I’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).
- Packaging – 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”
- I’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!).