KEURIG COFFEE

Keurig Coffee



Keurig Coffee

Introduction

Everyone has a morning ritual while getting ready for the day's activities. Some people exercise. Some people shower. Some people help get their children ready for school. Some people watch the news or listen to traffic reports. Some people drink coffee. In fact, in 2001, 20 million Americans drank gourmet coffee on a daily basis (Sherry). Keurig, Inc. was founded on the idea that coffee lovers should be able to brew and enjoy one perfect cup of coffee at time.

With the establishment of gourmet coffee houses like Starbucks, consumers began stretching their pocketbooks a bit more by spending on average $1.50 or more for a cup of gourmet coffee (Anderson 4). This change in consumer behavior opened the door for Keurig to offer gourmet coffees by the single-cup in offices in 1998.

Keurig noticed that from 1996 to 2000 gourmet coffee sales increased by 40 percent in the U.S. at-home coffee market. This statistic persuaded Keurig's management to develop an at-home, one-cup coffee brewer specifically for gourmet coffee lovers (Anderson 15). Keurig's development progress toward the launch of their first at-home brewing model was stunted in February of 2003, six months prior to the release date of the brewer, by company shareholder Green Mountain Coffee Roasters Inc.

This paper will address Green Mountain Coffee Roasters' concerns and provide recommendations and alternative solutions to problematic pricing and marketing dilemmas. In addition to our analysis, we are going to examine the presenters' approach and critique the options they suggest.

Assumptions

In analyzing the marketing strategies and launch options of Keurig, Inc., we are operating under the following assumptions: • Surveys and market testing were completed with professional services and accurately reflect the current feelings of the consumers at the time of testing.

• The description of the coffee drinkers/customers is correct.

• Keurig is outsourcing the manufacturing of their brewers.

• Keurig has already incurred design and manufacturing cost of their Keurig-Cup and brewer of $700,000 ($400,000 for development of the new cup-based technology, and $60,000 per Keurig-Cup packaging line, assuming one line per each of Keurig's five roasters).

• The manufacturer of the B100 included all variable and fixed costs in their calculation of the unit costs for manufacturing the B100 brewer.

• The costs of the B100 brewer, as reported by the manufacturer, are $220 at the time of Mr. Lazaris' meeting with GMCR management. The manufacturer is attempting to lower those costs to $200, but this has not yet been achieved.

SWOT

1. Two-Cup Approach with Brewer

Strengths

• Does not threaten the KADs and the OCS market

• Increases control of pricing - specifically for the Keurig-Cup • Increases the likelihood of managers' participation in in-office promotions of the Keurig at-home system, because the differentiation would prevent theft of K-Cups provided for office consumption.

Weaknesses

• Don't confuse the buyer. Similarity between cups can cause confusion between which cup goes with which brewer.

• Increased inventory for roasters

• Lack of demonstration ability in retail sector - ...