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Keurig’s marketing plan
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  10. KEURIG AT HOME  –   MANAGING A NEW PRODUCT LAUNCH a. Discuss Keurig’s pricing and channel strategies for its at–  home venture. Assess whether the company was making the right choice of strategy. Suggested answer Keurig was well instituted and the leader in single-cup coffee brewing systems for the OCS market where many reliable distributors and KADs had given the company a good reputation. Keurig recognized that it had an opportunity to penetrate the home market, where many single-cup coffee makers already had a presence, provided it could develop a single-cup  brewer that appealed to high-end retailers and upscale consumers. Pricing strategy From the Keurig’s  market research, it is evident that those coffee drinkers consuming two or more cups per weekday are more willing to pay a higher price for each cup of coffee than those coffee drinkers consuming only one cup per weekday. Value based pricing: Keurig’s go al was to use the value pricing strategy in order to set a fair  price level for their marketing mix that will give their customers pleasant surprises in convenience and speed of coffee preparation while continuing to provide a consistently great-tasting gourmet coffee. The survey revealed that intercept respondents were willing to pay $130 for the brewer, price of the coffee system based on internet survey was $125 and for the home use test, the price range for the brewer was found to be in the $129-$199 whereas  premium price was more than $200. While in this survey Keurig-Cup pricing did not seem to  be an issue, from the other market research it was found that those gourmet coffee drinkers consuming 2+ cups of coffee per day are more willing to pay a higher price for the Keurig-Cups. They were also more willing to pay $130+, the higher price for the brewer. Cost based pricing: Another vital factor to the Keurig’s  pricing strategy was the recognition and analysis of the competition within the retail at-home coffee market. They had to set the level of price so as to gain profit, but still, at the same time, would fall into the level of willingness to pay off their target customers. Selling brewer at $149, only losses could incur  by the company, at $249 would yield small loss but selling it at $299 could give them a small  profit margin. If the B100 was sold at a price of $199, the loss on the brewer would be expected to be made up through K-Cup or Keurig-Cup sales. For Keurig-Cup, setting price was not a problem for the OCS market through KADs but there was a requirement to set the  price for their direct sales of coffee. Based on the market research it appears that regardless of whether Keurig decides on a one-cup or two-cup strategy, the pricing of the at-home portion  pack should be $0.55. If the one-cup option is chosen, the office managers and KADs will still have the benefit of a favourable price discrimination strategy by Keurig. Channel strategies Keurig did not have the resources needed to launch B100 through retail channel. They have to sell directly over the internet for their new product line. This direct sale at home market would be the first step towards direct approach in the OCS market in the long run. This kind of channel conflict would diminish the marketing efforts in the markets, resulting erosion of  installed base and revenue stream from OCS market and a less effective launch in the at-home market. Because of limited resources Keurig must utilize a controlled distribution strategy. So Keurig’s challenge  was to create meaningful product differentiation to bring their brewer to the up-scale market. In order to introduce a controlled distribution of brewers and portion  packs that would maximize the launch of the at-home while protecting the away-from-home OCS channel, Keurig had to come up with a two portion packs i.e. the K-Cup, and the Keurig cup. Roasters would sell Keurig-Cups directly to consumers and indirectly to KADs markets. KADs would, in turn, sell the cups directly to OCS employees owning an at-home system. Evaluation of the strategy Keurig should set the retail price of its at-home brewer at $249, because it is much easier to  price high and lower later. Also, at the $249 price, Keurig can cover their manufacturing costs without having to depend on KCup sales. Then, the K-Cup profits can be put towards research and development of less expensive brewers that can later be sold to the mass market through retailers. If it set its brewer price at $149 or $199, Keurig would need to generate revenue from K-Cups to offset losses on equipment sales. Alternatively, a price of $299 could alienate many customers, and the higher margin did not make up for the loss in unit sales. Keurig should set a retail price for K-Cups that were higher than the price office managers receive. If the retail  price was less than or equal to the wholesale price, Keurig would be competing directly with the KADs and office managers would be able to purchase K-Cups online. This could strain the relationship between Keurig and KADs and not give KADs a very good incentive to push the Keurig at-home system. The pricing of the K-Cups is also of concern to Keurig. Based on the market research, it is learnt that target market would be willing to pay $0.55 per K-Cup. This price will still give the KADs pricing control in the OCS market, and the price will allow Keurig and the roasters to make a higher profit per K-Cup. Keurig should revise its distribution channel to prevent the roasters from selling directly to the KADs. Keurig should purchase K-Cups from roasters and sell to KAD in the OCS market. Additionally, Keurig should sell directly to end-users in the at-home market. Under this revised distribution system, roasters and KADs would receive and pay the same amount of money as before; however, this strategy will enable Keurig to maintain price control. It is also important to sell through Web sites, as well, because the only at-home consumers the KADs sell to be office workers. There will be other consumers who do not work in an office but maintains a KAD relationship, and they will need a channel through which to  purchase the brewer and cups. It appeared that the two-cup approach would be inefficient when the goal was to keep  production and inventory costs down. Keurig’s competition was already pricing below the K  -Cup prices at which KADs sold 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.  Conclusion One of Keurig’s  main objectives for the years to come should be to not only lower brewer costs but to also create partnerships with high-end retailers to sell the Keurig at-home  brewers. Adopting the proposed strategy would enable Keurig to make a strong entrance into the at-home market while satisfying both roasters and KADs. Roasters would receive the same price for K-Cups and benefit from the single-cup strategy, and KADs would pay the same price for K-Cups and receive incentives to push the at-home system. Both would  benefit from increased sales in the at-home market. However distribution channels of at- home market’s brewers were growing through small appliance retailers and coffees are sold at grocery stores, coffee shop. These channels could threaten its established business in the OCS market. b. Critically analyze Keurig’s marketing plan for its brewing system targeting the at  –  home market. What are the factors that the management would have to consider to select an appropriate strategy to succeed in the new business? Suggested answer Keurig had a successful marketing strategy for the OCS market already in place by the time they decided to break into the at-home market. They looked at the statistics for the United States retail at-home coffee market. The results were very promising. At-home retail consumption was a $6.9 billion market, with at-home gourmet coffee accounting for $3.1  billion. These large boosts in the market’s gourmet coffee area proved to Keurig that this market would continue to quickly expand. Target market  Keurig commissioned various market research studies on the at-home product concept to find out if their single-cup brewer would be accepted by gourmet coffee consumers. Through intercept, internet, and home use surveys, Keurig was able to determine the key factors in marketing their brewer and K-Cups. Key elements identified through demonstration during the intercept surveys included quick brewing time and minimal clean-up. The same key elements were identified during the internet-based survey. The home use testers, who had a commercial brewer placed in their home, not only identified speed and clean-up as key attributes but also taste consistency, coffee variety, and cleanliness of preparation. Now that Keurig is aware of which market and type of consumer to target, as well as which aspects of their product are most valued, they can move ahead with their marketing plan for its brewing system   in the at-home market. Place  Major issue in the case of Keurig was on how they will market their new model of single cup  brewing system as well as the new cup that is being presented specifically to at-home customers. As stated earlier, 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.  To target its office users in order to convert them to at-home buyers, Keurig had to use direct marketing strategy and implement two market plans for “Keurig - aware” coffee drinkers . Keurig needs to quickly find a viable means through which to launch the sale of the brewing into retail outlets. The only current option is “e -commerce- enabled” Web sites.   Promotion 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. The key factors of interest to promote include convenience, quick brewing, ease of use, and minimal cleanup, all of which are sources of dissatisfaction with at- home users’ current systems . The key elements Keurig must implement into its promotion strategy include being one of the first entrants into the at-home gourmet coffee market, being portrayed as a single-cup pioneer, and enhancing its visibility in the up-scale market. There are also two promotional activities that Keurig can offer to their buyers in order to increase their customer base. The first promotional offer is KAD referral program which was to be driven by point-of sale advertising via display on or near the office brewer. This was also designed to give KAD attractive incentives to support the marketing of the new brewer. The second approach would be internet direct marketing campaign which had 12000 users of its office system who were interested in at-home use.   Combined, these methods should eventually pull the products into new retail channels.   It is important of having KADs market for Keurig’ s at-home product to office users for success. Conclusion With Keurig’s success in the office coffee market, a “logical business extension” does, indeed, seem to be the at-home coffee market  Factors to succeed in the new business   New business would present bigger planning challenges in some respects because there were no previous records to act as a guide, but in other respects they offered enormous opportunities to create genuinely innovative and exciting founding principles on which the  plans could be built and developed. Amongst the obstacles and details of new business  planning, it is important to keep sight of the following basic rules of new business success: (i) Defining the business and vision: Defining vision was important. It would become the driving force of new business. Some questions could help to clarify the vision. Who is the customer? What business is it? What is the product/service? What is the plan for growth? What is the primary competitive advantage? (ii) Setting business Goals: Often a new business concept must go through a period of research and development before the outcome could be accurately predicted for longer time frames. There were two sets of goals; short term (range from six to 12 months) and long term (can be two to five years).

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