The evaluation of Keurig’s coffee machine must start from its estimated pricing range and product qualities as perceived by the market. When it comes to household appliances, customers are often looking for the fair price versus performance as a primary criterion of judgment (Kotler, Keller, Sivaramakrishnan, & Cunningham, 2013). Other factors, such as the location of distribution, premium status of the product, and distinctiveness among others are less prominent for a coffee machine, as there are large numbers of substitute products in direct competition. As a result, the number of pricing strategies available to Keurig was somewhat limited.
One of the strategies that the company is currently implementing for Keurig Green Mountain is the market penetration strategy. Such a strategy suggests reducing the price and lowering the profit derived from individual units to achieve an economy of scale, distributing a larger number of products, and claiming market share as well as brand exposure (Kotler et al., 2013). Such a strategy is appropriate for coffee machines and similar household appliances. As has already been mentioned, there is a high degree of competition among the producers in the sector. At the same time, the price/quality balance is the primary criterion for making a choice (Stephens, 2016).
By lowering the price of the product, Keurig effectively increases the customer’s perceptions of the product, as they get more for their dollar than with any other producer. Green Mountain is currently sold at 108 dollars apiece, although its functionality and quality correspond to that of a more premium segment of the coffee-making market, estimated at around 130 dollars (Treadway, 2015). This strategy managed to bring the company greater overall profits while reducing the profit on individual sales.
Another strategy used by Keurig involved in bundle sales. This technique involves selling several thematic goods in a bundle at a lower price per each item (Kotler et al., 2013). Many Keurig machines are sold with a pack of high-quality coffee and a coffee cup in tow so that upon completing a purchase the customer has the opportunity to immediately experience the benefits that the company can provide. The company takes advantage of the fact that it sells not only coffee machines but also the beverages and the cups/accessories to it, something that many other producers in the market cannot do (Treadway, 2015).
Thus, the customer is exposed to the whole list of Keurig products, which has the potential to bolster sales in other sectors of the coffee market. This method also affects the price/quality balance, as the customers get more items per purchase than they would otherwise. However, this kind of strategy also had a negative side effect, as it did reduce the number of coffee machines sold without bundles.
Other pricing strategies have been considered but not utilized by Keurig in the promotion of their latest products. One of these strategies is the price skimming strategy. It is typically utilized in high-tech industries, such as the smartphone and computer/laptop sectors (Kotler et al., 2013). However, high-tech products generate plenty of hype around themselves, as each addition to the product line offers distinct advantages over other models, such as better functionality, increased quality of video and photography, better CPU performance, faster Internet, and other parameters (Stephens, 2016).
Coffee machines constitute a more conservative industry, where innovation is slow, and any improvements usually result in a marginally better quality of service (Fournier & Srinivasan, 2018). Thus, Keurig had no reason for demanding a higher price at the start of the sales, as the hype built around the model did not justify losing potential customers due to a high starting price. Research shows that new products make the most impact during the entry month, meaning that a price-skimming strategy would lose its initial momentum and result in subpar results further down the line (Samper & Quiñones-Ruiz, 2017).
Lastly, economy pricing does not seem to fit into Keurig’s overall strategy for the brand. Economy pricing strategy is useful for cheap mass-produced products that could be used to cater to all segments of the market, aiming mainly for the poor and the lower-middle class (Kotler et al., 2013).
The products of the company revolve around the use of K-cups, which contain portions of coffee to be used by customers in their machines. Keurig coffee-makers are not suited to using different brands of coffee. At the same time, the K-cups are expensive, costing roughly 0.58 dollars per 12 ounces of coffee, whereas the average price for 12 ounces in the economy coffee sector is around 0.08 dollars (Anderson, 2017). Thus, the economy pricing strategy would not be effective when applied to Keurig products.
To summarize, Keurig’s pricing strategies revolve around market penetration and bundle sales. The former is motivated by the fact that introducing a new coffee-maker without giving the product a significant value/price advantage is very hard due to a large number of potential competitors. The bundle sales pricing method is motivated by the fact that Keurig’s primary product is coffee, while cups and coffee-making machines are considered add-ons. Price-skimming and economy pricing strategies, on the other hand, have been proven ineffective due to the nature of the industry and the premium-leaning quality of the coffee used in Keurig machines.
References
Anderson, E. T. (2017). Keurig at home: Managing a new product launch. Kellogg School of Management Cases, 1-19.
Fournier, S., & Srinivasan, S. (2018). The frontlines of brand risk. GfK Marketing Intelligence Review, 10(1), 52-57.
Kotler, P., Keller, K. M., Sivaramakrishnan, S., & Cunningham, P. H. (2013). Marketing management (14th ed.). Don Mills, Canada: Pearson.
Samper, L., & Quiñones-Ruiz, X. (2017). Towards a balanced sustainability vision for the coffee industry. Resources, 6(2), 17.
Stephens, D. L. (2016). Essentials of Consumer Behavior. New York, NY: Routledge.
Treadway, R. B. (2015). Keurig Green Mountain 2015: Dynamic capabilities and sustainable strategic positioning. American Journal of Management, 15(3), 43.