The company for this case study is Keurig Dr. Pepper, specifically its segment that was known in the past as Keurig Green Mountain. Prior to this merger, the company was a single-product business, which held the patent for a unique beverage brewing system and its components, K-Cups, for various types of brews. The firm prides itself on the quality which is comparable to its price, and offers an extensive amount of options available for customers. Being one of the first firms on the market for single-cup brewing systems, the company prevailed over its competitors until its loss of the patent in 2012 (Johnston, 2012). The following analysis examines the market in which Keurig operates, the challenges it has to overcome in the future, and its competitors. The paper also includes recommendations for the organization that can strengthen its position on the market of coffee makers. In order to explain the situation with the company’s internal and external environment, the SWOT analysis is included.
SWOT Analysis
Strengths
The company strives to create high-quality systems for at-home usage. According to Bedford (2020), in 2019, “Keurig Green Mountain was the third-ranked single-cup coffee brand in the United States, capturing 9.9 percent of the market.” The firm was the first on the marketplace of at-home brewing systems and efficiently filled all segments by using a broader appeal strategy of “good, better, best” categories for its products (Anderson, E. T., & Anderson, E. L., 2012). These machines are also a convenient, quick, and efficient tool suited for its task, and work with over 200 varieties of beverages.
Weaknesses
One of the main problems for the company is its structure that revolves around a single patent. In 2012, when its license for the original K-Cups has expired, the company suffered an 80% loss in its share prices (Johnston, 2012). Moreover, after the initial hit due to this situation, the company failed to introduce effectively its next product: K-Cups 2.0, which were supposed to replace the old version of its product (Kline, 2016). The business also relies on third-party manufacturers for its product parts.
Opportunities
Keurig has the potential for global expansion, and it has already achieved success in several markets across the world. The presence of the company outside of the United States is lagging behind other major firms such as Starbucks, but the opportunity remains available. In the markets where its innovative brewing systems have a significant presence, the company can expand its list of distributors and partners who have their products, such as coffee and tea brands, presented as K-Cup pods. There is also an opportunity to place these brewing systems in public areas for greater brand visibility.
Threats
Nowadays, companies are able to create their own brewing machines for home use, similar to Keurig products. Moreover, competitors are allowed to advertise their products as compatible with the original K-Cups, which are no longer protected by the patent. The coffee machines market is highly competitive as of late, especially against such major firms as Starbucks. Kline (2016) reveals that “losing Starbucks as a partner would be a blow, but it might make sense because presumptive Keurig owner JAB Holdings owns a number of cafe competitors.” The company must keep its identity without damaging its relationships with suppliers and partners. The main challenge of the firm remains its need to stay unique.
Recommendations
The first recommendation for Keurig is to provide backward compatibility for its products. This issue had sparked an initial backlash against the company’s strategy and redirected its investors to more stable alternatives on the market. This change would allow Keurig to maintain a higher quality of the product and attract more customers who would purchase K-Cup-compatible systems. The current RFID system that controls the legitimacy of K-Cups that are used in Keurig machines requires a complex system for its maintenance, yet leaves the company vulnerable to bootleggers.
However, this change could negatively affect the company in the short-term period. The firm would be seeing diminishing returns due to the time it would require to refer all its current customers back to the previous standard, as well as for the already-completed products to move out of the system. The quality of the product would be required to be increased, which means higher operating costs for Keurig. This issue should be deemed as necessary for the time being, until Keurig gets its customers back to using its unified K-Cup standard.
The second recommendation for the business is further expansion of deals with third-party retailers and manufacturers. The increased variety of products available through Keurig brewing machines would attract more customers and make the firm’s presence on the market more visible. The company already maintains a number of such partnerships with Nestlé USA and Starbucks (Danley, 2020). This strategy could serve as a starting point for Keurig’s expansion outside of the United States.
The main issue with this change is a potential breach of contract. The increased amount of involved parties in the technology distribution process means a higher amount of weak points. Keurig must acknowledge the risks by enforcing stricter standards of partnership interactions. The situation with Starbucks also signals that licensing fees must be kept on a competitive level. Despite these complications, openness to the partnership could reduce the pressure from the K-Cup 2.0 situation, which forces customers to choose from a limited set of products.
References
Anderson, E. T., & Anderson E. L. (2012). Keurig: From David to Goliath: The Challenge of Gaining and Maintaining Marketplace Leadership. Web.
Bedford, E. (2020). Market share of single-cup coffee in the United States in 2019, by leading brands. Statista. Web.
Danley, S. (2020). Keurig Dr. Pepper, Nestle launch Starbucks K-Cup partnership. Food Business News. Web.
Johnston, K. (2012). Another challenge for K-Cup maker. The Boston Globe. Web.
Kline, D. (2016). Nine facts you should know about Keurig. The Motley Fool. Web.