Case: Keurig at Home
The case describes the challenges of launching a new product into an
emerging market. Keurig is a small, privately held firm that relies on a
network of partners to bring its product to market. With the assistance of
coffee roasters and office coffee distributors, Keurig has successfully sold its
coffee brewing system to offices throughout the United States. Keurig has
established itself as a pioneer and market leader in single-cup brewing
systems for the office coffee segment. With success in the commercial market,
Keurig is now poised to launch the brewing system in the consumer market.
However, penetrating this new market poses several challenges. First, there is
concern that entry into the new market may disrupt the existing business
model. Office coffee distributors rely on sales of Keurig’s proprietary coffee
(K-Cup) for revenue. If this same coffee is broadly available to consumers, will
the distributors lose sales of coffee? Second, the company must determine
how to price both the brewers and coffee.Unlike traditional coffee systems,
the Keurig system is proprietary: only Keurig coffee will work with a Keurig
brewer. This creates a classic “razors and blades” problem for the company.
The third challenge is how to market the system. Retail distribution is not
feasible due to the current cost structure. The company has developed a
direct marketing strategy with its partners, but will it work
https://www.yumpu.com/en/document/read/21059198/keurig-managinga-new-product-launch-by-franklin-college
https://www.bartleby.com/essay/Group-6-Case-2-Keurig-At-HomePK7VKJVSCF6SX
https://www.slideshare.net/ericmoon/keurig-2723876
https://www.ukessays.com/essays/marketing/keurig-inc-case-analysismarketing-essay.php
Suggested Preparation Questions for the Case:
1. Should Keurig use a single K-Cup for all markets or should it launch the
Keurig-Cup in the at-home market and continue to use the K-Cup in the
commercial market?
Choosing a single K-cup approach is not a viable decision at this part of the time because of the
number of reasons. First of all Keurig corporation has already done the investment in the new
packaging lines. They invested $60,000 in each licensed packaging line and $400,000 in their own
packaging line up. The concern of GMCR about the K-cup is that customers will find it difficult to
differentiate between two cups. But the chance of this mistake is very minimal because both
products have different design and different colours. This reason is not much solid on which we
can forgo the heavy investment in packaging tools.
KADs major concern is with the marketing policies of Keurig-cups. They thought that if company
marketed them through direct marketing approach then their business will be in danger. They are
worried if company launch same cups for both products than customers might buy the cups from
other sources which gave negative effect on their business. Other roaster companies also had this
concern. So the better solution of this problem is that company should introduce a separate cup
for both brewers so that KADs and other roaster companies do not have any problem in the future.
Another main issue to implement this game plan is that for house hold customer’s coffee is sold
separately on the grocery stores and Keurig has no access to these stores neither has the resources.
So it has to rely on its current distributor system to launch a new product in market. KADs have
good relationship with the offices and the joint marketing program is the best option for the
company at this point. The network of the KADs is well established and the team is capable of
selling this new product to the targeted customers. Otherwise company need a heavy investment
to hire new sales force, shelf space to launch its patented coffee packs to the grocery store and
also they need a infrastructure to make coffee brewer available to small appliances stores, mass
merchants, and kitchen specialty stores.
As far as to afford the writing off the new Keurig-Cup and packaging line tools is concerned case
did not provide any sufficient evidence. But as the cost has been occurred and also in our opinion
it is the right choice to launch a new cup for new product it is not a wise decision to write off this
investment.
2. What price for the brewer and for the portion pack (K-Cup/Keurig-Cup)
do you recommend? Under your pricing strategy, how profitable are coffee
sales for Keurig? How do coffee profits affect the brewer price?
Market research shows that the customers primarily focuses on convenience, particularly quick
brewing, ease of use and minimal clean up. The key factors that are rated highly in the
demonstration included the time to clean up and time to prepare the coffee. From our surveys the
customers found that our concept had strong appeal.
We use the product differentiation strategy to market our brewing system on the base of
convenience and speed of brewing a cup of fresh coffee. The research studies shows us that the
price range from $129 to $ 199. If our price exceed from $200 the item would becomes a luxury
purchase.
We can take advantage of being one of the first entrants in the product category. The issue that we
have to address is the pricing for the B100 home brewer. The pricing of the brewing will have the
direct impact on the consumers to buy Keurig systems. According to different surveys highlighted
in the case, 44 percent respondents were ready to pay $0.55 price for a cup of coffee and they
were willing to pay $130 or more for the home brewer taking more than 2 cups a day. For a price
of $149 the respondents’ rate is 99 percent.
Keurig Inc. management had three key price points being reviewed that were $199, $249, $299. But
the market research shows the price for the brew to be $149; at that price the company could not
afford to sell. At the price of $299, small profit can be generated which will help us in applying the
different marketing and infrastructure costs. If we set the price $199, there would be a large loss on
the brew sales, but we can cover it through the royalties on the K-cups.
If we analyze the pricing of the brewing system and look at our product which provides different
and new technology as compared to the available brewing system, so we should target our
product at the price of $249. From our research studies people analyze and compare this product
with other coffee makers that are available in the market.
The reasons that why we need to price it more than the customer demand is mentioned below:
We can take the first movers advantage in providing fresh coffee at home.
We can make a competitive pressure in the market.
Our brewing system in based on new technology that provides convenience and speed of brewing
a cup, ease of use and minimal clean up time.
The research studies shoes us that pricing more than $200, make it a luxury product and more
consideration is required to sale it. This is made through advertising and telling the target
customers about it differentiated feathers.
Keurig Inc. has already build its name in the office coffee market, the employees know about the
taste and the freshness in the coffee.
The profit generated from the brewing system will help us in making new brewing system with
lower cost and launch new product variety in at home coffee market.
Meanwhile we can also earn form the direct marketing of the K-Cups with brewing system with
their special promotional deals.
The decision about the one cup or two cup approach has a direct impact on the keurig’s portion
pack pricing strategy. The core strategy is to market the K-cups directly to the customer through
the retail markets and the production lines had been completed. The differentiation between office
and home K-cups are required due to many reasons, first is the distribution style of K-Cups and
second the company wants to makes a direct relationship with customers.
On benefit of the controlled distribution strategy will help us in controlling the pricing of the
products, specially the Keurig Cup. From the different research studies, we analyze that the
customers want that the price of Keurig cup should be $0.55 or $0.50. If we price our product less
than $0.50 more customers will pay but there will be less profit. We are targeting our brewing
system as a luxury product. The customers that make the purchase should also think about the
price of Keurig cup.
So we target our Keurig cup at the price of $0.50, and try to sell our Keurig cups directly to the
customers through retails stores and internet, fax or phone. The pricing of the Keurig cup is nearly
equal to the office K-cup pricing. The customers that will purchase the brewing system think that
the Keurig cups are not costly than the coffee available from the market.
The management should make different strategies for the office and at home customers because
they need to define their KADs that they are not directly targeting to the home customers. The
home market is becoming more competitive than the office coffee market. So the distribution
channels for the home coffee market should be different from the office market. The reason is that
if we distribute from retail store we can target and advertising our customers more easily.
The market opportunities will grow rapidly if we operate both markets separately. In near future
from the advertising of Keurig products in the markets the KADs can also attract near clients. The
pricing of office is negotiable because of the market conditions. The prices of K-cups are already in
the range of the clients depending on their use of K-cups. But the price of Keurig cups should be
fixed in the market.
To optimize the market conditions Keurig should build its name in the name as providing fresh
coffee at home as well as at offices. The company should introduces new product varieties and
introduce new brewing system. Keurig needs to advertise its products on the basis of as
differentiation.
3. Analyze Keurig’s marketing plan and launch strategy. Is the current plan
sound? What suggestions would you offer?
Marketing plan for the launch of new At-home coffee brewer has couple off main issues. The first
and the main issue is the pricing of the brewer. As the marketing research studies shows that
customer is willing to pay a price from $129 to $199. But with all its efforts company is able to
produce a brewer at the cost of $200. So it is big issue what price should charge form the
customers? In our opinion as the company is going to be first mover in the single cup brewer
market it should charge the premium price from its customers. Another reason is that company
does not have any choice because they cannot reduce the cost.
Company also need to put more focus on the advertisement of the products. As this product is for
house hold customers it requires a big advertisement campaign. Company design a point of sale
marketing which is a good idea but in our opinion the advertisement on the TV channels and also
in the magazines is also required so that more people aware of the products.
Company also consider promoting the product in markets through special counters as the product
is demonstration driven. Marketing research studies shows that people become more familiar with
the product when its working is demonstrated to them. So company should arrange special
counters in super markets to demonstrate the working of the brewers to the people so become
more familiar with the product.
Keurig would not able to market the coffee drinkers in the offices without the assistance of KADs.
So the management should decide terms with KADs that they will market the offices and the
company will market the home customers directly. The referral program was a good plan to
enhance the sales of the company. The point of sale (POS) advertising will help the KAD and Keurig
to introduce its product and brewer to the targeted customers.
The company should also use its roasters public relations for the introduction of the new brewing
system and other special marketing campaigns for selling its brewing systems as well as K-cups
and Keurig cups.