1

Managing a New Product Launch

Roy CamposRobert Forrester

Alysse Tulanowski

At Home

Case Study byEric T.

Anderson

2

Market Analysis:

Sales Trends • Takeaways:

• Sales of mass-market coffees flat or declining

• Sales of gourmet coffee increasing (40% over 5 years)

1996 1997 1998 1999 2000$0

$1,000

$2,000

$3,000

$4,000

$5,000

At-Home Coffee Sales

Mass Market Coffee Sales

Gourmet Coffee Sales

Year

Sale

s (m

illio

ns)

3

Market Analysis: Quantity TrendsTakeaways:

Quantities of mass market coffee flat Quantities of gourmet coffee increasing (25% over 5 years)

1996 1997 1998 1999 20000

100

200

300

400

500

600

700

800

900

At-Home Coffee Quantities

Mass Market CoffeeGourmet Coffee

Year

Poun

ds (m

illio

ns)

4

Market Analysis: Overall Trends

Sales of mass market coffee declining while quantities remain flat– Having to reduce price to maintain quantity– Stable demand, increasing downward price pressureSales and quantity of gourmet coffee increasing; sales faster than quantity – Growing market– Market supporting increasing price point– Likely a result of increasing popularity of gourmet

coffee shops that charge a premium

5

Competition Analysis Data

Company System Coffee Presentation

Cost for Brewer

Cost for coffee

Does it currently exist?

Melitta One:One filter pods $49 $0.25 New system

Sara Lee Senseo Coffee Pod

aluminum pods $70

$0.20 (two

required)Established in

Europe

Proctor & Gamble Unknown pods likely

$50-$70likely

$0.25-$0.40 New system

Nestle Nespresso espresso capsules unknown unknown

Established as espresso in Europe,

may migrate to American-style

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Competition Analysis ConclusionsAll companies utilizing proprietary coffee grounds system– Creates continuous revenue stream past sale of appliance

Wide variety of different strengths among competition– All have experience in the small kitchen appliance market– Some (Sara Lee, Nestle) have direct coffee machine

experience in Europe– All have channels already established for sales

(Likely) price points for the appliance range from $50-$70(Likely) price points for the coffee range from $.25-$.40

Market Forces

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No Existing US

Competitors

Threat of New

Entrants

Threat of Substitutes

Bargaining Power of

Buyers

Bargaining Power of Suppliers

CONSIDERATIONS•Threats ID’ in Table• Barriers to Entry:• Distribution Channels• Hardware Design• Proprietary coffee pods

CONSIDERATIONS• Offices concerned about theft• KAD’s threatened by direct channel potential for at-home K-cups• Consumers show price sensitivity

CONSIDERATIONS• Drip systems• Coffee houses

CONSIDERATIONS• Suppliers are large owner in company• Must ensure coffee supply profitability since coffee will serve as revenue stream

8

Market Forces ConclusionsSuppliers revenue will provide a revenue stream for us, must make profitableWe likely have the greatest barriers to entry– No retail channels established– Not as much small appliance experience as most

OCS is currently our primary revenue stream, must try to maintain this– Must also understand price sensitivities and

make our system with reachBeing “first to the market” will give us a (needed) advantage against substitutes from large competitors

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Marketing PlanMarket Research:

» Intercept surveys» Internet surveys» Current OCS user surveys» Focus groups of at-home test users

– Take Aways• Customers are interested in quick brewing time and minimal clean

up• Second was taste consistency and coffee variety• Demonstration increased likelihood of sale from 75%-90%

SOLUTION: Find a demonstration driven outlet to sell through

• Conferences, mass transit stations, airports, trade shows, shopping malls

CONCLUSION: Keurig has found a niche in the high priced market because of the variety they offer

» Direct impact on pricing…

Brewer PricingForecasts

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Selling PointForecasted Quantity

Selling Price Total Revenue

Forecasted Quantity

Selling Price Total Revenue

Forecasted Quantity

Selling Price Total Revenue

Sold Direct 13,000 $170.00 $2,210,000.00 9,100 $249.00$2,265,900.00 6,500 $299.00 $1,943,500.00Sold Indirect ($50 Promotion Savings) 7,000 $130.00 $910,000.00 4,900 $199.00 $975,100.00 3,500 $249.00 $871,500.00

Small Businesses 3,000 $170.00 $510,000.00 2,100 $249.00 $522,900.00 1,500 $299.00 $448,500.00 TOTAL At-Home Brewer Shipments 23,000 $3,630,000.00 16,100

$3,763,900.00 11,500 $3,263,500.00

Projected Manufacturing Costs 23,000 $220.00

-$5,060,000.00 16,100 $220.00

-$3,542,000.0

0 11,500 $220.00 -$2,530,000.00 Sunk Costs -$700,000.00 -$700,000.00 -$700,000.00 2003 Forecasted Brewer Profit

-$2,130,000.00 -$478,100.00 $33,500.00

K-Cups per day 2.25 $0.30 $0.68 2.25 $0.50 $1.13 2.25 $0.55 $1.24Weekdays until year end 2003 92 92 92 K-Cups drank per day 51,750 $0.30 $15,525.00 36,225 $0.50 $18,112.50 25,875 $0.55 $14,231.25 2003 Forecasted Cup Profit $1,428,300.00

$1,666,350.00 $1,309,275.00

2003 Forecasted Profit -$701,700.00 $1,188,250.00 $1,342,775.00

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SolutionBrewer Pricing

– Favorable price = $149 - $170– Manufacturing costs = $220

B100 price at $249.00 – Do not need to worry about K-Cup sales making

up for lost profit– Based on VRIO

• Value: HIGH - Exploit at-home single cup brewing opportunity

• Rareness: HIGH - Pioneer, only at home single cup brewer available

• Imitability: LOW – Competition working on comparable product

• Organization: HIGH/AVERAGE – Successful in OCS Market

Keurig B100 Brewer

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SolutionCup Pricing

$0.50 per cup– More cups of coffee per

day = higher price willing to pay per K-cup

– When Keurig system was present, more cups of coffee were drank per day• We can assume that

more people will be willing to pay a higher price for their K-cups after experiencing the system

0.55

0.50-0.54

0.45-0.49

0.40-0.44

0.35-0.39

0.30-0.34

0.25-0.29

0.0% 20.0% 40.0% 60.0% 80.0%

5.1%

16.7%

20.5%

22.0%

28.2%

41.0%

60.3%

14.6%

30.7%

33.6%

41.5%

48.2%

58.5%

75.6%

K-Cup Pricing Based on Coffee Consumption

2+ Cup/ Day %

1 Cup/ Day %

Percentage of Interested Consumers*

Cup

Pric

ing

(Dol

lars

)

*Numbers based on customers who were very or somewhat likely to purchase the system

SWOT AnalysisCreation of the Keurig Cup

STRENGTHS Does not threaten the KADs or the Office

Coffee Service sector Attractive to participating OCS managers

o Managers more likely to take part in “in-office promotions” of the at-home system

o Prevents theft of K-Cups Increase control of pricing

o Allows for different price points between office and at-home use

Engineering of brewer is complete

WEAKNESSES Increased inventory and costs for coffee

roasters Marketing downfalls

o Keurig cups are not available for purchase in retail stores, demonstration impossible

Creates confusion for the buyer when purchasing their cups

OPPORTUNITIES By avoiding disruption of the OCS group,

Keurig creates expanded distribution channels for the at-home market

Able to differentiate pricing based on OCS or at-home product

THREATS Pricing is too high

o Competition is able to enter with more attractive prices for the at-home market

o Breakeven point is not met by brewer sales, heavy reliance on Keurig Cup sales

Lose customers with disruption of “ease of use” model

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SWOT AnalysisK-Cup for Everyone

STRENGTHS Increases consumer satisfaction by

preventing inevitable confusion of cups Keeps the roasters happy

o Maintains single inventory processo Increases demand and therefore

production of product Earlier entry into the at-home market,

before competition

WEAKNESSES Alienation of the Office Coffee Sector and

KADso Why buy something through a third

party, when it is available directly from Keurig

o Create discontent with managers Decrease in pricing control through KADs Would require re-engineering of brewer

OPPORTUNITIES Lower costs and quicker entry of the at-

home marketo Avoid competition taking overo Perfect the brewer production after

productive entry

THREATS OCS experience loss of money through the

theft of K Cups at work. No longer a profitable product to maintain

Brewer pricingo Stays above average and allows entry

of lower priced competitor producto Cannot market and sell through retail

channels at time of launch

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SolutionCup Approach

1 Cup approach– K-Cups for everyone!

Appeases Green Mountain and other partnersEliminates the chance of confusion – Maintains “simplicity” of

model

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Solution“Pioneer” Launch Strategy

At Home Market– Sell K Cups direct at $0.50 – Sell online– Find a demonstration driven outlet to sell through

• Conferences, mass transit stations, airports, trade shows, shopping malls

Office Coffee Service Market– Sell K Cups to KADs at previous rate

• $0.25 paid to roasters – $0.40 cost to OCS Managers

– KAD Referral Program • $15 for each brewer sold, $0.02 for each cup sold for three years

Public Relations– Marketing by roasters -- Retail stores, catalogues, and websites

– Be the “pioneer” of the industry • Able to maintain a higher selling price

– Expand roaster partnerships• Increase variety and marketing platform

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K-CanvasCustomer Segments

Offices/Food Services

Households

Cust. RelationshipsValue PropositionsKey ActivitiesKey Partners

Key Resources Channels

Revenue Streams

Royalties

Brewers

Keurig Authorized

DistributorsBrand

Keurig = Excellence = Excellent Coffee

Ease of Use

No Mess!

Distributors

Licensing

Retail Chains

Cost Structure

Brewer Manufacturing/AssemblyMarketing and Demos

Keurig Authorized

Distributors

Fresh Cup

Every Time

Customer Service

Easy for Office Managers

Your Home is

now a Coffee

Shop

Online Sales

Coffee

Customer Service

Relationship

Management

Brewer Manufacturers