This week we’ll continue our look at the process of change at Keurig. Last week we considered consumer habits and the concept of cumulative advantage. This concept would seem to apply in multiple ways. First, it seems critical that Keurig ensures that consumers' favorite roasts are widely available, as coffee drinkers have become far more sophisticated and demand specific products. As a result, channel relationships with roasters and KADs are critical; Keurig will likely have a hard time convincing consumers to adopt unknown coffee brands just to use the Keurig system. Second, there would seem to be potential habit crossover between the out-of-home (i.e., office) and home markets too. To the extent that the firm can establish Keurig as a core part of consumers' daily coffee rituals, it would seem likely that they would be a greater chance they would be willing to adopt the system for home use too.
But Keurig is in a precipitous position. Right now, they only make money from royalties on K-Cups, while roasters and KADs have much more diversified sources of revenue. The roasters and KADs therefore have flexibility, but Keurig does not, and Keurig cannot afford to alienate either group. With the launch of their home brewer that Keurig sells directly to consumers, the firm is caught between two competing forces. KADs want Keurig to adopt a second cup type (the Keurig cup) to protect their business and ensure offices do not purchase "home" cups for use in office settings, while roasters argue that doing so would impose unacceptable inventory and production complexity. We need to find a way to keep both groups happy.
In a discussion post, address the following questions:
1. Pages 10-11 of the case discusses three pricing options for the at-home brewer - $199, $249, and $299 - along with pros and cons of each. Make an argument for one of these alternatives.
2. How should Keurig approach the decision of the at-home portion pack you advocated for last week (either K-Cup or Keurig Cup)? It is not necessary to come up with a set price, but what factors would you want to keep in mind? Should the at-home packs be priced relatively high or low?
3. What is your assessment of Keurig's launch plan for the home brewer, as described on pages 12-13?