I love coffee! And I love coffee from coffee pods. You would think that after nearly 2 decades of ordering Nespresso pods online, that I was a loyal customer. It turns out that I wasn’t. Many organisations pursue online service models to remove cost and human interaction, believing that a seamless, low-cost and accessible experience will be enough to create loyal customers. In fact, this only creates transactional (habitual) customers - not loyal ones. Without CX with positive sticky emotional involvement, customers will switch when they have negative experiences. My CX journey with Nestlé may be over after my latest experience. But it didn’t start out like that…
It was a great day in 1986 when Nestlé disrupted the coffee market with the Nespresso coffee pod system. Swiss engineer Éric Favre had solved the challenge of how to help consumers replicate high quality espresso at home similar to the coffee he had enjoyed on holidays in Italy. The strategy was timely back then: Even though Nescafé instant coffee sales were skyrocketing, wealthier consumers were being seduced by coffeehouse chains like Starbucks. In the higher end of the at-home coffee market, the Starbucks revolution initially benefited suppliers like Illy and Lavazza. Nestlé started out playing catch in this segment. Favre set out to create three critical points of difference (yes, PODs) for his firm to get cut-through with wealthier consumers:
Best in-home coffee experience
Direct to customer service
Premium brand identity
Favre succeeded. In 2020, more than 400 Nespresso pods were consumed every second. Over half of the orders for pods come from self-serve online, only 35% through Nespresso Boutique (retail) and 14% via over-the-phone.
I first tried Nespresso in Paris, at their first “Boutique” in 2000, and started buying their pods soon after they were available in Brisbane, Australia. For me, Nespresso pods meant better tasting coffee at home with less mess, even if they were more expensive than instant coffee. My rationalisation was - pods were cheaper than than takeaway coffee and almost as good. The other option was plunger coffee - more hassle than either instant or pods - more expensive than instant and less expensive than Nespresso - better taste than instant, but not a patch on the taste and crema from the pods system.
The free coffees and positive emotional hit I received at the Nespresso Boutique in Paris convinced me to purchase a Nespresso machine (around $400) as soon as they were available in Australia. Once the machine itself was sorted (the product), I had to commit to a pod subscription (the service), and together they could deliver the sought-after coffee (experience). The only real issue with switching to pods was that I had to change how I bought coffee. Previously I had purchased my at-home coffee at the supermarket. Nespresso Pods were not available there. There was only one Nespresso Boutique inside a large shopping centre in our CBD, which meant traffic hassles and expensive parking costs for me. I could order Nespresso pods online or over-the-phone.
My preference was to use the phone order service because it met my emotional need to feel cared for, when speaking with a customer service rep who took care of the admin for me. Unfortunately, Nestlé charged a premium of $10 per phone order, so I chose online ordering. Even though I am a coffee-addict, I was not conscientious in maintaining my supply line, so there were a number of times when we ran out of coffee pods and had to wait days for delivery. Running out of my vital coffee pods was not always my fault, many times I re-ordered with enough time, but the courier did not live up to their next-day delivery promise, or did not deliver my order (falsely claiming I was not at home). Then I had to collect it elsewhere. To counter this, I chose a more reliable courier whose delivery was 2-3 days.
To overcome delays with delivery, I tried the Nespresso subscription service for a while. Unfortunately, I couldn’t work out how to match subscription with consumption. Some days we drink more cups than others. We also travelled a lot and were away from home for weeks. That meant my subscription would either cause a run-out or oversupply. I hate subscriptions based on fixed regular quantities (think wine clubs) because they seem designed to compel you to over-order. I love my Netflix and Amazon subscriptions because the benefits are unlimited (shows watched or orders delivered free and no over- or under-supply). Eventually, I went back to online ordering my Nespresso pods (without a subscription) for more than a decade! During that time challenger brands had started selling pods to fit Nespresso machines. My coffee ordering had become habitual with Nestlé and I was not prepared to risk switching to another supermarket brand in case I didn’t like the taste. My primary need for an easy at-home, cheaper than takeaway, delicious coffee was more important than my emotional need for a great experience…. until it wasn’t.
My turning point was a negative ordering experience. The Nespresso website was running particularly slow and what usually takes me 2 minutes took 30. Also, their payment gateway failed multiple times and I was unable to place my order. My coffee pod situation was perilous, so I called their contact centre to report the issue, hoping they would offer me a free phone order. After waiting on hold for 15 minutes, the customer service person advised me they were performing unscheduled maintenance to their website, which was causing the issue. I asked if I could make a phone order instead and was told their internal ordering systems were down, so I should call back or try to order on the website later! I politely ended the call but vowed never to buy Nespresso pods again.
This poor experience compelled me to overcome my fear, and trial some supermarket brands. I found other equally delicious pods. I also enjoyed the convenience of buying pods while shopping for groceries. Supermarket pods always cost less than Nespresso pods and often there are specials where I can save even more. So, I can keep my vow never to buy Nespresso again, because the alternate options to buy coffee pods are better for me.
Someone at Nestlé decided customer care shouldn’t actually deliver customer care when the website was down. I can think of many reasons why this decision would have been made – potential for errors, cost considerations, setting a precedent away from online self-service or simply to hold up the price charged for phone ordering. I am pretty confident no one at Nestlé will ever measure the cost of losing all the future orders of the customers they lost that day. I can’t be the only one.
The crucial question is how much did that decision cost? One answer is - the cost to replace me as a customer. The average customer acquisition cost is around $AUS 105 for the eCommerce | Retail category in the chart below. However, this ignores mass advertising expenditure - so acquisition costs are most likely higher. The decision not to help me order that day only makes sense if it was going to cost more than $100 to do so. As phone orders are charged at $10, my calculated guess is it may have cost Nestlé up to $20 to keep my business. So, was this just an $80 error? Think again…
The real comparison should be the loss of future revenue. Pods in Nespresso’s current product line have a median price of $0.80 each. A three pods-a-day subscription plan is $75 per month. I think that could be under our household consumption, but let’s use it as a base. If I were to buy coffee from Nestlé for another decade the total revenue would be $9000 plus escalation. This is not an unreasonable assumption given I have just bought my third Nespresso machine after wearing out two others over more than two decades. In reality, I will probably be buying coffee for another 30 years. If you also factor in margins for coffee pods at 85%, then my recent bad CX with customer care just cost Nestle more than $20,000!
Positive emotional connection within CX is key to creating customer loyalty. Nestlé takes a purely marketing “push” communications and digital process approach with Nespresso - efficient for them, but not customers. And they have missed an opportunity to create deeper connection. When Nestlé finally added emotion into their CX, it was negative enough to push me away and activate me to become a detractor. Apple found a way for their technology to create emotional converts who see the brand as part of their identity. This connection is so strong that even when they get it wrong, their customer zealots will leap to Apple’s defense.
What Nestlé could have done is to craft their CX taking some pointers from Naked Wines. Naked Wines created an innovative online business connecting wine lovers to independent wine makers. In contrast to Nestlé, Naked Wines have fixed my subscription problem of over-ordering with a “piggy bank” to order from and allowing my subscription to be put on hold with no penalty. Winemakers start a dialogue with me by sending a personalised email when I make a comment about or rate one of their wines. Naked Wines also learn about what wines I like and make personal recommendations to me. These interactions make my connection to Naked Wines human and emotional. Nestlé has failed to do the same.
My surprise learning through this process is maybe I was never a loyal customer for Nestlé (even though my behaviour indicated I was). Nestlé spent a fortune developing the Nespresso system, positioning it as a superior coffee solution, and effectively promoting it to satisfy my needs. They successfully turned me into a habitual online customer through a lock-in reordering routine. Then, they destroyed it with a really poor customer experience. If I had been proactively offered a free call-back to order when systems were up again, I would still be a repeat customer today. Nestlé’s lack of positive emotional connection in their CX design has made them vulnerable. They need to lift up their online transactions to establish an emotional connection with their customers or risk losing their competitive advantage.
Robert Dew is a Founding Partner at CapFeather Global with more than 2o years of corporate consulting and university lecturing in Innovation, Customer Strategy and Customer Experience. His PhD related to improving creativity in strong corporate governance environments. It has become almost a hobby for him to point out how large organisations can end up doing things that upset customers and cost them profits. Then helping fix them.