Keurig Case Analysis

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KeUrig Case Analysis
Keurig has been successful in selling its coffee brewing system to the office coffee segment (OCS) of the US market. This success led its leaders to ponder entering the consumer market. While making the move might seem like a reasonable next step in the development of the company core business, it also presents unique challenges.
The biggest of those challenges concerns the danger of losing the existing OCS business due to a possible disruption of the unique distribution channels that the company relies on for OCS. The management also has to decide on the appropriate pricing scheme for its new brewer, which is further complicated by the proprietary nature of the coffee cup (aka
K-Cup) that comes with
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Keurig should probably refrain from undercutting KAD by offering lower priced coffee; since currently KAD offer coffee cups for $0.40-$0.50, pricing slightly above that range will avoid the undercutting
Our recommendation is to price K-Cups slightly above $0.50 but below $0.58, perhaps at $0.55.
Is Keurig-Cup a necessary fence?
In order to answer this question we first have to consider whether the value provided to the commercial and residential markets is the same. While it may look like the value is similar, upon closer inspection, we can identify an important distinction between the values provided to the two markets:
While the typical residential customer will only value the coffee making ability of the brewer, the commercial customer will also value the service that comes along with it
In fact, the case alludes to this fact where it says that “Office managers are all about eliminating headaches”.
Hence, even without the two cup system that would have introduced a physical fence, the “products” offered to the two markets are not equivalent. Therefore, we do not believe that the new Keurig-Cup is a necessary fence to price discriminate between commercial and residential markets.

Appendix A
Brewer Price Elasticity Price | Log(Price) | Share (%) | Log(Share) | 199 | 2.298853 | 6 | 0.77815125 | 149 | 2.173186 | 9 |

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