Message to Keurig: never fight your customers.
Where did this come from?
You, Mr. or Ms. Entrepreneur, have worked hard, built up a successful business, maybe even sold it out to a larger firm because they saw how much it could be worth with their capital and market strength.
Whatever stage of your business, there are 2 prime rules for continued success and growth.
- Cash is King – but we all knew that. Without enough cash in the bank, your business folds.
- Never Fight Your Customers
It is impossible to emphasize the second rule enough, and amazing that I still find it necessary.
Time and again, I see examples of companies that start to feel some sort of “right” over how their customers use their products once they have bought them, and begin to find ways to fight their customers. Inevitably, it is the beginning of the end for the company.
Leaving aside legally controlled use items like prescription drugs, where you really do not want your customers using them in non-designated ways – for their physical health as much as for your financial health – whatever way your customer finds to use your product is to your benefit, and you should accept it and work with them.
Small startups never forget this; larger companies never seem to remember it.
If you are running a startup, you are hungry for a fast-growing customer base. Your very raison d’être is to modify your product in its entirety – features, service, channel, sales, packaging, price, etc. – until the market is happy enough to buy it in droves.
Your job is to adapt to the market.
Established firms, having found that successful business model a (relatively) long time ago, forget that the market changes, and begin to believe they have a right, a droit de seigneur, to that market as it stands today. As the market changes, and customers continue to buy their product but in a way that doesn’t quite fit the original market, the existing player tries to create restrictions, market-controlling, legal or technology-based, to force customers to use their product in the original fashion.
The incumbent simply cannot adapt to the changing dynamics.
At the beginning of this year, I noted that Keurig, the maker of the hugely popular one-shot coffee machines, hinted in its FY2013 annual report that it intended to produce some sort of “Digital Rights Management” (DRM), to ensure that only Keurig-sold or -authorized single servings, a.k.a. portion packs or “K-Cups”, could be used in their machine. I also noted why they cared so much:
- 92%, or $4.015BN, of the entire company’s revenues are from single-cup brewers and portion packs
- 79.4% of that, or $3.187BN, are from the portion packs
- The brewers themselves are “just” an $827MM business
Essentially, Keurig is a portion pack company that uses brewers as a wedge to sell the K-cups. While I know very few people who would scoff at an $827MM business, the revenue from the machines, but in the scale of Keurig, the brewers are just the way in the door.
Yet the cups themselves are just plastic or foil cups of a straightforward dimension and foil cover of a certain thickness. Anyone can make them… and lots of companies do, especially those selling coffee that competes with Keurig’s owner, Green Mountain Coffee Roasters (GMCR). This, of course, is a threat to the heart of GMCR’s business.
The business model has changed. As K-cups have become more expensive, and alternatives cheaper, more people are either filling their existing Keurigs with alternate cups or buying them because alternatives make the machine viable. This bears repeating: many consumers buy Keurig machines only because they can get alternative cups.
Nonetheless, Keurig has plowed on in their latest models with a reader that checks if each cup is a “certified and authorized” Keurig K-cup. Unsurprisingly, the Web has come up with a simple “patch” to bypass it without requiring an engineering degree or invalidating the brewer’s warranty.
I have no doubt that Keurig will “take umbrage” at this “blatant” violation of its “rights” to control what goes into “its” machines, and the next generation will include fancier technology.
What a waste.
Eventually, alternate manufacturers will provide machines that are K-cup compatible, cost around the same as (or possibly less than) a Keurig, and that happily accept any K-cup. Within the next year, I would expect a company to explicitly market their machine as the “friendly” or “open” coffee maker: “It’s your coffee machine; make the coffee you want! Only with X brand coffee makers!”
In response, Keurig will see further erosion and raise prices on their machines to “make up for the lost revenues”, which will lead to further defections. Hopefully, Keurig will get a CEO smart enough to recognize the spiral and turn it around.
When you fight your customers, your enemy really is yourself.
Your customers owe you nothing; get over it. Think like a startup, make your customers happy how they want it and they will make you happy.