The Cost and Value of a Perfect Home Poured Nespresso

Last week I blogged about Nespresso and their luxury machine + capsule + service experience. While I was researching the topic, I stumbled upon numerous articles complaining about the high cost of the coffee capsules. These capsules can be bought for around 30p each – which makes the average cup of home coffee around three times more expensive than buying filter coffee – but still far cheaper than the average high street coffee shop. It got me thinking about how we perceive value, both in terms of time and in terms of pricing.

30p per capsule – is that really too expensive?

Time > Money

One of the selling points behind Nespresso is the convenience and the time saved during the process. No cleaning out a filter, no boiling a kettle, even the mail order service reduces the amount of time spent at the supermarket.

Aaker, Rudd and Moligner (2011) examined the connection between time and happiness, and found five time-spending principles that increased happiness, including

1) spend time with the right people

2) spend time on the right activities

3) enjoy the experience without spending the time

4) expand your time

5) be aware that happiness changes over time

Of these five principles, 3 and 4 directly relate to the Nespresso experience, in that the machine saves time, giving you more, and gives you an excellent coffee experience without spending the time. Indeed many people genuinely report being very happy with their Nespresso machines, this indicates why.

Of course, that’s not to say that spending time (and money) at the coffee shop isn’t well spent. A coffee with friends is spending time with the right people, which this study, and a study by Dunn, Gilbert and Wilson (2011) would argue is time and money well spent.

The Effect of Pricing Points

The pricing of the machines themselves are also interesting. The three machines priced from £70 to £125.99 all do pretty much the same thing. For £159.95, you get the bonus feature of heated milk.  Why have Nespresso bothered releasing three different machines which all pretty much do the same thing?

The bottom end of the Nespresso range. But why does the £70 one look so tempting?

Shafir, Simonson and Tversky (1993) presented the case that when we seek choices under conflict we seek different options. If Nespresso only had one standard coffee machine before the heated milk upgrade, the consumer might seek choices else where from other coffee machine makers. By producing the alternative choices themselves, Nespresso is accounting for this psychological ‘option seeking behaviour (scroll to chapter 3 – ‘Choice under conflict: seeking options’ for an explanation of this behaviour).

This paper also showed that by adding more options (three is ideal) can make the cheapest product seem like a better choice. Dan Ariely suggests that this is because as humans we judge value relatively, so in the context of these Nespresso machines, having two machines costing £109.99 and £125.99 makes the £70.00 look like good value. Or, on the other hand, a buyer who worries that the £70 option might be cheap might think that a more expensive machine indicates good value, and given the small jump from £109.99 to £125.99, might be more likely to make the jump.

In conclusion, the coffee and the machines that Nespresso sells are undoubtedly quite expensive compared to other home drinking coffee options. However, Nespresso utilise psychological principles to maximise customer satisfaction and create favourable price perceptions, giving their customers the perception of value, whilst simultaneously and maximising sales and profits.

  1. leannesforster said:

    I think its a clever ploy by nescafe regarding the choice aspect. If you look at the designs of the 3 nespresso machines, the £70 looks a bit boring and plain (possibly slightly cheap looking) compared with the £125.99 one and so some consumers may prefer to have something that looks a bit fancy rather than something that just does the job whereas some people may prefer the cheapest option. I think it is a clever move by nescafe as it is allowing them to consider a range of people. Other businesses tend to do this too, for example many camera companies offer exactly the same product in a range of colours to give the customer some degree of choice which can increase their satisfaction with the product and makes them more likely to purchase from that brand again.

  2. psp046 said:

    I actually think the cheaper one looks the best one to purchase in-terms of its looks – but looks and prices in todays consumer world have either some added benefits or not. Its like buying a car – you can buy a car but always have the choice of extra’s such as eletric windows, air conditioning etc. I feel this is good for the consumer and allows the flexibility of paying for what you want, rather than buying something that you did not really want or need. The fact as pointed out in the blog that we have choices within certain similar products allows the consumer to be concentrated on that product as oppose to looking else where and this saves time also during the purchasing process.

  3. I think you both make excellent points, and thanks for commenting! As you point out Leanne, by offering consumer a range of three machines between £70 and £126, Nespresso really are catering for the tastes and values of a wide range of people (I should also highlight that the two higher priced versions can be ordered in different colours, just like your camera example– which gives the consumer the impression of even more choice).

    While the more expensive options do look slightly nicer to my eye, if I were to buy one of these machines I would definitely go for the cheapest option, because I would rather save the £40 and have a slightly uglier machine that does virtually the same job than the pricier model.

    In contrast, customers who place more value on aesthetics, or even customers who are trying to furnish their kitchens with appliances of similar colours (my aunty would do this – she redecorated her kitchen red and now everything has to match this scheme) might buy the more expensive models. In this case, it certainly looks like Nespresso has made a good choice by giving its customers more options.

  4. I saw this coffee in the Harrods department store in London. I have heard that his brand of coffee, which is famous of value and expensive, and called the capsule coffee. Each color capsule placed the different flavours of espresso. You must use its own coffee machine to make coffee. It means that customers must buy a certain set of coffee and coffee machine, just for drinking a cup of Nespresso. This product model, it is estimated that only wealthy people can enjoy, which is why being sold in Harrods. Indeed, people who have drunk Nespresso gave a high rating. It uses a psychological marketing that consumers will want to be able to have a high-end services and quality of life.

  5. Its the pods that they make so much of their money from. You think you are getting great value, but I remember doing the maths back when I was trying to sell the more expensive bean-to-cup machines. You’re average capsule was about 35c. A 1kg bag of Lavazza beans was €13. Approximately 6-7 grams of beans translated into one cup of coffee – that iss also how much coffee is packed into a capsule. It means that if you used a bean-to-cup machine you would pay around three times less per cup than you were paying for a nespresso pod. Yet it was near on impossible to get rid of the bean-to-cup machines! Everyone wanted a nespresso. Their main justifications was that the nespresso machine just looks better on a counter top. You might be paying an extra 30c for your coffee, but its cleaner and more compact. It was interesting to me how much more popular they were. It was also genius that you could only get your capsules online or in the boutique in Brown Thomas – Dublins most luxurious department store. It really helped the customer think they were getting a luxurious product. Its funny, because Nespresso is under the umbrealla of Nestlé, which is seen as less than luxurious, although they have successfully removed themselves a lot from Nestlé, so there is little association between the two.

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