Keurig

MKTG 515

November 16, 2012

KEURIG CASE ANALYSIS
J O H N B E A V E R , A A R T I B I N D L I S H , I G O R D O Z O R , R A HU L V E R M A , H A N G W U

I NTRODUCTION
Keurig has been fortunate in selling its coffee brewing system to the military position coffee segment (OCS) of
the US market. This success led its leadership to ponder entering the consumer market. While making
the move might take c atomic number 18 like a reasonable next step in the developm ent of the company core business,
it also presents unique challenges.
The biggest of those challenges concerns the danger of losing the actual OCS business due to a
possible disruption of the unique dispersal channels that the company relies on for OCS. The
management also has to conclude on the appropriate pricing scheme for its new beer maker, which is
further
complicated
by
the
proprietary
disposition
of
the
coffee
cup
(aka
K-Cup) that comes with it.

C ALCULATING THE BREW ER PRICE
In calculating the price for the beer maker we must consider the honorable picture. In particular, the
proprietary nature of the company business inevitably ties the profits on the brewer and the profits
on the coffee that comes with the brewer.



More specifically, the total profit per customer:

It should be notes here that the aforementioned profit model is by no means unique to Keurig, and
can be find in other industries, like computers (where the profits are frequently split a cross
hardware and software) or printers (where the profits are split across hardware and cartridges).
Writing out the to a higher place formula further, we get:
(1)
(2)
(3)

1

The last equality (3), although follows immediately from the foregoing one (2), illustrates an
important conceptual point, namely: profit margins gained on coffee gross sales can offset the costs of a
brewer. Also, given the nature of their coffee business (royalties), the margins on coffee sales are
virtually equivalent to profits (no costs are incurred in order to receive royalties).

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