Keurig Inc is in the business of providing perfect coffee to the growing number of coffee lovers in the country. Most Americans are consuming coffee on a daily basis and have continued to stretch their pocketbooks spending more for a cup of gourmet coffee. Keurig was established to help coffee lovers brew and enjoy coffee. Keurig was incepted in 1992 and introduced single cup brewing system, B200 in 1998 offering 8 varieties of coffee. By 2001, 44.8 percent of brewer distributors provided office coffee system with single-cup system. This article addresses a number of concerns in the coffee market and recommends appropriate marketing strategies and launch options for the company coffee brewer and K-cup in at-home market.
Recommendation and basis
The market for coffee is big and growing in the country, valued at over $8 billion. There is big market for Keurig single-cup coffee brewer. There are other companies eyeing the growth potential for at-home single-cup market. These competitors include Salton and Sara Lee with plans to enter the market with possibilities of other players like Proctor & Gamble and Nestle. Keurig is expected to differentiate its products and target up-scale gourmet market. Gourmet coffee market exhibit monopolistic competition, products are differentiated and give competitors pricing options (McCarthy, Perreault and William, 2005). This market matches the K-cup system and brewer of Keurig; it seems to have significant advantages over existing players because they offer greater coffee varieties of better quality. Market research indicated great potential for company products and helped identify market, target consumers and most valued product aspects for the at-home B100 brewer and K-cup. It showed that target customers are will to $0.55 for K-cup and $130 for B100 coffee brewer. It also identified key factors necessary in marketing the product in the market.
- It is assumed that marketing research was conducted professionally and accurately reflects the market condition
- Description of coffee customers is correct
- It is assumed that Keurig is outsourcing the manufacturers of their products
- The cost of brewer is put at $220 comprising both variable and fixed costs
- Fixed cost for the production of brewer and K-cup is $700, 000
There are two products to be launched in at-home market namely K-cup and B100 brewer. K-cup is a unique system containing ground coffee beans and filter paper with over 75 types of coffee brands for selection. Plans are in top gear to provide a variety of teas, T-cups. The new B100 brewer is a single cup brewing system for at-home users. This new model will form one of the large volumes of small appliances used in homes. With this product, the user has significant control over amount of coffee, temperature and pressure of water hence perfect coffee cup every time. The system provides faster brewing of coffee in different flavors hence potential success of Keurig in at-home market. The B100 is in the introduction phase though has been on the office coffee system but is entering a new market it was designed for, the at-home market.
The sales for OCS are done using KADs that sell coffee varieties to offices for company’s OCS system. The purchase of K-cups can be done by the KAD which then sells them to office employees with At-home Keurig system. Office employees will form a valuable source for the at home product because they already know the benefits of Keurig system. The company has no capacity to sell their brewer and coffee in retail outlets and hence the use of controlled distribution strategy. Selling through websites is important since there are consumers not working in offices where KADs is selling the product. Both direct and indirect selling is crucial for placement of this product to different types of clients (Anderson, 2005).
The market is segmented based on price of brewer and cup or pods varieties being offered. The company has its own niche and charges the highest price in this market with over 75 brands of coffee and teas.
Promotion could be offered through referral programs and quantity discounts on coffee cups for shipment above certain value. For B100 brewer demonstration at shopping malls, airports and shows for high end appliances using salespersons to enhance sales of the brewers in at-home market. The target market is young males which could be reached through internet marketing and social media networks.
Keurig’s single cup system will be positioned as convenient to use, minimal clean up and time saving suitable to a variety of high end users. The product is positioned as cost saving and pocket friendly for consumers that would use the brewer to make their own gourmet coffee rather than going to coffee shops.
The pricing of brewer was chosen based on breakeven point without having to rely on the sale of K-cups. The breakeven price for brewer is $249, and this covers the cost of manufacturing as profits from cups is expected to go into research to develop cheaper brewers to be sold through retailers in future at a price lower than the market price. The research indicate that customers could pay up to $0.55 for K-cup and this will give KAD advantage in the OCS, and allow roasters and Keurig make higher profit for each cup.
Calculation of breakeven points was based on fixed cost of $700,000, unit cost of brewer of $220 and selling price of $249. This gives breakeven quantity of 24, 138 B100 brewers whose production cost is $6,010,360 with sales revenue in excess by just $2. Market projections indicate this is possible (Anderson, 2005).
Calculation at Breakeven point
Cost = Units of B100* cost per Brewer (24,138*220 = 6,010,360)
Revenue = Units of B100* selling price (24,138*249 = 6,010,362)
Profit = Total Revenue – total cost (6,010,362 – 6, 010,360 = 2)
Breakeven point is where revenue = Costs
Action steps and conclusion
The company should launch the new products in targeted market. However, promotion should emphasize on key benefits the new product will bring to clients such convenience and time saving. The use of KAD referral should be emphasized to create brand awareness. The company should engage in one cup packaging to decrease the possibility of dissatisfying and confusing clients and appeasing GMCR. It will provide an opportunity to enter into retail market in the future.