Keurig authorizes distributors (KADs) provide a variety of coffees to offices for their Keurig OCS system. Each KAD has entered into direct relationships with one or more roasters to purchase K-Cups and subsequently sell them to office managers. Keurig does not yet have the resources to sell either their brewer or coffee in mass retail outlets. Instead, a controlled distribution strategy must be utilized. Roasters will sell Keurig-Cups in direct (to consumers) and indirect (to KADs) markets. KADs will, in turn, sell the cups directly to OCS employees owning an at-home system. Keurig’s rapid penetration into the OCS market and the use of many reliable distributors and KADs has given the company a good reputation. This, in turn, makes entering the at-home market a viable business opportunity. But, problems arise when dealing with the roasters’ concerns about its complexity. GMCR adress that it appears the two-cup approach would be inefficient when the goal is to keep production and inventory costs down. Keurig’s competition is already pricing below the K-Cup prices at which KADs sell to the OCS market. If production and inventory costs were to increase, the cost of the K-Cups would also likely increase, causing concern for a potential decrease in cup sales.
The coffee market was segmented into a comparison between the price of the brewer and the varieties of cups/pods offered (see Exhibit 2). As shown below, Keurig has its own niche. While they are the highest in price, they also have over 75 varieties of coffees and teas. Procter & Gamble, Salton, and Sara Lee are all clustered in the same segment of the market. Their brewers are cheaper in price compared to Keurig, but P&G offers the greatest variety with only 15 coffees and teas available.
The best promotional activity for K-Cups is to offer discounts when buying cups. For example, a discount could be offered through free shipping and handling when total cup purchases are over a certain dollar amount. Another possibility is to offer 25 cups at regular price and half off on the second 25 purchased.
The market research commissioned by Keurig shows that the best way to gain interest in the system is through demonstrations; 90% of those surveyed indicated that the demonstration increased their likelihood of buying the product. Through the internet-based survey, it has been shown that the B100’s core customers are younger males. The key elements Keurig must implement into its promotion strategy for the B100 include being one of the first entrants into the at-home market, being portrayed as a single-cup pioneer, and enhancing its visibility in the up-scale market While these factors strongly support Keurig’s promotional strategy, there are several weaknesses with the rest of the plan. One such weakness is that they do not use their slogan or the origin of their company name to their advantage. “Deliciously Simple” is a great slogan that emphasizes the two major themes of coffee advertising: ‘good taste’ and ‘positive stimulation’. The slogan also touches on the fact that the system is very easy to use.
Keurig is currently not doing everything it can to target its core customers. Promotion needs to be geared toward these younger males. One way to achieve this would be to buy advertising space on various Web sites, from sports to stock and financial sites. Since market research has shown that demonstrations are a significant way to increase system interest and purchasing potential, Keurig needs to utilize this avenue. Although it is stated in the case that Keurig does not currently have resources to sell through retail chains, which are prime locations for demonstrations, perhaps they should set up demonstrations at professional conventions, airports, affluent shopping malls, and high-end appliance shows.
When looking at the results of Keurig’s market research, it is evident that those...