September, 2015

Dear Friends and Clients:

The remarkable growth in Keurig one-serving coffee brewers and the companion pods is a business school case study in market dynamics. The coffee pods brewed by these machines do not taste better (according to most people) than the old-fashioned "grind the beans, heat the water, and shower the beans" method used for many years. In fact, many people feel that pod-based coffee or tea tastes worse than traditional brew.

Further, using typical prices for a bag of fresh coffee beans and coffee pods, the price per cup of coffee is 2.5 times greater to enjoy pod beverages versus traditional brewed beverages. Why are people willing to pay 2.5 times the price? One word – convenience. Less clean up, and a little faster result. Not that brewing traditional beverages is that difficult or time-consuming, but for the benefit of marginal convenience, consumers are willing to pay $150 - $300 for the machine and an ongoing price that is 2.5 times higher.

The life insurance industry is starting to embrace convenience, but the truth is, we have not yet come close to attaining it. To most consumers, purchasing life insurance is still a grueling, uncomfortable, and maybe even an embarrassing process. True, simplified and guaranteed issue forms of life insurance are being sold in greater numbers, but have not adequately penetrated the limited attention span, "I want to click and be done" population in the U.S. today. The "process" now trumps "price" and "product", and will likely continue to do so for some time.

The message in all this? For the middle market, focus on the process. As long as the process becomes as easy as dropping in a coffee pod, customers will place high value on it and happily pay up.

Tim Pfeifer
President