Companies dream these days of locking up their customers somehow. They envision multiple ways to do this, but a popular one right now is to convert a one-time sale into a continuing stream of revenue.
The desktop printing business created this kind of revenue stream, with inkjet refills and laser cartridges. You make one low-cost printer purchase and spend the next several years buying expensive replacements. Software went from something you paid for once and used for years, to something you might pay for annually or even monthly.
Enter the coffee cartridge
The coffee cartridge looked ideal to create just this sort of steady stream of revenue. Instead of just selling a coffee-maker that uses generic filters, you can sell the cartridges that go in it.
Keurig had a great deal going on this for a while. In 2014, "K-Cups accounted for most of Keurig Green Mountain’s $4.7 billion in revenue—more than five times what the company made five years prior," according to The Atlantic.
The cartridge lost patent protection in 2012, opening the door to pod-sellers who were not paying anything to Keurig. This opened the door to a second act, called, appropriately enough, Keurig 2.0.
The new machine would only work when a scanner built into it could see special ink that was only available on coffee pods where Keurig had a relationship (licensed technology.)
This must have seemed like the perfect solution -- give people lots of choice in their coffee, and make money on every single cup consumed!
Trouble in pod paradise
A couple of problems entered into coffee pod paradise. The pods themselves have been coming under a lot of criticism for the waste they produce. The company became the target of legal actions for alleged anti-competitive practices.
Consumers who wanted to use the refillable pod, My K Cup discovered that it did not work in the new machines. Under pressure from consumers, Keurig finally re-introduced a refillable My K Cup in May 2015 that would work in the 2.0 machines.
And if you want to hack the machine and use another manufacturer's pods? There are instructional videos and tips all over the place.
The bitter aftertaste
Keurig Green Mountain stock was on a spectacular run which suffered significant damage as a result of these challenges (see the stock chart below.)
I think an important side-effect here is that a brand that was loved has lost a lot of goodwill. They wanted to capture every nickel, every penny, from every cup of coffee. It didn't work. And in the process they damaged their brand. They wound up looking greedy, out of touch with their customers, and insensitive to growing environmental concerns.
Will suspicious customers who were burned by the 2.0 fiasco embrace their coming foray into single-serve soda machines (powered by deals with Coca-Cola and Dr. Pepper)? Time will tell, won't it?
Resources
A Brewing Problem, by James Hamblin, The Atlantic, Mar 2, 2015 http://www.theatlantic.com/technology/archive/2015/03/the-abominable-k-cup-coffee-pod-environment-problem/386501/
Keurig didn't learn a damned thing about DRM, by Jessamyn West, Medium, May 2, 2015 https://medium.com/message/keurig-didn-t-learn-a-damned-thing-about-drm-972912b13243
Kill the K Cup, https://www.youtube.com/watch?v=uRGiGbX9lIo
Keurig faces $600-million Canadian lawsuit over coffee pods, by Eric Atkins, The Globe and Mail, Oct 1, 2014 http://www.theglobeandmail.com/report-on-business/industry-news/the-law-page/home-brewing-war-heats-up-with-600-million-lawsuit-over-coffee-pods/article20868827/
Keurig caves on refillable K-Cups after 'underestimating the passion of the consumer', by Lance Ulanoff, Mashable, May 7, 2015 http://mashable.com/2015/05/07/keurig-refillable-k-cups/
Keurig Plunges to 52-Week Low on Disappointing Q2 Results - Analyst Blog, May 8, 2015 http://finance.yahoo.com/news/keurig-plunges-52-week-low-141002803.html
