The Nespresso Product The Nespresso product was a system that allowed the consumer to produce a cup of espresso coffee at home. Though simple in appearance and use it took Nestlé more than ten years to develop it. The system consisted of two parts: a coffee capsule and a machine. The coffee capsule was hermetically sealed in aluminum and contained 5g of roast and ground coffee. The machine consists of four parts –a handle, a water container, a pump, and an electric heating system. These four parts were cast into the body and formed the machine.

The new product was introduced in 1986. The original strategy adopted by Nestle was to set up a joint venture with a Swiss-based distributor called Sobal to sell the new product. This joint venture (named Sobal-Nespresso) was supposed to purchase the machines from another Swiss company (called Turmix), the coffee capsules from Nestlé, and then distribute and sell everything as a system one product, one price. Offices and restaurants were targeted as the customers and a separate unit called Nespresso SA was set up within Nestlé to support the joint venture and to service and maintain the machines.

By 1988, it was clear that the new product was not living up to its promise. Sales were well below budget and quality problems were driving costs through the roof. Nestlé headquarters was considering freezing the operation when Jean-Paul Gaillard took over. He had to decide whether and how strategically to reposition the subsidiary.

Discuss why Mr. Jean-Paul Gillard adopted and function joint venture? Suggest to him two other alternatives