Executive SummaryLaunching a new product in the market is one of the many things in the operation of the business that requires a lot of time, money and effort of the top managers to provide a better quality of services to their customers. Keurig Inc.
is one of those businesses that are willing to shoulder all the risks involve in presenting and providing a new product line in the market. But because of the successful launch of other models of single cup brewing system in the 1990’s, Keurig gained an impressive growth in the market. Moreover, due to the previous success of their other models in the market, Keurig does not hesitant with to launch another model of single cup brewing system this year.Confident with their market position, they pursue their plan of presenting another model.
The competition is tight, locally and abroad, but the market share of Keurig’s coffee brewing system still remains high. But just like any other business that encounters problems along the way, Keurig Inc. did face dilemma regarding the resources needed to launch B100, their new model of single cup brewing system through retail channel, thus they have to find other ways by which they can extend to the general public their new product line. Moreover, so as to fulfill the goal of the business, which is to introduce a controlled distribution brewers and portion packs that would maximize the launch of the at-home while protecting the away-from-home OCS channel, Keurig has to come up with a two portion packs: the K-Cup, and the Keurig cup. But the GMCR, a strategic partner and one of the major shareholders of the company, was not in favor for the said strategy since they believe that it will only causes complication and will only doubling the number of portion that they will manufacture and warehouse. Moreover, they find problems regarding the manner of pricing the Keurig-Cup and B100 brewer for the at-home market. The delay of the development of B100 due to the launching of B1000 in the market last 2002 gives Keurig a problem regarding pricing the former model since they desired price does not comply with the willingness to pay of customers coming from at-home market.
Due to these circumstances, the marketing team of Keurig has to use direct distribution or investing on traditional channels of distribution.Major IssueBasically, the main problem in the case of Keurig Inc. is on how they will market their new model of single cup brewing system and the new cup that is being presented to at-home customers; specifically, the level of price by which they will set their products so as to gain profit, but still, at the same time, would fall into the level of willingness to pay of their target customers.
Will they charge $149 for the brewer wherein only losses can incur by the company or will they sell it at $299 with which can give them a small margin of profit but having possibility of low acceptability coming from the target customers. Another problem that was presented in the case of Keurig is on how Lazaris will convince GMCR regarding the two portion packs and if Keurig will be able to handle the new game plan for only a short remaining time. The manner or basis of pricing the brewer and coffee cups also serve as a problem to the company for they need to consider the welfare of the company as well as the willingness to pay of their customers and a lot more factors that is related to pricing the brewer and cups.Company HistoryKeurig Inc. main purpose of its operation is to provide an innovative and developed technique that would allow coffee lovers to brew a cup of coffee at a time. The origin of the company’s name, Keurig, has derived from a Dutch word that means “excellence” and it serves as the core principle of the operation of the company for many years. One of the sources of the company’s funds is the investment coming from the venture capital funds that helps to change its single cup brewing system into a commercial feasible business.
The company’s first brewer, B2000, which was launched in 1998, targeted the office coffee service market. With the license issued by Keurig, Green Mountain Coffee Roasters Inc. [GMCR], was able to pack special coffee through the aid of Keurig’s patented container-the K-Cup. They then started to offer eight varieties of coffee flavors to offices and this contributed to the impressive growth that they experience for many years. The expansion of the number of their roasters resulted to additional varieties of coffees, with a single cup system, that they can offer to their target customers by the start of 2003.Just like other business, Keurig did also undergo restructuring their ownership due to the agreements between their two roaster partners. Keurig has to sell some of their stocks in order to finance their other operational activities just like what they did to Van Houtte Inc., like launching a new model of brewer in the market.
This made Van Houtte a major shareholder of the company aside from GMCR and Memorial Drive Trust [MDT] as one of the three major shareholder of Keurig. MDT serve as the lead venture investor in Keurig since 1995, thus, lead to the Keurig’s board of directors.Coffee IndustryDuring the rise of soft drinks in the 1960’s, coffee industry loses its market status as the central component of social gatherings.
The said proliferation of soft drinks had a remarkable effect on the level of consumption of coffee in the market. Coffee consumption was down by 10.4 pounds per capita between mid-1940 and mid-1990. Although soft drinks start to replace coffee as the societal drink in the market, the emergence of gourmet coffeehouses helped the coffee industry survive in the market.
Through educating the young individuals regarding the traditional coffees like espresso, coffee has started to set again its foot in the beverages market. This collective efforts coming from different coffee houses enables the coffee industry to receive 20 million Americans as customers to many gourmet coffee houses in the United States.MissionKeurig’s mission is to provide excellence in developing and innovating techniques that would allow coffee lovers to brew one perfect cup of coffee at a time. Moreover, because of the previous performance of other companies that provides machines in brewing a coffee; difficult to clean, complexity of steps for preparing a coffee as well as their prices, Keurig Inc. was come into thinking of providing an answer to those problems of coffee lovers.
After conducting researches and various interviews, they come up with a brewing machine that is cheaper, easy to clean and set up, as well as the quality of coffee that is being produced by the machine and this really gained impressive response from their target market.SWOT AnalysisSWOT analysis will be used to fully understand the current situation of Keurig in the market based from the qualities of their products. This would be helpful in such a way that it gives us the ‘bird’s eye view’ of the company’s position in the market. Through SWOT analysis we can easily determine the key factors that affect the performance of the company. These include the strength, weakness, opportunity and threats. Strength and weakness deals with the internal issues of the company, while opportunity and threats discuses the external factors that affects the company (Echaniz, 2001).
Internal SituationThis would undertake all the issues inside the company that plays vital roles on their development.StrengthsOne of the strengths of Keurig Inc. is their core principle, which is to provide excellence in developing and innovating the ways by which coffee lovers could easily access for a good cup of coffee. Another strength of the company, as shown in the case, is their wide variety of gourmet coffee selections in a single cup brew system industry-key differentiator from competition. The unique design of the brewing process also made a contribution for the customers to be easily attracted to the product for it made the brewer exceptional as compared to other brewer machines available in the market. The said brewing process allows flavor profile to be consistent over time so as to give customers with longer pleasure.
Since the cups that were being use are having distinct characteristics as compared to other cups of other companies aside from the fact that it is the one that protects coffee beans from moisture and other external factors that might affect the quality of the coffee. Before Keurig made those brewing machines, they conducted first studies and surveys for them to determine the current condition of coffee brewing machine industry, and based from the problems that they had found out regarding the performance of coffee brewing machines in the market during the later years, they were able to invent and provide the public with a brewing machine that is easy to use, quick in brewing as well as having a minimal maintenance clean up. Aside from these qualities, they were also able to charge a price that fits to their profit function and to the willingness to pay of their target customers. For the five of leading the industry, Keurig has started to establish its name in the market, thus, easily acquiring the trusts of the customers. Brand loyalty of the customers is one of the statuses that a manufacturing firm must have in order to experience continuous impressive growth. The fact that the company made to lead the market after five years of establishment means that the management and the strategies of the company is effective and this only tell us that they have competitive employees which can serve as an asset of the organization. Through their efficiency and effectiveness, there is a good execution of plans and strategies as well overshooting a problem.WeaknessesSince Keurig is not the one who produces their coffee beans, they have no control over the quality of the coffee beans that are being sealed to the coffee cups of the company, thus, serves as a weakness of the company as well of the product or model.
Roasters and other coffee beans suppliers are different business entity, thus, they only rely on the judgments of those roaster companies regarding the quality of the coffee beans. Moreover, the distribution of the product is limited since it is only being offered through authorized distributors. This provides hindrance on the part of the customers who has to search first for an authorized distributor just to purchase the coffee brewer of the company. Their limited system also makes a barrier for launching new models of coffee brewers to other distribution channels.External SituationThis would undertake all the issues outside the company that plays vital roles on their development.OpportunitiesAfter dominating the market for office coffee services, the next step that was undertake by the company was to expand its market to households. This provides them with additional customers aside from those people coming from the business world.
They also see the opportunity of offering different kinds of beverage selection like tea and hot chocolate/cocoa. The also prioritize on investing to first-to-market pioneer status press coverage/publicity that would enhance their market visibility. They also started to offer two portion packs for them to maximize the launch of at-home business at the same time protecting the away-from-home OCS channel and eliminating office theft concern.
ThreatsThe existence of competitors is hardly to prevent especially if the number of firms in the industry is large and the share of individual firm does not affect the totality of the supplies in the market. Because of this, competition could cause loses to the company for it lessens the number of customers that are supposedly buying the products of the business. One of the businesses that are treated as competitors of Keurig are Procter & Gamble [P&G], Kraft, Star Bucks, Nestle, Community Coffee and a lot more.
Since the industry of coffee brewer is on demand, there is a possibility that there might be other firms that are starting to plan establishing this kind of business, thus, adding to the present number of competitors of the organization. Prices of the product cannot be set into much lower level to comply with the willingness to pay of the target customers. This could cause the company to incur losses or just break even with the costs of producing a unit of brewer to maintain the number of customers that they currently have.CompetitionThe reason behind the success of Keurig in the at-home market is the fact that they are the one who pioneered in producing those products. During those times, they “monopolize” the production of coffee brewer in At-home market, thus, less firms can only enter into the industry and put threats towards the market position of Keurig. But as the year gone fast, the number of firms in the said industry became sufficient enough to force Keurig to compete with them to gain market share. Procter & Gamble and Kraft are the traditionally producer of coffee distributing largely through grocery stores and has the most share of coffee market, almost half of the total share in the market. Whereas, with regards to upscale segments, Cuisinart, Krups, Braun, DeLonghi and Bunn had a strong distribution, while, Mr.
Coffee, Black& Decker, Sunbean and Hamilton Beach dominate the mass channel market.FinancialsWith regards to the financial aspect of the company, Keurig is somehow not stable. There are times that they have to depend on the selling stocks in order to fund the launching of new models of their product. Like what happened when they launch the B1000, they had to launch their new models through the aid of other channels aside from retail, like direct distribution channel e-commerce.Break Even AnalysisDue to the low willingness to pay of the customers of Keurig, they sometimes has no choice but to set their price almost equal to what the consumers are willing to shell-out, thus, giving them only with less profits or only break even from the costs of production. Moreover, the almost two thirds of the total yearly sales of the company is contributed by the direct selling activities of the company as well as the remaining percentage of sales is expected to be driven by the roasters and KAD’s.Price AnalysisAfter the postponement of the development of B100 due to B1000, engineers tried to lower down the price of B100 to comply with the willingness to pay of their customers.
Although they were successful in lowering the original price of B100 from $220 to $200, still, it is considerably expensive since customers are only willing to pay for a range of $149 to $170. The company now has to make decision on what level of price they will go to charge for a unit of B100. The company arrived at three key prices that will still be evaluated until the company will come up with one fixed price.
The first price that they considered is $149, but the problem with this price is that it is already too late for them to redesign B100 to fit into this price. The second price is $199; the criticism with this price is that, there would already be a large immediate loss on brewer sales. The last price that they consider is $299, but the thing is they will only have small margin of profit and only few customers will be able to purchase B100 if this price will be implemented.The 4 P’sThis four P’s stands for price, product, promotion and place which are some of the major components of marketing strategy. Price immediately attracts possible customers since they are more conscious of the cost of any good than with the quality or quantity of the merchandise. Product is a vital part especially during the planning stage of the business. Companies should determine first if the market needs this certain kind of product. If it needs it, then, the firm can now plan for the details of the product, like the amount, the consumer type where the product is being intended to and the materials that are needed in order to produce the said product.
The next one is the promotion, Keurig only prioritize those firms that can add publicity to their product as well as to enhance their visibility in the market. With this, the product and the company would become famous in the market, thus, it would be easy for them to educate their customers regarding your product. The last one is the place of distribution. Keurig has identified two places wherein they could distribute their product for wider market range. One is the at-home market while the other is the away-from-home market. It is not easy to find places wherein you are not sure if whether those people who lives there will buy your product or can be handling by the management of the business.
Extensive researches are usually being made so as to make sure the future of the business when it reaches other places than with its original market. DemographicsMost of the customers of the company come from the business world sector since drinking coffee during break time are already a habit of many employees and to provide these employees with coffees in instant and easy steps and whose quality is almost like the coffees that are being prepared in coffee houses like in Star Bucks, Seattle’s Best and other well known coffee houses in the market.RecommendationsBased from the facts stated above, I recommend Keurig to pursue its idea of providing a two portion packs to maximize the launch of the at-home market at the same time protecting the away-from-home OCS. I also suggest that Keurig must find some other ways by which they could earn or save capital for the other operation of the organization and to have enough resources just in case they need it. Consider first the willingness to pay of the customers before modeling a new product line so as to have ample time to adjust the design or the composition of it to lower down the price.EpilogueAfter the implementation the above recommendation, the said company is expected to succeed in launching its new coffee brewing model and cup. Financial stability will be at hand with the company and it can now already sustain the other operation of the organization.
After another five years or so, the company can now expand its size as well as its number of workers to increase their production level. They will remain as the major share holder of the market and will further provide innovations regarding the provision of coffee brewing machines. Customer’s loyalty will be stronger and growth will continue its process until only fewer firms will dare compete with the quality of the products that this company offers.REFERENCESEchaniz, E.
(2001). Fundamentals of Management: Text and Philippine Cases (Vol. 4th edition). Manila: Diwata Publishing Inc.