Keurig at Home - Case Study

Case #2: Keurig At Home

1.

• Keurig had a few different reasons for creating a different style of cup for the various brewing systems (at-home vs commercial):

• KADs felt that Keurig’s entrance into the at-home market with a direct sale of the current K-cup would diminish KAD influence in the away-from-home OCS market and affect KAD bottom lines in a negative fashion

• Keurig felt that if KADs had little stake in the OCS game, then their marketing efforts would deteriorate drastically, causing a decline in consumer interest and eroding the base for future at-home sales

• Keurig felt that KADs would begin to underprice Keurig and roasters as they had no investment to recover
• Keurig’s final reason for launch of a 2nd cup type was an attempt at soothing Office Manager concerns in the OCS market: by creating a different cup type, Keurig reassured office managers that office-supplied cups couldn’t be taken by employees for use in personal brewers

2. In my opinion, I believe that Keurig should launch two different cup styles. One cup should be focused towards the commercial market while another cup is used for the at-home market. The benefits of using two cups are many, as seen in the previous answer. By using two different cup styles, Keurig corporate can avoid eroding the strong base and relations they have cultivated in the KADs and OCS market. Additionally, they can keep their products profitable by keeping pricing strategy relatively profitable without having to worry about KADs underpricing their(Keurig) direct sales to consumers. The initial start-up cost of creating the different cup types can be recouped over time as their sales will remain strong. GMCR’s main concerns with a 2-cup system also included customer dissatisfaction with incompatibility. However, to draw upon a similar example, examine Apple’s recent “innovative” design changes. In their newest phones, they removed the ever-important auxiliary port making all standard headphones impossible to use. Initial backlash was present but Apple posted very strong iPhone sales, regardless. Another example is their new MacBook Pro which has removed all ports except for 2 USB-C connectors, forcing customers to buy various adapters. These examples illustrate that there may be initial customer dissatisfaction with the changes being made but if the product is viewed as a “need” and has a positive reputation, customers are more than willing to look past what we could consider obvious “money-grabs”.

3. For the pricing of Keurig brewer system and its portion packs, I would recommend a few things. First, I would recommend the initial price be set at $249. There are a few reasons for this. One, this price is the only price where Keurig makes any profit on the machines so that they can recoup some of the infrastructure and marketing costs. Additionally, by setting a higher brewer price point, Keurig will have a bit more flexibility in pricing the portion packs, which I would recommend to be priced in the $.40 to $.49 range. At this price point, based on the assumed cost of $.25 that KADS pay the roasters, Keurig corporate would make a profit of about $.15 to $.24 per portion pack. To draw upon previous examples to illustrate pricing success, we can look at Apple. When Apple originally launched the iPhone, it was priced significantly higher than any other phone on the market which drew initial criticism but eventually Apple’s pricing became accepted and now Apple is a common household name in the smartphone industry. Additionally, by pricing high now, Keurig has the option to lower the price later, which would be looked upon favorably by consumers. However, if they started low, and then tried to price higher, their product and company would be the target of boycotts and disparage. Furthermore, by pricing a bit higher on the portion packs as I suggested, Keurig can make more profit on future, recurring sales which would allow them to lower the brewer price eventually. I would say that portion pack price and brewer price have an inverse price relationship.