When Keurig fights “coffee pirates,” who loses? Loyal consumers: Chris MacDonald

Ethical companies—smart companies—don’t pull the rug out from under their best customers

 
Starbucks original K-Cup pods for the Keurig 1.0 single-serve brewing system

(Chris MacDonald)

As you may have heard, Keurig is engaged in a battle with a host of companies that aspire to provide consumers with ‘pirate’ coffee pods. And who is losing this battle? The consumer.

For those of you who aren’t familiar with it, Keurig’s business model is pretty much the same as the business model used by most producers of desktop printers. Desktop printers have become almost trivially cheap — you can buy a laser printer for under a hundred bucks now — but the cartridges cost a bundle. That’s where they make their money. Likewise, Keurig sells its popular single-cup coffee makers at astonishingly reasonable prices, and makes its money on the coffee pods. Naturally, given that the pods are lucrative and easy to make, there have been imitators. A large number of companies have sold, over the last few years, their own “K-cups,” pods of coffee designed specifically to work in Keurig’s machines. Consumers love this, both because competition lowers prices and because it expands the range of roasts and flavours available.

MORE: The next generation of Keurig single-serve brewers will DRM-lock your coffee »

To fight the onslaught of packagers of (perfectly legal) pirate K-cups, Keurig recently starting selling its “Keurig 2.0” line of coffee makers. The 2.0 machines incorporate a digital rights management (DRM) system, designed to ensure that Keurig machines work only with Keurig branded and Keurig licensed pods, effectively shutting out the competition, at least temporarily. The result is that all those non-licensed Keurig imitators won’t work in the new 2.0 machines.

The result has included a $600 million lawsuit, along with some professional and some amateur attempts to break Keurig’s DRM.

Who ultimately loses in this fight? Arguably the consumer. Not only has choice been restricted, but there’s also an enormous information gap. Keurig has done a less than stellar job—I’m being charitable, here—of informing consumers about their new DRM system. The result has been frustration, both with the newly-limited choice of pods, but also with coffee machines that don’t work as expected.

Take me for example. My beloved Keurig died a couple of weeks ago. Its high-pressure water pump moaned and groaned and finally gave up the ghost. So I promptly bought a shiny new Keurig 2.0 (with a number of fancy new features) at Costco. Nowhere on the packaging did Keurig inform me that most of the dozen or so boxes of coffee and tea currently in my basement (well over $100 worth) simply will not work in the new machine. And it’s not just “pirate” pods that won’t work; nor will older Keurig-licensed K-cups—ones that bear the Keurig logo but that don’t have have the DRM-ready labels that the new machines require. Those are essentially garbage now.

MORE: Why Keurig’s locked-down K-Cups won’t prevent competition from generic coffee-pods »

A call to Keurig resulted in an offer of three gift certificates, each good for a box of pods (worth $12 or so). But that doesn’t come anywhere close to covering what I’ve lost, never mind the frustration.

And it’s not just Keurig itself. Retailers have been complicit in this abuse of customers. Many of them still stock the “pirate” pods, as well as older Keurig-licensed pods. In some cases (and Canadian Tire for example is guilty of this), they do this while aggressively selling the 2.0 machines, without any hint to the consumer of what the problem is.

The battle of the K-cups is about a bunch of things: intellectual property, competition, and innovation for starters. The back-and-forth of those things is pretty much standard fare in a thriving market economy. But ethical businesses—not to mention smart businesses—need to work harder to stay true to their goal of providing good value to their customers.

Chris MacDonald is director of the Jim Pattison Ethical Leadership Program at the Ted Rogers School of Management, and founding co-editor of the Business Ethics Journal Review.

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