Wednesday, October 24, 2012

Keurig Shows How to Win in a Mature Market

K-Cup Single Cup BrewerHow do you enter a mature market that has huge global competitors and carve out a unique and competitive positioning?

Ask Keurig – the maker of the now famous K-Cup coffee pods. While the coffee market was focusing on Starbucks fighting Dunkin Donuts, McDonald’s or the latest upstart coffee shop, the Keurig company quietly built a brand that satisfied a real unmet need.

green mountain coffee podsFormed in 1998, Keurig, Incorporated (the name comes from the Dutch word for excellence) introduced its patent K-Cup technology. The company was sold in 2006 to Green Mountain Coffee. It is now the number one single brew coffee player with over 75% share of that market and has machines placed in over 6 percent of all U.S. coffee drinking homes. Importantly, It has fended off big budget attacks by Kraft’s Tassimo, Mars’ Flavia, and Sara Lee’s Senseo brands.

Solving the Unmet Need
Keurig understood that consumers had many choices for coffee and that a market for a more premium coffee was emerging in the US. The company also saw a new, underserved market.  The white space wasn’t the small family home market - it was office buildings, car repair shops, laundromats, and hotel rooms – anywhere where consumers wanted a cup of coffee, and were not likely to find something freshly made.  

Consumer Insight (unmet need) – “Unless I make coffee at home or go to a coffee shop, I have no choice but to drink bad coffee.”
Keurig Positioning (solution) – Fresh brewed coffee in less than a minute anytime, anywhere you want it.

The Unreachable Market
Most of the big coffee manufacturers couldn’t reach this underserved market. The “foodservice” side of those companies called only on large institutions to sell coffee dispensing machine with on-going contracts. The “retail” side of coffee manufacturers called on retail grocery chains. The two parts of these global coffee organizations wouldn’t encroach on each other’s turf. Left with few other options, consumers, Joe in the Accounting Department or Sue, the small shop owner, brought drip machines from home to make a pot in the office.  Employees were left with burnt coffee and a big mess to clean up throughout the day. Keurig intuitively knew where to enter the market based on the consumer insight and gained quick distribution at Staples and Office Depot.

After taking most of the share of the out-of-home market, Keurig entering the home market. Now, Starbucks, Dunkin Donuts and the grocery retail brands want desperately to deliver a product that can fit the Keurig machine. Patents will soon expire on the K-Cup, and the big players will move in with their own knock-off versions. Starbucks is rumored to be launching its own system called Verismo.  By then, most consumers will have tried a Green Mountain Coffee, and have a Keurig machine at home. Keurig’s case story about building a brand from scratch in a mature category with huge global competitors can be educational for us all.


paultillman said...

Interesting case study, Bob. As the patents expire on the K-cup technology, I'm wondering how the economics of this platform will change. On a related note, it will be interesting to see how prices and profitability of the brewing machines evolve over time. The Keurig branded machines that have generally been over $100 will likely come under pressure from other brands (e.g. Mr. Coffee) at much lower price points.

Jim said...

A great example of defining and jumping on the opportunity of white space.