Case Study: Bad Product Strategy

kcup-300x223The popularity of capsule coffee systems like K-Cups and Nespresso is a marketing marvel. aGreen Mountain Coffee Roasters estimates that around 13% of all U.S. households have one of their devices. But the real money comes from not from the machines but from the single serve capsules. Ounce for ounce, consumers are generally paying anywhere from $35 – 60 a pound for the ground coffee inside these capsules therefore getting consumers to pay for these capsules is very lucrative.  However forcing consumers to use your capsules is not a good strategy.

One feature of the upcoming Keurig devices was revealed on a recent Green Mountain Coffee Roasters  earnings call: a new DRM-style system that will prevent unauthorized third-party coffee capsules from working in the machines. A bit of actual high tech in what is really a rather low tech device, designed to further lock consumers into keeping the money flowing to GMCR.

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Green Mountain says the new machines, which are coming out in the fall, will include interactive readers programmed to work only with Keurig-licensed pods — where it primarily makes its money.

In response to the move consumers of Keurig brewers are angry and sharing their thoughts.  One person said “This is doomed to failure I predict.

1. DRM schemes are always broken eventually. No one has yet found an scheme that is effective over the long-term.

2. As this is essentially a hardware-based DRM solution, this suffers from an additional weakness insofar as it’s hard to impossible to update the system. So when the DRM is broken, it will be broken for good on some/all systems.

3. They’ve made their system a particularly inviting target to attack for several reasons. First, there’s the cachet of being first: no one has broken DRM in a coffee maker or any appliance really. Whoever cracks this first gets bragging rights. Second, a lot of people in the research community who hate DRM in general will likely view DRM coffee as egregious and heavy handed and so worthy of some “correction”.

Another customer voiced If this comes to fruition I will be the first on a long, long, long list of boycotters.”  While another wrote “Heh, doesn’t seem to be any controversy. Everyone I’ve seen talking about it universally agrees that it’s a terrible idea that will flop big-time.”

There are alternatives and GMCR may actually be driving people to these alternatives. like Starbucks Verismo and Nespresso’s new single serve coffee machine.

Keurig, a while back, tried to introduce a machine that uses different pods called the Vue but it to date has flopped because there is a wider selection of Kcups available from top coffee brands as Starbucks and 8 O’Clock.  (Kcups are not patent protected anymore so a wide variety of coffee companies can make and market Kcups without GMCR’s restrictions or licensing fees.)

It’s a consumers choice world and GMCR may be making a huge mistake with DRM enabled coffee makers.