Coffee vs. Tea – Product packaging, marketing and licensing

tea_coffeeI’ve just got myself a shiny new Nespresso machine to make my home office be slightly more like a real one. It takes those rather expensive pods (c. 40p a shot) and churns out a cup of rather nice coffee that I can’t differentiate from a coffee shop nor decent office coffee machine.

Why choose the Nespresso?

  • I rarely drink coffee so 40p for each cup a week doesn’t seem ridiculous
  • Instant coffee is pretty indifferent so I rarely bother, I end up throwing jars that have gone solid away
  • I own all sorts of cafetieres, little French hob tops pots, filter machines, percolators etc… but rarely can be bothered with the hassle, mess or volume for a single cup – again regularly throw away bags of filter/espresso coffee that have gone solid / turned to flavourless dust!
  • 40p a bargain compared to £2+ in Costa/Starbucks!
  • It’s quick, provides a single unit with no mess/hassle

 

The Tea Paradox

And then it struck me…. I normally drink tea. I’m quite fussy about my brand and go for a fairly premium brand, Yorkshire Tea, which costs about £2.50 for 80 tea bags (about 3p per teabag). If I was paying the same per cup for my tea – a box of tea bags should cost £32!!! That’s insane. A cup of coffee from a jar of instant, or a bag of filter coffee is probably comparable in price to that teabag. I’m coming at this from a UK tea drinkers’ perspective and really was thinking about the UK market broadly so whilst there are niche sectors and other geos, I’m conveniently ignoring them J.

Tea bags and coffee pods – so similar…

These products seem so similar:

  • Designed for the use as you need (the single cup)
  • Designed to simplify the process, remove unnecessary paraphernalia – filters, tea strainers, teapots, tea cosies etc…

And yet the £32 box of teabags I doubt will ever see the mass market…

The raw costs

OK so coffee is slightly more than tea, but it’s not hugely significant. A significant cost is the milk in a coffee shop but that’s out of the equation in the pod vs. tea bag equation. People seem to grumble more about the mark up on tea, particularly if it comes in a paper cup. Here are a few links I read while writing this:

Why can coffee be up-sold to me and a mass market in a way teabags can’t be?

  • Aspiration / Location – where have I experienced a similar product, seen its trade show giveaways? Who was I with? I feel I’m influenced by these factors so much more than I should be (but that’s the point). Pod and espresso coffee, I associate with smart city girls grabbing a cup on their way to wonderful jobs in the city while flick their pantene-d hair; trendy coffee shops with hipsters; after the best meals I’ve eaten; the nicest goggle-esque offices I’ve visited in Silicon Valley. Tea bags I’ve had in church halls, old people’s homes, in mugs etc…
  • Past positioning – The ease of making a simple cup is a big selling point for the pods, aspirational for that busy IT exec. When tea bags first came in my feeling is they were seen as for those that couldn’t afford the luxury of the time to lay out nice china, call the butler, warm the pot etc. – it was seen as a fast fix for the masses. With coffee the simplicity is a luxury with the tea bag it’s a case of slinging a bag in a mug.
  • Marketing – Nespresso adverts feature George Clooney. Tea bag branding over the years has featured chubby little Yorkshire cartoon men, monkeys and similar. Thinking back even Nescafe’s instant coffee had luxury associations with their infamous “Gold Blend” seduction TV adverts in the 1980s (featured Giles from Buffy).
  • podsPackaging – The Nespresso coffee pods are beautiful, I went for the starter selection box of ten differently coloured matte shiny pods, they look like tiny beautiful Christmas tree baubles… (actually I don’t like at least 30% of them – weird stuff like flavoured vanilla, or strength 12 (cardiac palpitations!)) but I seem to delight in choosing a pretty pod. Grabbing a tea bag doesn’t have that buzz…
  • Options – the range of coffees offer me choice, the fact half of them I’m not keen on doesn’t seem to affect my love affair and I’m not blaming the manufacturer for the vile vanilla coffee. Even though I don’t need/want these options I seem to like having “choice”.
  • Upfront (capital) costs – This is a strange one, the barrier to entry for the tea bags is way lower (most people own a kettle) but having paid out £70 for the coffee machine upfront I’ve now essentially bought in, I’m committed to this brand and changing requires upfront expense, a barrier to defection. I’ve somehow locked myself into committing to buy these expensive pods (an ongoing operation cost like a service agreement!). The £70 price point was low enough for me to try – in the past espresso and high bar coffee makers cost £300+ which I never felt sufficiently interested in.
  • Perceived value – every British high street is cluttered with coffee shops with brand association, the “Friends” effect, where it’s normal to spend £3+ a paper cup of coffee, so hey 40p is reasonable. Whilst high-class Tea rooms exist, it’s more about the cake stands, cream teas, china and they are far less prolific.
  • Budget – fundamentally a lot of people can afford to spend 40p for a cup of coffee or tea and do so for cans of soft drink etc. Whether they are willing to is another matter but in an overall household budget it is affordable to a large proportion of the market.
  • Not too mass market – 96% of all tea is now sold in bags, the market is saturated and established. It’s a huge task to differentiate or take on the big brands for a new product. Whilst the market for coffee pods is less, it’s a growing, new niche with fewer players.

 

How does this relate to IT and Virtualisation products?

As a Product Manager, I found there were _product_ features that were nothing to do with technologies, engineering or code. Product encompasses those but also marketing, the customer acceptance, pricing, licensing models. Tea bags and coffee pods are so similar and yet the market is so different. I found this to be the case with IT, software and hardware products and services. Transplanting a business, financial and marketing model, to even a very similar product is fraught with subtleties and finding data that identifies the caveats and rabbit-holes probably impossible. I guess all you can do is watch the market and listen to the customer response. If a customer likes it or if they say it’s too expensive – watch for the signs.

However much a marketing department wants to position a product or license/sell it. There is this huge baggage of your customer’s previous experience – good and bad experiences, what competitors and predecessors have gone. Deeply ingrained, established factors that you often can’t fight and you need to look for the niche for a product within a market. Better still tailor the product to the market! Too often a product appears and companies try to impose their desperation for a market on the consumer.

However good a technology or product may be – if a factor is wrong for the customer or even the customers’ sentiment – it’s just not going to fly, no matter how much marketing you do telling the customer it should.

It’s made me think a lot about various products and licensing models, not only how they were accepted and received but also by how they have scarred or changed the market. Maybe I’ll write more but products I think are interesting in how they were received and probably are interesting to think about from the coffee pod vs. tea bag thought train include:

  • Public Cloud: pay per unit as you need
  • Citrix Workspace Cloud: A product that offers to take on certain infrastructure (remove the hassle) at a price
  • NVIDIA GRID/GRID2 – a product that radically changed its licensing model
  • Citrix VDI-in-a-box: A low cost out-of-the-box (now deprecated) entry VDI product, for the price sensitive
  • SaaS – Software-As-A-Service: Has elements of my coffee pods, use in single units as you need, with elements of the infrastructure provided; possibly with ongoing operational costs
  • IBM Mainframes and microcode: IBM used to only make a limited number of physical boxes, the capabilities enabled depended on the level of microcode you bought, upgraded to. Happily accepted.
  • Thin Clients and Firmware: there can be ongoing operational (per pod) costs for firmware updates. Something I doubt customers would tolerate from an OS e.g. for Windows updates.
  • vSphere/ESX: the user response and memory of per core/socket licensing and the infamous “vTax”

Conclusion

  • nespressoI’m really pleased with the coffee machine, it’s wonderful, well-designed and aesthetically pleasing. The coffee is lovely.
  • I’m drinking far more coffee as a result and spending a lot more that the couple of cups a week I envisaged (have I been sucked in?)
  • On paper I’m buying the equivalent of the £32 box of tea bags, I feel should question this and yet I’m a really happy customer! And I don’t like a lot of the coffees I’m making (…. Vanilla – that is you!).

13 thoughts on “Coffee vs. Tea – Product packaging, marketing and licensing”

  1. Really interesting – even for someone who drinks no coffee and tea infrequently just to be polite. Factor in, too, the environmental cost in packaging the pods, making the drink and then disposing of the pods. That’s a lot of waste for one drink!

    Liked by 1 person

  2. These are some very interesting parallels that are being drawn here. You could also use an analogy that coffee is like an expensive hypervisor and tea is a less expensive hypervisor — both provide similar functionality, a variety of configurations, yet can cost significantly different. And like with caffeine and other substances, brands can also become addictive, with price playing less and less of a role because one has ‘drunk the Kool-Aid’. Look at Mac vs. PC users, for example. (Sorry, I just had to make that comparison.)

    Ultimately, it’s a convenience vs. cost issue and a question of what can be affordable and the elasticity of the pricing that ultimately plays the biggest role. Nespresso exists because of the success of Keurig and as with thin clients, GPUs, applications, cloud services, etc., success in the market spawns competition and often better offerings and pricing for everyone, plus stimulates innovation. Will unikernels overtake containers? Will AMD and Intel be able to effectively compete with NVIDIA in the server GPU market? How will hyperconvergence affect the storage market overall?

    Those trying to save costs can also be very innovative, for example by hacking the refilling of coffee pods (see for example http://www.keurighack.com/) or in the case of tea, using loose tea (better flavor, less expensive, but also less convenient!) or using a tea bag twice (probably a sacrilegious practice to some).

    In the end, it’s the matter of whether or not the consumer/customer feels the price is justified for what is being provided, in simple terms, “if it is worth it”. That tenet holds for many things, whether it’s a computer product, automobile or coffee maker. There are often orders of magnitudes of different in price and yet there is still a market for extreme ends of the spectrum and many in between.

    Vendors can also force a 180-degree turnaround if they aggravate the customer (e.g., by changing licensing policies, suddenly discontinuing a product, or as a consequence of a merger or LBO). With enough parallel goods available, many customers have come to shun brand loyalty. The difference, however, is that you cannot just suddenly decide to change to a totally different application, operating system or hypervisor just because there is suddenly an attractive price point for an alternative. It takes often years to acquire expertise in certain areas and that becomes an important part of the overall cost equation. It’s much easier and more affordable to swap out a coffee maker or a car, but in-depth human knowledge cannot adapt that fast. One thing that is certain is that we live in interesting times.

    Liked by 1 person

  3. I’ve got to say that I looked at the cost of the pods and thought “nope”. I probably belong to a different market – I brew a full pot of coffee every morning and drink all of it. I probably spend 40p a day on ground coffee. Interesting thing – we have a brown bin for organic waste and a caddy to take the waste to the bin, so it takes me far less time per coffee to make it (friend of mine has a nespresso machine and I think it takes a while to use) – bang the coffee in the bin, wash the filter, back in the machine, done.

    Our coffee machine’s been going for about 5 years, too.

    Liked by 1 person

  4. You’ve thought “I’d like a nice drink and some time out to make it”, but you’ve not bought “coffee” which you’re not fussed on, or tea which you like, you’ve not even utilised the tools you have (like a kettle). Instead, you’ve bought an expensive machine that you could likely have sourced much more cheaply, locked yourself into a very specific and expensive delivery model with limited options.

    Essentially you’ve bought the hot drink equivalent of Evo:Rail.

    As Tobias says, in the end it’s the matter of whether or not the consumer/customer feels the price is justified for what is being provided – but sometimes you wonder if the justification is that they feel the price is justified, or that the expensive needs to be justified.

    Liked by 1 person

    1. “Locking yourself into a very specific and expensive delivery model with limited options,” as Andrew states, is precisely is what is happening here. It’s like a blade server or a hyperconverged solution or a DB that works only within the dictated options of the one producer. One might as well call such an equivalent coffee drink producing device Coffee Maker Ware (CMware), Beanacle or Infusion Brewing Machine — never mind, that last moniker is already taken. Convenience and one-stop-shopping can and do have their place, in the computer industry as well as for coffee drinkers, and thankfully, there is room for a lot of variations on what people prefer and are willing to pay for. Still, when it comes to coffee, why narrow your options when there is such a plethora available?: https://www.popchartlab.com/collections/prints/products/the-compendious-coffee-chart

      Liked by 1 person

      1. For most coffee machines you’re not completely “locking yourself into a very specific and expensive delivery model” as there are 3rd party pods available at around two-thirds the price of the official pods. Still expensive, but significantly less expensive. On the other hand, Keurig tried to introduce DRM to force consumers to use only official pods (see http://mashable.com/2015/02/07/keurig-2-0-bad-taste/#RgZ.SXexl5qu) but the market didn’t think much of that… http://arstechnica.com/business/2015/12/after-flagging-sales-keurig-goes-private-with-13-9-billion-from-jab-holding/ (and of course people found all sorts of ways round the DRM).

        Liked by 1 person

      2. @Phillip:
        That may be true for coffee machines (see also my reference posted above regarding the Keurig hack), but it (at least legally) cannot be dealt with in many IT areas. The point is to not overly focus on coffee, but rather to take a look at the product packaging, marketing and licensing aspects of this article, which have far-reaching consequences and impact on the IT world. The upshots of much of the anguish caused by being locked into certain products are either “workarounds” or the embracing of open source options, which exist for good reasons!

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  5. Teapigs are doing a similar thing with teabags as Nespresso have done with coffee pods. They are at around the 28p / bag range (or less if you buy in bulk). https://www.teapigs.co.uk/

    The marketing is all innocent / chutes / premium (you can almost hear the ukuleles and glockenspiels). All very nice.

    Whilst I doubt that I could tell the difference between a cup of Teapig and another Leading Teabag Manufacturer, I can guarantee that both taste a heck of a lot nicer than any flavour of hypervisor you might brew up.

    Liked by 1 person

  6. Nice article, Rachel, but just because tea and coffee are both hot and wet doesn’t make them comparable in the marketplace!

    Tea is a mature product with most drinkers being able to express a product-related preference for variety (be it Earl Grey or ‘builders’), or even brand (Monkey!). In teabag form, it is portable and complies to open standards, working with any cup or teapot, and any suitable source of hot water. Tea is definitely a product and marketeers compete on why their tea is better than someone else’s.

    Now, I’m going to assert that coffee is not a product, at least not always. There are products that are coffee (which I’m not going to talk about here), but the marketplace that resulted in your coffee machine’s existence is a service market. Your total cost of ownership calculations are based on savings over a provider sourcing and making your coffee for you. In this marketplace, consumer preference is for service providers over product variety. You might turn down other providers in favour of Starbucks, but you’re unlikely to go into Starbucks and ask whether they’ve got any santos beans in today.

    So, this is coffee as a service (CaaS) as opposed to tea as a product (TaaP)!

    This is why you are prepared to pay so much for your coffee capsules. You buy CaaS and the perceived savings you can make with your machine justify the cost.
    Because you buy TaaP, you consider the cost of tea as a service to be a bit of a rip off, so you’ll never be able to justify that £32 box of teabags to yourself.

    So, even though you are now buying a marketed product for your coffee, it’s really just you choosing to insource your CaaS.

    The trick now for the marketeers is to convert that back into a product preference, being able to push up the cost of domestic coffee consumption.

    Walls turned ice lollies from a low-cost kids confection into an adult luxury with their marketing of Magnum, shifting consumer expectation on how much it was acceptable to pay. Apple did the same with smartphones, pushing the acceptable price up hugely for any top brand.

    So now the market is finding out how much people who are used to buying coffee as a service are prepared to pay to make it at home themselves.

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    1. Mark,
      Very interesting perspectives, so thank you very much for sharing them! I would say, however, that both tea and coiffee are available as a product (at pretty much any restaurant) and are equally as available as a commodity to be made at home. The interesting contrast comes IMO from the necessary infrastructure need to create coffee vs. simple equipment to make tea. An analogy might be a hyperconverged storage solution vs. JBOD — they both create storage, but one incorporates the service and convenience aspects, hence the justification for adding value. All a coffee maker is, therefore, boils (pardon the pun) down to it being an appliance (literally and figuratively). The trick is — unless you just use instant coffee, which is also proportionately more expensive because it has to be created through additional processing, you need more than just some boiling water to create it. The market therefore revolves around the consumer needing the infrastructure to create coffee. The cost comes from the value added through convenience plus also — and this is an important point — from looking at what alternative sources cost by comparison (e.g., Starbucks). Making coffee at home seems so much cheaper than getting it at Starbucks (which it is), even though it is still very expensive compared to other hot stimulating beverages.

      People are funny creatures — some will pay hundreds of dollars for a good bottle of wine, which others see that as total hedonism and an utter waste of money. It’s all relative! 🙂

      Like

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