Keurig Inc.’s main concern is how to obtain the position they want in the at-home coffee market segment without losing their share of the office coffee segment (OCS) and while maintaining their gourmet coffee quality. They have less than six months to launch the product, and very limited budget for production costs and expenses, and for changing the curent portion packs. There are two strong competitors in the away from home market, Filterfish, and Flavia. There are some other competitors in the at-home market. In my opinion, this is marketing-mix problem and the end goal is to maximize the at-home segment and protect the established OCS business. Strategic Situation Facing The Management:
The 2 cup strategy (Keurig-cups & K-cups) might solve problems such as KADs revenue erosion, thefts of K-cups, increased control over prices; however, it will delay Keurig’s entry to the market. Also, roasters will need 2types of inventories, which will increase production and inventory costs. 2different cups as a point of differentiation will actually cause confusion and dissatisfaction among customers resulting from using the wrong cup. Pricing at $199 will cause immediate large losses and $299 is a premium price as per research. Direct marketing is expected to cause channel conflict. There is a concern that it will drive sales away from KADs and jeopardize their established relationships with accounts.
The company plans promotions such as incentivizing KADs to support the marketing efforts on the new brewer (KADs referral program), internet direct-marketing campaign, public relationship campaign. While this may add value by the active participation of KADs who already have a good insight of the OCS market, Keurig will still have to find ways to build brand awareness in the at-home segment. Also, this is a demonstration-driven product and Keurig needs to find avenues to demonstrate the product usage and convenience to the customers in order to encourage buying. Establishing retail channels may play a big part in doing so.
The best strategy for Keurig Inc. is to be the first entrant to the at home market, since a large number of competitors are getting ready to enter this market, and are gearing towards being first entrants in this product category. Keurig Inc.’s alternatives are: 1) Launch the new model B100 using the existing packaging i.e. the K-cup (àTimely launch) 2) Launch the new model B100 with developing a new packaging version – the Keurig-Cup for the at-home market and the K-cup for the OCS market.(à Delayed launch) The chosen alternative will then need a marketing strategy tailored with respect to the 4Ps of Product, Price, Place and Promotion.
Recommended Marketing Strategy:
The commercial brewer is in the mature stage of PLC in the OCS market. The at-home market for single cup brewing is a virgin market. It is therefore important to take the first-mover advantage to grab a bigger share of the growing market by addressing the marketing mix elements. Using Exhibit 5, Segment: Gourmet coffee drinkers
Target: Core Users: Males, age-30-50 years, annual income $75,000 or more, married Positioning based on speed and convenience of cleaning and preparation: “Brew a fresh single serving of coffee- quick, convenient and flavorful, now at home or office!” Key Performance Metrics: Brand Awareness, Purchase intentions I) PRODUCT STRATEGY
Stick to the single sup strategy, but create differentiation in the two markets
The single cup strategy will save roasters the trouble of producing and stocking up 2types of inventories. Thus, it will speak to lowering production and inventory costs. Differentiate by introducing different flavors for the home-market which will be the premium varieties, for ex. Bavarian chocolate flavor, Mint flavor, Organic coffee etc. Pricing for OCS and at-home remains the same price with the addition of premium flavors for the at-home segment at a higher price. Thus, we achieve differentiation without causing channel conflict and customer confusion.
II) PRICING STRATEGY
Keurig enjoys a dual revenue stream from the sale of– a) Brewers, b) K-Cups.
A) Brewer – Skimming strategy
Premium launching at $299 to cover costs incurred in R&D. Competitive positioning based onspeed, convenience/ cleanliness of preparation, ease of usage and taste consistency. The profit generated will help in developing a new basic model with lower cost, priced at $129 to cater to customers who are willing to buy the brewer at a lower price. Thus, they can profit by covering high manufacturing costs initially and bracing up for the price war against competitors by introducing the basic model.
B) Cups – Penetration strategy @ $0.50 per K-cup
44% of intercept customers are willing to pay $0.55 for a K-cup, 30% of interested customers were willing to pay $0.50 or more for a K-cup. By pricing the K-cup for $0.50,which is similar to Kcups in the OCS market, KADs will not lose revenue from their segment. Premium flavor cups for the at-home segment be priced at $0.60 per cup.
III) PLACE / DISTRIBUTION STRATEGY
Blend of direct marketing through Internet and traditional retail channel. A) Short term plan: Direct marketing through website is apt for selling to the 12000customers who are waiting for the brewer for the home market. It is also convenient at targeting Keurig-aware customers. This can be executed by taking advantage of both Keurig’s and the roaster’s websites. Also, create an online shopping experience similar to Amazon. This trims down distribution costs and also makes “basket selling” possible by offering combo deals for the brewer and K-cups. Indirect marketing by KADs will help to generate word-of-mouth publicity for the home market for office customers who have already experienced the product. B) In the long term it is necessary to develop the traditional retail channel. Shelf space is important in retail chains such as Whole foods, Target, Kroger to reach every household. Since this a demodriven product, retail stores are a great way to trigger purchase intentions by live demonstrations during busy days and time-slots. Partner with wholesalers such as Costco to encourage bulk buying of K-cups and product bundles.
IV) PROMOTION STRATEGY
Word-of-mouth (WOM) publicity + experiential marketing + TV-print- social media campaigns. Product demonstrations will increase purchase intentions. KADs and office managers are key elements in generating sales for at-home market using brand awareness in the OCS segment. Incentivize KADs with monetary compensation as planned, extend this to office managers – free coupons for every sale generated. Tailor TV and print advertisement campaigns to hammer positioning values of speed, convenience and ease of cleaning, taste consistency. Use innovative advertising by impregnating print ads with coffee scent. Social media advertising is also a good avenue along with Internet portals that have a high traffic, ex.youtube, google, FB etc Thus, Keurig should cash in the first mover advantage in providing fresh coffee at home; create a competitive pressure in the market and generate profit by brewer skimming,K-cup penetration. This strategy also exploits the established distribution channels without creating conflicts of interest.
Exhibit A) SWOT analysis of Keurig – Single cup approach
• Quick entry into the at-home market (First-mover
• Low price control with KADs advantage)
• No retail presence / partnerships
• Only one type of inventory for OCS and at-home market
• Less customer confusion
• Roasters will enjoy increased demand
• Growing gourmet coffee market
• Competitors entering at lower prices
Exhibit B) Business Model of Keurig