Nespresso is a brand of Nestle that provides luxury coffee and espresso machines to individual consumers. The coffee machines are usually provided to the business customers and the company has brought innovation by providing the coffee and espresso machines to end consumers (Nespresso, 2019). The purpose of the company is to empower the customer and provide them with the best of the experience by sitting at home when it comes to coffee. The Nespresso was able to create the space and develop a market share for itself. To keep the company on the growth, Porter’s five forces model is developed and presented below.
Competitive Rivalry
The competition in the coffee machine industry is high as the number of companies is providing the coffee machines. There are 86 percent of the Americans that consume the coffee at the house which sparks the need for delivering the coffee machines. It is the reason multiple companies have entered to manufacture and provide this product not only to American consumers but all over the globe. Keurig, Nespresso, Black and Decker, Bun, and West Bend are among the major companies working in the coffee making machine. The profile of each of the companies in the industry is strong in terms of financial stability, competitive workforce, innovation, and other aspects of customer service (Lipton et al., 2015). It means that the companies are competitive which is making the competition high in the coffee machine industry at the global level. Therefore, the competitive rivalry is high in the coffee machine industry.
Bargaining Power of Suppliers
The bargaining power of suppliers is low in the coffee machine industry because all the coffee machine manufactures are giant companies such as Nestle and Black and Decker. The size and the customer base of these companies is the reason that the suppliers are dependent on the companies. This is putting the companies in the dominant position when it comes to bargaining which is the reason for the low bargaining power of suppliers (Rucheng et al., 2010). When there is a low bargaining power of suppliers, the customers are at benefit because many times the companies transfer the benefit taken from the suppliers to take a competitive advantage.
Bargaining Power of Buyers
The situation of the coffee machine industry is competitive and the buyers have the option to choose the coffee machine from different brands. It is also important to note that the coffee machines of different brands are not radically different from one another which is the reason for the strong bargaining power of the suppliers. It is easy for the customers to shift from one brand to another for the purpose of buying the coffee machine. When the buyers have such a convenience to choose from different brands, the power of bargaining for the buyers automatically goes up keeping the situation in the favor of buyers.
Threat of New Entrants
The threat of new entrants is high as the coffee machine is not a highly difficult and innovative product. The production of the coffee machines also does not require a special setup but the already existing setup of the companies that are dealing in technology and household product can produce the coffee machines. There are no extraordinary skills required for the purpose of manufacturing the coffee machine which eases the ways for companies to start producing the coffee machines (Gassmann et al., 2011). All of these circumstances are in the favor of new entrants which is the reason for the high threat of new entrants for the already existing players of the coffee machine industry.
Threat of Substitutes
The household electronic products obsolete quickly because the new technology evolves and the past product becomes obsolete. The case of the coffee machine is no different because it is a basic product. There was a time when the coffee used to be handmade but the machines came in and the scenario has changed. There is a high possibility that a future innovation would make these coffee machines obsolete and take the whole market share (O’Hara, K., & Shadbolt, 2014). Therefore, the threat of substitutes is high and it is important for the companies to have high attention towards the continuous innovation and evolvement of technology in the household electronics.
References
Gassmann, O., Daiber, M., & Enkel, E. (2011). The role of intermediaries in cross‐industry innovation processes. R&d Management, 41(5), 457-469.
Lipton, J. I., Cutler, M., Nigl, F., Cohen, D., & Lipson, H. (2015). Additive manufacturing for the food industry. Trends in Food Science & Technology, 43(1), 114-123.
Nespresso. (2019). About us. Available at: https://www.nestle-nespresso.com/about-us/our-company
O’Hara, K., & Shadbolt, N. (2014). The spy in the coffee machine: the end of privacy as we know it. Oneworld publications.
Rucheng, Z., Yangde, L., Chengyong, W., & Quankun, L. (2010). Thermal Fatigue Analysis of Aluminum Alloy Die Casting Die for Dome of Coffee Machine [J]. Special Casting & Nonferrous Alloys, 5.