For Roasters & Retailers

Coffee Pods: Tied Goods And The Pursuit Of Profit

From: knowledge.insead.edu

Perhaps George Clooney has tempted you to buy a single-serve coffee machine or maybe you’ve seen an amazing deal for one. Did you hesitate before committing to your purchase because you didn’t want to be locked into buying only one type of coffee? If multiple brands made compatible pods, would that make that great deal seem like a better investment?

Tied goods, like single-serve coffee machines and the pods/capsules, are companion products which are linked such that you can’t have one without the other. Printers/cartridges and razors/blades are other good examples. One business model has been to price the durable product – the coffee machine, printer or razor – low and make money on the more expensive (over time) consumable product – the coffee pod, ink cartridge or razor blade. This framework, unsurprisingly, is called the razor-razor blade business model.

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