Keurig's Business-Level Strategies

Keurig's business-level strategy is differentiation.

A business strategy that centers on differentiation will generally have products or services that offer unique attributes that a consumer will value over competitors. Because of the novelty surrounding the product or service in question, the idea for these businesses is to be perceived at a higher quality when compared to other competitors.

The launch of a new product or service can be a defining and critical moment for any business. Precious resources such as time, money, manpower, research, and planning are just some of the few that are at risk for depletion if a company is not careful with launching a new product and/or service. In order to build their business and launch new product,

Keurig focused on differentiating themselves from the start. The case mentions that one of the key differentiators from the conception of Keurig was the varied selection of K-Cups that would rival a gourmet coffeehouse, all with the convenience of brewing at home.

Keurig is seen as a first mover in many respects, but the case explains that they launched their first product in a developing crowded field.

The key fact that propelled Keurig was that while a lot of brands had single servings of traditional coffee or limited options, Keurig had seventy-five flavors at launch that fared well with consumers looking for more variety. Additionally, Keurig also had the ability to sell their coffee packs via multiple channels while other competitors had only online distribution. Finally, Keurig simply had a better performing machine that was received well by reviewers and consumers alike. Because of the many convenient ancillary benefits that were attached with their product, Keurig was able to sell their machine at more than two times than their closest rival. It is evident that because of their high cost and focus on consumer convenience and variety, Keurig always had envisioned and employed a differentiation

strategy.

After taking off in the market and establishing decent market share, Keurig decided to embark on a three-pronged approach to reduce the brewing price, move manufacturing overseas, and to launch a new product by Christmas, 2004. While recognizing their position as a luxury product, Keurig was able to introduce a coffee-maker at a lower price point with a luxurious marketing image. This again served to differentiate Keurig as something special and unique that the average family could enjoy on their own time with many different options to choose from. While the case does mention that competition has increased and that there is doubt for future growth, Keurig is still the market leader, has strong revenue, and is focused on their core differentiators of simplicity, convenience, and variety.
Keurig’s business-level strategy based on their aforementioned differentiators is very attractive to the American market.

The biggest selling point for a Keurig is the fact that it is convenient, and often a whole pot of coffee is not what a busy person needs or wants. Even for families, a single cup of coffee is appealing, as evidenced by the rise of Starbucks and other coffeehouses. What Keurig proposes in their value proposition is that consumers do not need to venture out and purchase this daily; they simply can do it at home with analogous quality and variety. Convivence allows for a more premium price-point and marketing position, and Keurig has done this very

well.
The desire for fresh, convenient, and varied coffee has not waned in the American market. In fact, as attention spans become shorter, lifestyles become busier, and the more professional and personal life intermingle, the prospects for Keurig continues to be strong within the American market as a leader. However, their growth prospects are limited beyond the American consumer, and their ventures into other drink markets have not seen success. Additionally, Keurig has had criticism with their limited offerings that are environmentally friendly. Even given these potential risk areas, there will always be a market for customers when convenience and variety is the ultimate selling point. As long as Keurig continues to innovate and differentiate their offerings against not only traditional “pot” coffee but also as more convenient than a coffeeshop, they will find success and consumers will continue to utilize their offerings.
Keurig has tapped into a middle position within the market spectrum that rests between the inexpensive home-brewing communal model of coffeemaking and the more expensive and gourmet coffeehouses and shops that are highly varied and individualized. While the razor-and-blade model of selling “K-Cups” may seem unsustainable in the long run, consumers will continue to seek alternatives to both aforementioned market extremes. Keurig currently fits nicely in the middle due to their differentiation strategy, but it remains to be seen if they can sustain a competitive advantage over the long-term.
However, at the present time, consumers buy into the Keurig “system” because they can buy a lot of different varieties, place a small plastic container into a machine without measuring or pouring anything, push a button, and have pretty decent coffee within a minute. Keurig understands this and in many ways defined this market, and it will likely have considerable market share for the foreseeable future.