground coffee dates to 1976 but it was not until 1988 that the process began to gain a foothold in consumer markets, first in Europe and then around the world. During the 1990s and continuing through the first decade of the 21st century, Nespresso has enjoyed spectacular growth estimated to be as high as 30 percent year over year since 2000. Millions of coffee machines and over 20 billion pods have been sold itn countries around the globe. By 2010, sales were estimated to be in excess of $2.8 bi with Nespresso being by far the fastest growing of any of Nestle SA's subsidiaries Nespresso has become a widely recognized global brand ssociated with superb coffee and excellence in the quality and design of its coffee machines. Nespresso its of its leadership position in the premium single portion coffee market and has develo its policies and strategies to maintain and enhance brand equity well aware oped Distribution Strategy From the beginning of its emergence as an innovator in the coffee industry, N has jealously guarded its products and brand to maintain its disputed quality leader. Nespresso holds over 1,700 patents to pros espresso premier position as the un- 605

Explanation / Answer

Razor/ Razor Blade Business Model

This model talks about generating business by selling the razor blades and giving away razors for free. Razor Blades are the consumable itemsa nd razors are one time purchase. By giving away razors for free, The company is ensuring sales on razor blades. Since a customer ownes say for example gilletter razor, he keeps buying Gillette razor blades for shaving. And this sale of the consumable razor blades gererates business and money for the company. the comany runs a wide variety of marketing campaigns to give away the razors for free and then increase the customer base

this business model sis aslo call printer/Catridge model. Where in the printer is sold at give away prices and the actual business is the sales of the catridges.

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