Case I:

Nespreso, a division of Nestle's SA, pioneered the development of the single serving coffee machine in
1986. By 2009, Nespresso had achieved sales of over $2.6 billion with double-digit growth projected for
the next several years. The machine which have been imitated by more than 20 competitors, use a
capsule or "pod" to make a single serving of coffee by pumping hot water through the pods under
tremendous pressure. From the outset, Nepreso's business model was based on the sale of its exclusive
coffee pods protected by many patents to generate most of sales and profits for the company rather
than on sales of the machines. The pod to coffee machine relationship in analogous to the cartridge and
printer where the printer manufacturer rely on sales of print cartridges for the bulk of their revenues and
profits. Nepreso recognizes the extreme importance of maintaining the exclusivity and premium price of
its coffee pods by stringenly controlling their distribution channels. Consequently, Nepresso's coffee pods
are sold only in its own stores, it's online site, or by phone directly from Nepresso. Recently, competitors
Sara Lee Corporation and Ethical coffee co., announced plans to introduce their own coffee capsule that
will work in Nepresso machines. This capsule will be cheaper and more widely distributed than the
Nepresso pods. Nepresso says it will take legal action if the competitors product infringe on any of its
patent.

Question: Do you think Nepressk's distribution strategy based on tight control of the channel for its
coffee pod can provideab effective means for dealing with competition fron selling their Nepresso-
compatible capsules? Why or why not?

Answer:

Case II:

For many years, Procter and Gamble, as well as other giant consumer packaged goods manufacturer,
used special deals and merchandising campaigns as the mainstay of their channel members. Special
discounts, allowances, slotting fees, coupons, payment for displays and similar tactics were used
abundantly to get retailers and wholesalers to push their products. The main problem with that
approach to motivating channel member is that it can be very expensive for the manufacturer. If often
requires higher costs for special packaging and handling, creates "peaks" and "valleys" in production and
increases the manufacturer's promotional costs. Moreover, from the consumer's point of view the ups
and downs in prices, when one week a box of Tide might sell for $3.79 and the next week for $7.79
fosters price sensitivity and erodes brand loyalty. In a fundamental with this status quo approach to
channel management, P&G offered it products to channel members at lower prices on an everyday and
sustained basis. P&G believed this would reduce its own costs and enable channel members to pass an
lower prices to consumers, also on an everyday basis.

Question: What do you think of P&G's channel strategy? What are its possible strength and weaknesses?
Discuss from the standpoints of the manufacturer and the channel members.