Monday, August 6, 2012

Green Mountain Needed Green Ideas, Maybe

After visiting my brother- and sister-in-law I was tempted to buy a Keurig coffeemaker, just to enjoy the one -cup convenience. However, I just couldn't justify the higher cost of the coffee as it came in the one-cup package. Now Green Mountain Coffee Roasters seems to be struggling because the sales of the coffeemakers are declining. Their strategy had been to sell the brewers at a low margin and make up for that by selling the K-cups at a higher margin. It's a lot like printer companies giving away the printers knowing you're going to be buying ink cartridges; they waited to get their money periodically through the purchase of supplies rather than at once through the purchase of the equipment.

But like printer companies facing 'no name' competition through refillable cartridges, Green Mountain is also facing competition for K-cups and even refillable coffee cartridges that allow you to use your own ground coffee in your Keurig brewer. When I saw the latter, I was tempted again to go get a Keurig.

It seems the business model of giving away product for free (or low margin) and then making your profit on the supplies needs a revision. You can't think the model's going to work forever. It has a life cycle. And with some clear business precedents, you can easily determine what that life cycle might look like. Therefore, you should plan to make your business plan obsolete by creating your own competition. How would your competition cut into your business? Do it yourself. Plan to sell your own 'refillable cartridges', so the sales of your main product will continue in your favor.

And then what's the next step? How do you create and plan for 'planned obsolescence' through value? This is the example from radial tires that increased the life and reduced the number of tire purchases. Similarly, wireless or networked printers avoided the need to have a printer for every computer. You sell fewer but you're creating a greater value. Hmm, maybe there's a better price point and margin with this concept?

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