The Best Touch Points To Market To SME Businesses In India

Imagine stepping into a market that has only 10% market penetration of the category that you specialize in.

Sounds like too good to be true?  Welcome to a new chapter in the Indian growth story. The  SME – Small and Medium Enterprises sector in India.

A few facts first.

In India, the size of the investment that a manufacturing or services company makes in its plants/machinery/equipment determines if it is to be classified as a Small, Medium or Micro Enterprise:

SME Classification INDIA(SME Classification: Indian Manufacturing and Service Enterprises, Source)

 Besides, today the SMEs in India are known to:

  • Contribute to 45% of the industrial output
  • Make up 40% of India’s exports
  • Employ 60 million people
  • Create 1.3 million jobs every year
  • Produce more than 8000 quality products for the Indian and international markets and
  • Have been growing at 8% per year (source)

In fact, by some accounts India has the largest number of SMEs in the world — at 48 million —second only to China!

But that’s not the most salivating part of the story. The magical statistic is the following:

As per a recent study conducted by Microsoft-Boston Consulting Group (BCG), nearly 90% of SMEs in India have no access to the Internet(!), compared with only 22% of SMEs in China and 5% in the US. A commensurate increase in technology adoption by SMEs can potentially add  $56 billion to the country’s economic output and create more than one million additional jobs, says the study.

This is a telling statistic on the growth potential for IT companies that market to SMEs, their wares related to Cloud computing (e.g., SAP, EMC), Productivity Solutions (e.g., Microsoft Office Suite, Xerox etc), Digital Marketing Solutions (eg, Google Adwords etc), Networking & Infrastructure Management Solutions (e.g., HP) etc.

No wonder then companies like Google have begun to make massive inroads to market to SMEs in India. Two recent examples:

  • As part of a massive campaign called ‘India Get Your Busisness Online‘ aimed at bringing down the barriers that prevents SMEs to get on the Internet, Google India & HostGator recently targeted popular traditional markets in Ahmedabad, Surat, Vadodara and Rajkot and built websites for over 5000 small businesses making them accessible to the world besides also creating Google maps listings and Google+ business pages for them. As part of this, Google India has recently announced its plan to get 50,000 SMEs in Gujarat online by end of 2014. (source)
  • Google India has partnered with Getit Infomedia to market Adwords to SMEs in South India. As part of this 50,000 SMEs in Coimbatore mainly in engineering, automotive components, textile machinery and pumps and motors would be targeted and educated on how to achieve global reach at lower cost with measurable results and personalisation. (source)

So while there doesn’t seem to be any dearth in the ambition and appetite of IT companies that target SMEs, the natural question that this begets is  – What is the best touch point to market to SMEs in India? What is the Zero Moment of Truth for these customers? 

My take on this  –  For IT vendors, banks are the best touch points to market to SMEs in India. The Zero Moment Of Truth in marketing (potentially any IT product/service) to SMEs is the time when they engage with their bank for their financing needs.

Why? My reasons as below:

  • Relationship: Given the role that banks play as lenders/financers/ advisers/ networking conduits for their SME customers, the latter tend to nurture their relationship with their banks for their long term interest. So the ‘lender – borrower’ equation in this context lends itself to exciting possibilities as a touch point for cross category marketing and info dissemination.
  • Reach: Banks have a very wide reach across the length and breadth of India.  For e.g., SBI – a government owned banking corporation has 14,816 branches in India, as on 31 March 2013, of which 9,851 (66%) were in Rural and Semi-urban areas (source). So they are naturally positioned as an incredibly powerful ‘distribution channel’ to market to SMEs.
  • A Customer Mindset that tends to be Future Oriented: The moment a SME operator steps into his bank to say, apply for a loan, his Zero Moment of Truth begins. After all, the sheer process of zeroing onto and applying for a loan are the most forward looking instances in terms of the customer mindset in setting up/sustaining his business. So can there be a better time to engage with him on possibilities and the cost benefit equations that are relevant to him from your product proposition stand point?
  • The Equation of Trust: From a psychological perspective, banks are traditionally about ‘trust’. So any message that gets seeded to a SME customer within the context of a banking relationship is bound to be enveloped with a liberal coating of feel good emotions like openness, good will and trust.   
  • Multiple Touch Points to Seed Content: A typical customer journey in a banking process is laden with multiple touch points from the multitude of application forms, the multiple approvals that need to be sought, the bulletin boards on the walls, the pamphlets that help the customers kill time as they wait for their turn, the tellers, the bank manager etc which can all seed compelling content on potentially any given new product/service that could be relevant for the SME.
  • A Win Win Relationship: Most banks tend to be big customers of IT services/products already. So they can be a willing accomplice to partner with an IT company to help market their wares to SMEs in return for say, a competitive pricing package for the coming year on their IT requirements. So a win win relationship can thus be effectively leveraged.
indusBank
(Image Source)
So there you have it, some food for thought. All along the purchase funnel right from building awareness, influencing consideration, driving sales to growing loyalty and retention, aren’t banks the strongest touch points to tap into when it comes to marketing to SMEs in India?

And for a category like ‘IT’ that is only 10% penetrated among the SMEs, what are we waiting for?

Know Thy Neighbor Nextdoor

Share it, Tweet It, Pin It, Like It, Stumble Upon It, Digg It and the list goes on..

Every conceivable kind of content that we consume on the internet today comes with explicit social networking markers.

Today with over 1000 Social Networking sites known to exist globally and 16 virtual communities with more than 100 million active users to date, Social Networks/ Virtual Communities have truly changed us and as also our definition of SELF(!). For most of the activities that we partake in our daily life like work, sports, hobbies, shopping, travel, dine, drive, and the list goes on, there is a virtual community / social network for each if it.

Now a social network built exclusively for local neighborhoods – called NextDoor is in the news for stepping into the elite territory of start ups.  On NextDoor.Com, each neighborhood is a closed social network where users have to verify their real name and address to gain membership. Once we are in, the idea is to be able to connect with our neighbors, strike conversations, while finding out everything from local deals, finding nearby help or even be alerted of neighborhood crime.

nextdoor_iphone_blog

(Image Source)

Developed on the insight that The Neighborhood has always been one of the “original social networks”, it has recently raised $60m fundraising led by John Doerr, the Kleiner Perkins Caufield Byers partner who led the IPOs of the likes of Amazon and Netscape and Tiger Global Management – prominent VC firms. (source)

This latest round of fund raising values the company at nearly $ 500 m as NextDoor.Com is slated to expand to more than the currently listed US neighborhoods on its site. Nirav Tolia, co-founder and CEO of Nextdoor, says there was already “incredible demand” abroad and goes on to say..

 “We see this whole notion of building safer and stronger communities is not an American thing at all, it is something all people share”.  

What I really like about the idea of a Neighborhood focused Social Network is the degree of relevance that can finally be attributed to the potential ads that can be placed in the network and the ways in which it can benefit all the players in the equation:

  • The Advertiser: Businesses in the locality can micro target the ‘captive’ user base in the neighborhood via their ads while also nurturing a local community of customers on an ongoing basis. The biggest opportunity here is for the SMBs.
  • The User: A user can find the most relevant offers from around her apartment rather than get bombarded by offers from across the country if not the world!
  • The Publisher: The publisher can facilitate the precious need of SMBs in the locality to micro target and reach out to their customer base in a very cost effective way, while also being able to track and optimize listings on a real time basis.

It’s almost like combining the best parts of Yelp, Craigslist, Foursquare, Path and Facebook with a liberal dash of a local flavor.  Like any other virtual community while it does come with its own privacy related nuances that need to be managed if it were to thrive across localities for the long term, one thing is nearly certain ..

We can finally get to know our neighbor. Albeit at least through the window of our screen.

PS: Two interesting things that you might want to check out:

  1.  To celebrate the ‘most neighborly holiday of the year’, Nextdoor launched just in time for this Halloween, a Treat Map to give you an insider’s guide to the best streets for treats in our neighborhood (relevant mostly to the US as of now)
  2. Funnily, Nextdoor has a page on Facebook 🙂

Taking Over The World One Mobile At A Time

These days it is not uncommon for food to get onto Facebook / Instagram or Pinterests of the world before it gets into the mouth. 

Armed with this insight, Spoon – one of the largest restaurant chains in Costa Rica created the following campaign.

Developed by GarnierBBDO, the beauty of this campaign is that it smartly builds upon an existing habit of people.  And why Facebook? Apparently, Costa Rica has one of the highest ratios of Facebook to internet users of 95% (source).

Damn smart! I’d say.

Such campaigns can be a great inspiration for restaurants and bars seeking to drive awareness and generate talkability with minimum investment and presumably a high ROI. In fact, fast food industry today is known to be one of the most represented on Instagram with a near 100% adoption rate!

Instagram Adoption by Brands per Industry

adoption-of-instagram-by-brands-per-industryFrom left to right: cars, fast food, soft drinks, apparel, telcos, retail, personal care, beer, luxury, financial institutes, insurance, technology, oil & gas

(Instagram adoption, MillwardBrown 2012 BrandZ index, Source)

And yes, Food happens to be the  #1 category of content on Pinterest too with 57% of Pinterest users known to have interacted with food-related content during 2012. (source)

Now, let’s take one step back in the process and look at another emergent habit

Even before we tag the food in our plates on our Social Media pages, what do we do? We place our order with the waiter/bartender. However this poor waiter today vies for our attention with – surprise, surprise –  our mobile phones.  Thanks to our emergent habit of ‘checking in’ also called ‘location tagging’.

In fact, during the two year period ended in September 2012, Facebook has seen 17 billion location tagged posts including check ins (source). And to put that number into perspective, using May 2013 statistics, this would equal every single user of Facebook in the world checking in/ location tagging at least 8 times in an year over 2011 and 2012!

Understandably Facebook wants to make this key statistic- that of every user around the world checking in on Facebook – a reality. So after a pilot that was successfully run for over an year at over 1,000 SMEs in the US, Facebook – on October 2nd 2013 – has formalized an arrangement with CISCO. Named as ‘Facebook Wi-Fi‘ program, it converts retailers’ routers in the US into public Wi-Fi hotspots accessible to customers of the merchant establishment for free on one apparent condition. The deal? Go to the retailer’s/restaurant’s Facebook page and check in, and you have the Internet for free!

In other words, the three-step Facebook Wi-Fi system, which can be deployed by merchants running a Cisco router setup, lets people connect to a venue’s Wi-Fi, launch their browser, and click on the blue check-in button to gain unfettered access to the Internet.

Facebook WIFI

The deal for the merchant establishment?

  • Obviously each customer check in generates visibility leading to additional exposure that could pull in more customers or inspire more ‘likes’
  • While Facebook shares with the merchant an aggregate of anonymous demographic data such as age, gender, and interests on customers who sign-in to Facebook Wi-Fi, which they can potentially use for more effective targeting of their upcoming Facebook advertising campaigns

For Facebook, the Wi-Fi-with-check-in initiative is part of a broader plan to attack the local market by encouraging merchants to set up and maintain Pages on the social network and more importantly to seed – in the general public – the habit of ‘checking in’ on Facebook and thereby become the default gateway for the Internet.

Meanwhile on the other side of the world…

Chances are that you would have heard of Facebook Zero. If not, you should read this post right away. Essentially in 2010 Facebook collaborated with several mobile operators around the world and worked out an arrangement whereby the end users of these mobile networks can access  0.facebook.com – a faster and a free version of Facebook for your mobile, no matter which phone it is –  without any data charges.  People will only pay for data charges when they view photos or when they leave 0.facebook.com to browse other mobile sites. So, when they click to view a photo or browse another mobile site a notification page appears to confirm that they will be charged if they want to leave 0.facebook.com.

When this was launched in 2010, Facebook signed up 50 mobile carriers in 45 countries. The following image shows how Facebook made itself accessible on every class of phone through this initiative:

ubiquitous_mobile_facebook

How Facebook made itself accessible on every class of phone (Image source)

A smart way to drive usage of Facebook in emerging markets where the average monthly spend on mobile connectivity, which is often just voice and text, is 8-12% of the average take-home pay of a cell phone user. (source) In fact in just 10 months after its launch, Facebook Zero has become so popular in Africa that the site was said to have driven the adoption of broadband internet, just so users can have faster access to all those pictures and status updates!

Read this brilliant post on Quartz on how Facebook is conquering the world one mobile at a time.

Today, with more mobiles on earth than are people, and with smartphone penetration exponentially increasing in the emerging markets, the story has but just begun – after all there are 250 million Facebook users in Asia , more than on any other continent, and yet that’s just 6.5% of the population. In Africa, its penetration is less than 5%

And then Google launches Free Zone.

And the battle for world domination continues one mobile at a time.

Block By Block – A Consumption Focused Design Paradigm

It took more than a 100 years for inkjet printers to become commercially viable. The reason?

Severe interdependence of the components and underlying systems. 

For e.g., even with the slightest change in the chemistry of the ink, the composition of the resistors had to be changed, and this potentially impacted the physical layout of the circuits and so on.  The solution for this?  Modularity of design. 

Wikipedia defines modularity as ..

 the degree to which a system’s components may be separated and recombined.

Today most tools, gadgets, processes, systems, structures, designs that we interact with on a daily basis have modularity built from deep within. Right from the nuts and bolts of a system to the way it has possibly been put together on an assembly/production line, modularity is all pervasive.

In fact it is almost accepted wisdom now among designers and manufacturers that the speed at which an innovation can be commercialized is directly proportional to the speed at which the underlying design (of the system) and the process (of the assembly or integration) is standardized and modularized.

Now consider the above statement in conjunction with the following self explanatory paradigm of Design Thinking evangelized by IDEO, called the Desirability – Viability – Feasibility triad of innovation design. 

IDEO

Based on the above two, my hypothesis is the following:

While modularity in the context of production has almost proven itself to be a pre-requisite for establishing technical feasibility and – in many cases – for driving business viability of a given innovation , modularity in the context of consumption – if done right – can have far reaching implications in seeding the attributes of human desirability for the same.  

Three recent examples that seem to suggest the compelling potential for modularity in the context of consumption as a design paradigm:

(1) Phoneblok: Most of us, by now, would have seen this short video on the idea of building a phone with modular detachable blocks. This  presents the idea of Phonebloks –  hailed as a radical vision of what tech could be. The idea for me, is sheer ingenuity and insight. The possibilities  of such a consumer focused modularity in design seem to be truly empowering and liberating.

(2) NoFlo – A Flow Based Development Environment: The philosophy of Modular Programming is the default standard in most coding systems. But this modularity was mostly – for lack of a better term – limited to the realm of abstraction and ideation, since the corresponding code nevertheless lends itself as ‘strings of spaghetti’ and presents challenges for debugging compilation and logic errors.   With NoFlow as a development environment, modularity can be made more tangible and actionable in order to help inform, structure, design, test, debug and implement a complete software package.  The following is the video put together by the team for their Kickstarter campaign to raise funds (the funding was successful!).

(3) Modularity in content consumption: Unleashing the power of modularity in the domain of content consumption is in fact the name of the emerging game. Platform agnosticism is one of the many ways in which modularity lends itself in the consumption context for services like Amazon, Youtube and now Dropbox.  The latest edition of WIRED in fact features a fantastic story on  Dropbox’s radical plan for a future where “the gadgets are dumb, the features are smart, and data trumps devices.”

Dropbox

So there we have, emerging examples of modularity in the context of consumption (as opposed to only production) and how they promise to pan out in mobile, software design environments and cloud based architectures. Something for the technology powerhouses to sit up and take note? In fact in a recent interview with Forbes Clayton Christensen worries about Apple saying Modularity Always defeats Integration! 

Even in life as usual as we know it, no matter what we do from fixing a meal, concocting a cocktailassembling a piece of furniture, to laying out our Google Newsfeed, there’s always been a sense of joy, an inexplicable sense of desirability that we had for our stuff, for after all, it was our creation.  Step by step. Block by block. Isn’t it?

(Source for the featured image)

Now In Stock – Packaged Chunks Of Epiphany

You awake suddenly, and find yourself trapped inside a ship. A greenish fog hangs in the air, and the soft rocking back and forth feels as if the ship is breathing.  A low groan echoes in the hull – Looking across the dimly lit room, you see that you are alone. Somehow, you know the ship’s destination is the afterlife, and when it arrives you will die. Can you solve all the mysteries, and escape with your life?

So says the copy of an invitation for one of the most popular and the latest edition of the Real Escape Game (REG) held in Singapore in July 2013.

Escape from the haunted ship

This is how it works: buy an entry ticket for around 25 bucks, bring along your brains, wits and teammates, get locked up in a room, and find your way out of that by solving numerous puzzles and riddles. The deal: well nothing! After all, everyone is let out of the room anyway.

But this is where it gets interesting. While there are several editions of REGs around the world and while they can possibly differ from each other in terms of nuances like game play, level of challenges, themes etc, most of them – if not all – have 2 things in common:

  1. Thousands of people pay over 25$ to spend a panicked, claustrophobic hour trying to win a game for which there is no prize!
  2. These sessions typically tend to be sold out!!

And this is just one among the many franchises/editions of a business idea that is steadily gaining steam with increasing levels of popularity around the world. While a Japanese company called SCRAP Entertainmen started the concept of the ‘Real Escape Game’ there are many other parallel off shoots around the world that operate along similar lines like the ones listed below: (list source)

  • Parapark with more than 30 rooms in Budapest and many more in Hungary
  • Hinthunt with rooms in Hungary and UK
  • AdventureRooms – a Swiss company, with offerings in Bern
  • FreeingHK in Hong Kong
  • Escape Hunt that opened its first room in Bangkok in July 2013
  • Real Escape Games (Scrap Entertainment) now have a franchise in San Francisco and have become a huge hit
  • and HintQuest – a very recognized live escape game in Munich, Germany

On first look the concept of Real Escape Games (REGs or the likes of it) might sound similar to that of The Crystal Maze – the 90s Channnel 4 smash hit that was said to  have attracted between 4 and 6 million viewers at its height (source). But on second look it becomes apparent that with the REGs of the world today we are at the cusp of a different ball game all together: from the product package, proposition, consumer base, distribution model, pricing, to the end consumer pay off – that spans emotional, mental, intellectual and social realms.

This can easily be one of the latest and arguably the most interesting examples of how the playing field is rife with rich possibilities at the top level of The Maslow’s Hierarchy Of Needs (Self Actualization).  So now we have dedicated puzzle masters that spend months constructing a carefully orchestrated series of aha moments, little sub mysteries that let players come so close to solving the mystery and get commensurate highs of making discoveries – large and small, and professional game designers that are adept at staging REGs (or the likes of it) at venues as large as the Tokyo Dome to those as small as a locked room with space for just 10 players. 

Introducing the newest offering at your local supermarket aisle –  chunks of epiphany –  sealed in an air tight pack (pun intended) – now available in a handy 1 hour time capsule best enjoyed with a bunch of friends.

For a ‘virtual’ taste of such games, try your hand at The Google Puzzle (the result of a collaboration between Google Japan and Scrap Entertainment). And yes do drop me a note if you manage to crack the 5th stage in the puzzle 🙂

(H/T to Valentin Valov for suggesting HintQuest)

The Last Of Us And The McWrap

What is common between the latest PS3 game The Last Of Us and the recent McDonald’s addition to its menu The Premium McWraps?

Stealth.

Let’s first take The Last Of Us

If you still haven’t heard of this survival horror video game, you must be hiding under an abandoned bunker in a post apocalyptic zombie infested world.

The-Last-of-Us-key-art

At least that’s how you might feel once the brilliance of this creation hits you. Declared as a masterpiece, for its choice-enabling gameplay, realistic action, emotional depth in the plot, sound design, and environments, The Last Of Us has been the biggest video game launch of 2013 so far, selling over 1.3 million units in its first week after its worldwide release on June 14, 2013  (source)

A key innovation that underpins the genius of this game’s design is its AI system called as Balance Of Power. This enables realistic combat situations and enriches stealth attack tactics to what it calls as Dynamic Stealth.

Dynamic Stealth: While Stealth is not particularly new as a gameplay tactic, the genius of Dynamic Stealth lies in how it makes the player own the consequences of his actions in real time. For example:

  • If you’re infiltrating a secured building and see two guards at the entrance,  you create a distraction, split them up, and take out one of them when he’s off in the shadows. In other stealth games, the second guard would stoically continue to be on the watch as if nothing had happened.  But with Dynamic Stealth he starts to wonder where his buddy went, gets panicky and might even call for extra cover and back up.
  • the game doesn’t pause when the player  is accessing their inventory and assembling weaponry (loading guns, crafting a molotov cocktail etc), so the player’s stealth tactics are governed by real life like rules of space and time.

Instead of  just bombarding the player with a constant stream of actions resulting in cookie clutter shoot and swear sequences, the Dynamic Stealth system lets the user set the pace of his own survival experience and make him fully own the consequences of his decisions and actions. And that for me is the big insight in interaction or use case design from The Last of Us: 

If the system is designed in such a way that it allows the user to own the consequences of his decisions and actions, they’d willingly embrace all its resulting outcomes – both positives and negatives.

Now let’s move over to The Premium McWrap

mcdonalds_mcwrap

Launched on April 1 2013 after 2 years of R&D and a blockbuster like pre-launch fan fare, the marketing mix of this newest addition to the McDonald’s menu can be summarized  as follows: (Source)

Product: The McWrap is a 10-inch, white-flour tortilla wrapped around 3 ounces of chicken (grilled or crispy), lettuce, spring greens, sliced cucumbers, tomatoes, and cheddar jack cheese topped with ranch, sweet chili, or creamy garlic dressing.

Proposition: “The Subway Buster”

Target Group: Millenials, 18-32, who are looking for healthier and tastier alternatives to their fast food.

Packaging:  The PKG design requires the customers to tear off the top half of the container. “The packaging was a very big, big idea,” says Kasey Short, director of menu innovation in the U.S. “When you unzip the product, there was more excitement.” It’s also designed to fit easily in a standard cup holder; 65% of McDonald’s customers order at the drive-through.

Price:  At $3.99, it’s four times the cost of a McChicken.

Service: Assembled in 60 seconds, the lettuce and chicken peek out of the top, suggesting farm-to-table freshness.

Ingredients:  After lot of R&D, testing and negotiations with the suppliers, McDonald’s managed to add one new ingredient to the McDonald’s arsenal: the English cucumber. That might not seem like a big change, but when the chain added sliced apples to its menu, it immediately became one of the largest buyers of apples in the country! So this addition has a huge implication on the supply chain of cucumbers around the world.

As an analyst sums it up “It’s the best piece of total marketing we’ve seen out of them in a long time. It’s convenient, healthy, fresh, good-tasting, and filling”.  While reading about these specific elements of the mix was definitely interesting, the big reveal for me came towards the end in this Businessweek article:

… the McWrap serves another stealth purpose…..customers may come into restaurants with healthy intentions but fall short of their aspirations…. With salads and now the McWrap on the menu, customers may forgive themselves a little more for showing up at McDonald’s. And if they skip the wrap at the final moment and get a Big Mac and fries instead they don’t blame the restaurant.”

Now that’s a tremendous AHA moment for me in stealth marketing – almost like a Dynamic Stealth tactic in gaming.

As they say – It’s a reality of the fast-food business that what can be ordered in a few words, served up in seconds, and consumed in minutes is often the product of years of research and testing. Because the battlefield here is not in the restaurants, it’s not in the ingredients, it’s not in the fields where the ingredients are grow, it is after all in our minds. 

No wonder then you have battlefield tactics like stealth meant to lure you not just into making a decision but also into owning it.  How’s that for some food for thought?

Nespresso – An Unsustainable Business Model?

 Single-serving coffee made at home.  That’s the category Nespresso operates in – a segment estimated to be 8 billion USD in 2012 (source).

Nespresso

Some laudable facts regarding Nespresso to start with:

  •  It took 30 years for Nespresso to get to where it is now.
  • Their first patent was registered in 1976 and it was launched internationally in 1991.
  • As of 2012,  their concept (machine, capsule, service) is subject to 1,700 patents.
  • Features celebrities, such as George Clooney and John Malkovich, as brand ambassadors.
  • At 55 cents for a 4-g capsule, Nespresso coffee works out to a nerve-jangling $62 per lb. ($137 per kg). And the hefty markup doesn’t seem to bother its fans.
  • Is rumored to command gross margins at about 85%, compared with 40% to 50% for regular drip-coffee brands.
  • The company confirmed that  Nespresso is targeting to grow sales by around half a billion francs in 2013.

(sources for the above information: 1, 2, 3, 4)

As a brand, Nespresso has been vaunted as the “Apple of coffee pods” riding high on the classic razor/razor-blade business model – otherwise called as the Vendor Lock In business model.  See an informative video here on the specifics of the Nespresso business model using the framework of Business Model Canvas.

Nespresso Business Model

Now the not so good news for Nespresso is the emergence of nearly 100 competitors around the world including 50 that claim compatibility with the Nespresso system (many of Nespresso’s patents have expired in 2012).  A more recent Reuters report on the latest threat to Nespresso from Mondelez…

Mondelez International, the world’s second-biggest coffee maker, is going head to head with larger rival Nestle by launching capsules compatible with its Nespresso system to steal a share of the premium coffee market.

The capsules will be sold under the Jacobs and Carte Noire brands in many EU markets in the second half of 2013 – the biggest challenge yet for the $4.4 billion (2.8 billion pounds) Nespresso brand that has sued many copycats.

These are just the warning bells for the company as many more brands jump onto the bandwagon of this fast growing coffee segment.

David Taylor on the brandgym blog posits that these moves can be in the larger interest of Nespresso as long as it ensures the following:

  • Benefit from market growth: Even if Nespresso’s share drops, sales can still increase if the market is growing.
  • Keep product quality up: Continue offering a better coffee experience through its select blend of coffee.
  • “Load” existing customers: Defend against the Mondelez launch by loading its existing customers with product, and so taking them out of the market.
  • Drive distribution: Drive distribution in new channels. e.g., store-within-store formats.
  • Tell a product story:  have a bit more product “sausage” to complement the emotional “sizzle”

I would however beg to disagree here, as I suspect if the current business model can be sustainable in the long term. And my argument is equally applicable to the Tassimo’s, Dolce Gusto’s, Keurig’s and Verismo’s of the world. Why?

Insight #1: Which business are the Nespresso’s of the world actually  into

These brands are not in the business of delivering convenient, barista like coffee at home. Instead they are in the business of making cup after cup of a consistent brew of coffee on demand with consistent being the operative word. Guardian reports

..while pod machines might not make great coffee, they do make a consistent cup. This is making them irresistible to high-end restaurants…. Nespresso machines can now be found in the kitchens of around 30% of the world’s 2,400 Michelin-starred restaurants. The appeal is obvious –they’re consistent, cheaper than hiring a barista and take up less space than a traditional espresso machine.

Insight #2: What can I learn from a cup of Starbucks coffee that bears my name? 

One thing I enjoy the most whenever I queue up at a Starbucks for my cuppa is eavesdropping on how different people want their coffee to be customized (a Quadriginoctuple Frappucino anyone?) and finally seeing them hold on to the cup with their name scribbled on it with an affection and warmth that comes out of familiarity and a sense of having co-created the cup coffee (by the sheer act of asking for a slightly personalized brew!)

The scribbled name on the cup just seals the deal in a magical way.  (speak about The IKEA Effect)

starbucks_cup

Now based on these 2 insights…

What if a ‘coffee pod’ sets up a unique proposition of designing a one of its kind, exclusive and a truly unique coffee blend concocted to your minutest specifications and delivered it to you as your own coffee pod  (like that cup of starbucks with your name on it) for you to be able to enjoy this very same cup of coffee day after day using the machine back home?

The benefits are obvious: enduring consumer relationships, deeper consumer insights, a treasure trove of data on how people love their coffee, a truly unique blend that only you can deliver, resulting in pods that consumers are willing to pay a premium for and finally pods that cannot be easily replicated by the “me too’s” of the world.

Speak about infusing authenticity to the  vendor lock in business model.