On Friday, I was being both a huge tennis fan and a writer, spending parts of the day at the ATP 1000 tournament in Montreal. It was a day before qualifying began, and I had a special pass to attend and watch some of the best players in the world train with each other, including Andy Murray, Stefanos Tsitsipas, Carlos Alcaraz, Matteo Berrettini, and others.
Early afternoon comes and my caffeine levels are running perilously low. So I see that Nespresso has this beautiful setup right in the middle of the hospitality area. I sprint over like a maniac, absolutely ready for a free and not entirely horrible Nespresso pod. Yeah, it’s not stellar coffee but, well, it’s coffee.
What I see next is a massive Nespresso misstep; a truly wasted opportunity to get new fans and some great photos and buzz on social media.
As you can see in this picture I took, Nespresso chose to charge approximately five dollars for a small shot of their coffee. As I laughed to myself and walked away, all I could do, as someone who has taught entrepreneurship at the university level and mentioned Nespresso themselves as a study, was sit down in the outdoor media lounge and start writing this piece.
Nespresso‘s business model is probably not what you think it is. They make relatively little profit when they sell their machines for your home use. Yes, you need to have one of their machines to be able to “brew” the Nespresso coffee pods (or anybody else’s pods, but I’ll get to that in a second) but the profit margins on the machines really aren’t fantastic. Nespresso‘s goal is to get one of those machines in your hand for the express (or espresso) purpose of you buying their pods.
When Nespresso began its business they actually had intellectual property protection of all the pods. In other words, the only coffee pods you could possibly use in their Nespresso machines was their pod. That changed a decade ago in a major misstep for the company, a fabulous business model case study that both Alex Osterwalder and I have taught throughout the world to business and entrepreneurship students.
Even though Nespresso no longer owns the patent over the pod, how they really make money is getting you hooked on their brand of pods. The packaging sleeves that contain 10 pods are far more expensive than a new Nespresso user expects them to be. Nespresso gets you to join “a club” and as a club member, you can order the pods directly through their site or buy them in many different spots, including Nespresso boutiques around the world.
Nespresso has to bear two significant costs in setting up their presence at the Montreal tennis tournament or any other sporting event they decide to attend: the staffing cost and whatever they need to pay to the organizers, through sponsorship or otherwise, to be there.
What costs Nespresso virtually nothing is the coffee costs for each coffee given to the end user. At these events, I would estimate the cost of drawing one Nespresso coffee drink (“pulling one shot,” in real barista terms) is probably around one-tenth of one cent. For all practical purposes, as measured against their other costs, the cost of giving you a Nespresso to drink is pretty much zero.
Yet here in Montreal for all of this coming week - for this massive important ATP 1000 tournament that is a warm-up for the U.S. Open - Nespresso has decided to charge us five bucks for the privilege of consuming one coffee pod.
Sure, Nespresso can do whatever they want. It’s their business and it’s their coffee. But this is a far more significant missed opportunity than they understand and that many observers might appreciate.
Think about the psychology of being at a sports event like this. Somebody (raises hand) really wanted a coffee. There were honestly no other coffee options that I saw on site, and while I am certainly not a massive Nespresso fan in any way, the idea of getting a free Nespresso sounded great. While I personally wasn’t going to convert that positive Nespresso experience into buying a machine, even though I had a machine many years ago, other people would have, and the importance of this can’t be overstated.
Rather than focus on what Nespresso did wrong, I’ll do what I do when I teach entrepreneurship to university students and focus on exactly what they should have done:
Nespresso should have the exact same beautiful setup that they have. They should have information pamphlets or cards with a QR code that you can scan from your smartphone, which everybody had since their tickets were on it, to learn more about their coffees, the different flavors and origins, and how Nespresso works as a concept.
That’s actually really easy. Near where they’re selling their coffee they can have a nice laptop or iPad set up where they can talk to you about what tastes you're enjoying in coffee. They can then, in real-time, get you on their website, enroll you in the Nespresso club for their pods (they can suggest which varieties to try for your first order), and you can get a machine with a 20% discount with the code for having attended the event. They can also give you a free sleeve of 10 pods to take home as a thank-you.
This is a huge win-win for everybody. By simply giving away a fraction of a penny’s worth of coffee, Nespresso is going to get people to make an impulse decision and buy a home coffee machine and probably $75-$100 worth of coffee pods right on the spot. If they did this 10 times at the tennis event it would be a huge success, but I predict they would do it hundreds of times over the course of the 10 days of the event. Not only would they get net new users, but this experience would also lead many people who already have a Nespresso machine but probably haven’t bought pods in a while to splurge on $50-$100 worth of pods.
This is really a perfect example of how far too many brands fail to make the small yet critical strategic decisions to get people interested in their products during a live event and miss that critically important conversion step to get people to buy something.
The way Nespresso is doing things this week, the only thing they are selling, truly, is a coffee that again cost them a fraction of a second to make. Sure, they’ll make some money selling $5 coffees, but when you look at the LTV, or “lifetime value” of a Nespresso consumer, making that a finite transaction as opposed to engendering the loyalty that comes with a happy new customer is a massive mistake.
Sometimes, the best business and entrepreneurship lessons arise from the smallest events. For Nespresso, selling their coffees at the tennis tournament in Montreal this week won’t make or break their business. Yet any missed opportunity is emblematic and indicative of other missed opportunities for a brand. Brands such as Nespresso never miss opportunities in isolation, at least in my study, observation, and experience. It reminds me of something John Lawlor, a Florida lawyer, told me that I used in my university teaching: “When brands lose the trust of consumers, it’s usually as a result of a pattern of ongoing bad behavior, not just one thing.”
As a final note, I found it interesting that Nespresso invested sponsorship money in having a daily newswire, the Nespresso Morning Cup, as part of the official tournament site. The cost of doing this is undoubtedly more than making free Nespresso for people all week.
About Aron Solomon
A Pulitzer Prize-nominated writer, Aron Solomon, JD, is the Chief Legal Analyst for Esquire Digital and the Editor of Today’s Esquire. He has taught entrepreneurship at McGill University and the University of Pennsylvania, and was elected to Fastcase 50, recognizing the top 50 legal innovators in the world. Aron has been featured in Forbes, CBS News, CNBC, USA Today, ESPN, TechCrunch, The Hill, BuzzFeed, Fortune, Venture Beat, The Independent, Fortune China, Yahoo!, ABA Journal, Law.com, The Boston Globe, NewsBreak, and many other leading publications.