Four Bases of Market Segmentation
The consumer market is segmented into four bases, which represent the main characteristics of a customer in relation to the product. The first base is demographic segmentation. It is comprised out of several demographic parameters, such as age, gender, income, and family cycle (Burns & Dewhurst, 2016). In relation to Keurig’s coffee machine, the average age of the customer is between 20-50 years.
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This is the age group of average working adults that consume coffee in the morning before going to engage in their respective trades. Coffee machines do not discriminate between genders, though according to statistics, the number of male coffee drinkers exceeds that of female coffee drinkers by 20% (Lipton, Cutler, Nigl, Cohen, & Lipson, 2015). Due to the relative availability of Keurig’s coffee machine (average price about 120 dollars), it can be aimed at the upper and lower-middle class market segment (Quindlen, 2018).
Geographic segmentation is the second base of customer characterization, which stands for market geography (Burns & Dewhurst, 2016). Keurig’s coffee machine should be aimed at the US, the European, and the Middle-Eastern markets, as these countries possess a relatively high level of wealth and are historically known as coffee nations. Selling this machine en-masse in traditional tea nations, such as China, Russia, India, and Japan, may not be as successful, though still may lend results due to the sheer size of these perspective markets.
Psychographic segmentation stands for individual characteristics, traits, and habits (Burns & Dewhurst, 2016). Coffee is associated with a proactive lifestyle. Many individuals prefer drinking coffee for energy, in order to start their day. Therefore, the psychographic characteristics for the customers include general activity, early morning routines, and hard work.
Lastly, there is the behavioral base, which classifies customers based on their knowledge, attitude, and opinions towards the product. The subcategories included in this segment are occasion, user status, usage rate, loyalty status, and buyer readiness (Burns & Dewhurst, 2016). Personality and lifestyle of the customers will determine their need for Keurig’s coffee machine. Individuals who do not drink coffee on a daily basis are unlikely to buy one.
On the other hand, customers with daily coffee routines will use the machine frequently. The quality of service and reliability of the machine are the two primary characteristics such individuals would be interested in when buying Keurig’s products. The company is famous for producing a variety of beverages, such as the famous Dr. Pepper, which is responsible for a good portion of brand exposure. Thus, Keurig’s coffee machines have a strong potential for creating a lasting following by offering their customers quality products.
To summarize, the average customer likely to purchase a coffee machine from Keurig is likely to be between 20-50 years old, coming from a middle-class family, leading an active and hard-working lifestyle, and having a daily coffee routine. The potential markets for distribution would be the US, Europe, and the Middle East. Russia, China, India, and Japan are likely to yield lesser results.
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Market Targeting Strategies
Market targeting strategies are largely informed by demand, so in order to be effective, the company must realize what kind of service customers expect from the product. There are five segmentation criteria used in defining a market targeting strategy, which are as follows (Kotler, Keller, Sivaramakrishnan, & Cunningham, 2013):
- Criteria size. The market is to be segmented if it is too large. If the customer base is relatively homogeneous, there is no point in trying to target a particular segment.
- Difference. It stands for measurable differences between segments.
- Finances. The profits derived from sales must exceed the production costs and marketing campaign expenditures.
- Different benefits. Different customer segments require different benefits.
The customer base of Keurig is relatively homogeneous, as dividing them by the criteria of age or gender would not yield results. However, the distinction could be made using the finances segment. All customers could be divided into low-income, medium-income, and high-income purchasers, with the demands towards the product increasing with every group. Low-income customers would be interested in the relative affordability of the device above everything else.
Middle-income customers would value the quality of the coffee and the reliability of the device. Finally, high-income customers would add visual appeal to the list of demands, as the coffee machine would need to fit in an expensive kitchen. They would prefer the availability of the device in different colors to match or contrast with the overall design. Because the majority of the customers would likely come from the middle-range financial segment, the primary criteria to cater to should be the quality of coffee and the reliability of the mechanisms.
Porter’s Five Forces Analysis
Porter’s Five Forces framework is an instrument for external market evaluation, which could be useful for informing Keurig’s marketing strategy for its coffee machine products. Porter focuses on the five major forces that shape the coffee machine market, which are as follows (Jarzabkowski, & Kaplan, 2014):
- The threat of new entrants. It identifies how easy it is for new companies to join the selected market and compete for market share.
- The threat of substitutes. This identifies any analogs already present on the market that could directly compete with the chosen product.
- Power of buyers. It helps to understand how much sway customers have in determining the price and qualities of the product.
- Power of suppliers. This force determines the influence of suppliers on the production process. Typically, suppliers have more power if they are hard to substitute.
- Industry rivalry. This final force is informed by the forces outlined above and provides a defining characteristic of the market.
The threat of new entrants to the coffee machine market is considered to be relatively low (Lipton et al., 2015). The reasons for that are simple as new entrant to the market would need to possess the capabilities to produce coffee machines. Without factories and assembly lines, such an effort would not be possible. Therefore, Keurig should not fear any new challengers competing for the same market segment. The threat of substitutes for the chosen product is high (Lipton et al., 2015).
There is a big amount of coffee machines already available on the market. Keurig’s product would not fundamentally change its dynamics in the same way iPhone changed the smartphone segment. Thus, the company would need to attract customers through other means such as quality, reliability, or price.
The power of buyers is considered high, as the customers can freely choose between many different products by different suppliers (Lipton et al., 2015). Keurig would need to cater to the specific needs of the target segment and keep the price tag as fair as it is possible, in order to attract attention while remaining profitable. The power of suppliers is low, however, as the materials and technologies needed for creating coffee machines are in abundance (Lipton et al., 2015).
The rivalry within the industry is also high, as all major electronics producers have their own lines of coffee machines ready to compete with Keurig. Based on this analysis, it could be concluded that Keurig’s coffee machine would need to be a cut above the rest in order to claim additional market share.
Burns, P., & Dewhurst, J. (Eds). (2016). Small business and entrepreneurship (2nd ed.). New York, NY: Palgrave.
Jarzabkowski, P., & Kaplan, S. (2014). Strategy tools-in-use: A framework for understanding “technologies of rationality” in practice. Strategic Management Journal, 36(4), 537-558.
Kotler, P., Keller, K. M., Sivaramakrishnan, S., & Cunningham, P. H. (2013). Marketing management (14th ed.). Don Mills, Ontario: Pearson Canada.
Lipton, J. I., Cutler, M., Nigl, F., Cohen, D., & Lipson, H. (2015). Additive manufacturing for the food industry. Trends in Food Science & Technology, 43(1), 114-123.
Quindlen, K. (2018). The smallest Keurig & K-cup coffee makers. Bustle. Web.