New Markets Advisors
  • Business Blog
  • Business Blog

New Markets in Old Industries -- Green Mountain Drains Starbuck's Cup

2/17/2011

0 Comments

 
Green Mountain Disruptive Innovation
How could a hero of market creation become so staid?

This question has been asked frequently of Starbucks, which once up-ended traditional assumptions about coffee.  From 1993 to 2006, the company rose from obscurity to ubiquity, in the process driving a stock price appreciation of 80,000%.  It proved that people would pay vastly more than historical prices for coffee, because it was selling an experience as much as a beverage.  In the process, the company claimed an important space for itself on the landscape of jobs that consumers are trying to get done (Harvard's Clayton Christensen originated this way of examining the market, and applied it to Starbucks here).  When people are looking to fill time or be productive outside of the home or office, Starbucks gets the job done exceedingly well.  Similarly, if people are looking for a morning treat to make themselves feel special, an ultra-customized Starbucks beverage does the trick.  Although the company's coffee ranked lower than Folgers Crystals in a Consumer Reports blind taste test, Starbucks' success was driven not by superior flavor, but through deep understanding of what jobs people want to get done in their lives.

Then the company seemed to lose the plot.  In the pursuit of operational efficiency and incremental sales, Starbucks automated processes, pushed Point of Sale items like stuffed "Bearistas," and generally succeeded in ekeing out gains quarter by quarter.  Simultaneously, the company gutted the experience that had created such loyal customers, losing the labor-intensive elements of "coffee theater," reducing coffee aromas, and seeming more and more like the massive corporation it had become.  Patrons ultimately defected.

Starbucks also fell victim to the same malady that had afflicted coffee shops prior to the company's ascent:  it defined its business too narrowly.  While Starbucks focused on pumping out sales through its famous shops, competitor Green Mountain Coffee Roasters attacked from a totally different direction.  The company generally avoided coffee bars and emphasized a vast array of other institutions trying to get a piece of the lucrative action:  gasoline stations, supermarkets, restaurants, and more.  It also purchased a once-obscure company called Keurig that helped to pioneer a new business model of renting a low-cost brewing machine for homes and offices, while selling high-cost single-serve coffee cartridges that offered both convenience and customization.  Keurig's revenues were $728 million in 2010 -- not bad for a company purchased for just $104 million in 2006.  The purchase has helped power Green Mountain's tremendous ascent.  Since the start of 2007, Starbucks shares are down 6%, while Green Mountain has gained over 1100%.

Starbucks announced this week a partnership with a rival to Keurig that focuses on hotel properties, and it is facing pressure from analysts to buy Keurig or Green Mountain.  Perhaps, however, the company should be looking to pioneer more new markets.  How else can the company bring the concept of morning treat to the home or office?  Can it spruce up morning commuting time with in-car equipment?  What other jobs are people trying to get done where the Starbucks brand has a right to play?  In all the talk about trying to regain the Starbucks appeal of the past, or of buying a rival, there seems to be little focus on the future.  Yet creatively defining new markets is how Starbucks and Green Mountain succeeded to begin with.

This post was written by Steve Wunker.  Click for more of New Markets' thinking on exploring new areas for growth. 
0 Comments



Leave a Reply.

    New Markets Blog

    Disruptive innovation in practice

    RSS Feed

    Categories

    All
    Automotive
    Books
    Business Model
    Case Studies
    Consumer Products
    Costovation
    Early Mover
    Emerging Markets
    Energy
    Financial Services
    Forbes
    HBR
    Healthcare
    Innovation
    Innovation Capabilities
    Jobs To Be Done
    Media
    Mobile
    Policy
    Product Development
    Retail
    Social Innovation
    Startup
    Strategy
    Tech
    Telecom

    Archives

    June 2017
    May 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    April 2016
    February 2016
    December 2015
    November 2015
    September 2015
    July 2015
    April 2015
    March 2015
    January 2015
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    February 2014
    January 2014
    December 2013
    July 2013
    June 2013
    May 2013
    December 2012
    July 2012
    April 2012
    March 2012
    February 2012
    January 2012
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010

Powered by
✕