CORE PROJECT (1) (Pohl, Andrew W)

Zack Roberts, Hannah Dawber, Jeff VanBuhler,
Vincent Harvell, Andrew Pohl

Keurig Green Mountain
2
Table of Contents
Executive Summary................................................................................5
Situational Analysis.................................................................................6
Company......................................................................................6
Company Description........................................................6
Corporate Goals................................................................7
Keurig SWOT Analysis......................................................8
Organizational Structure....................................................11
Industry Environment.........................................................13
Customers....................................................................................14
Who are Keurig’s Customers?...........................................14
Expected Customer Behavior............................................15
Why Do Customers Buy Keurig? ......................................17
Context.........................................................................................20
Industry..............................................................................20
Economic...........................................................................22
Technological....................................................................25
Societal..............................................................................27
Legal..................................................................................29
Competitors..................................................................................31
Who are Keurig’s Competitors? ........................................31
SWOT Analyses.................................................................33
Competitive Advantage......................................................40

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Financial Ratios..................................................................41
Collaborators.................................................................................43
Growth Strategy.......................................................................................46
Description....................................................................................46
Goals and Objectives....................................................................47
Segmentation................................................................................48
Targeting.......................................................................................52
Positioning.....................................................................................53
Strategy Execution...................................................................................54
Product..........................................................................................54
Product Goals.....................................................................54
Description on Product.......................................................55
Complementary Services and Warranties..........................56
Place.............................................................................................56
Place Goals........................................................................58
Level of Market Exposure...................................................58
Exposure..................................................................................................61
Channels Used...................................................................61
Promotion......................................................................................63
Promotion Goals.................................................................63
Promotional Blends.............................................................63
Price...............................................................................................64
Price Goals..........................................................................64

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Value Proposition and Price Sensitivity..............................65
Pricing Strategy..................................................................66
Implementing and Control........................................................................67
Timing and Implementation Activities............................................67
Sales Estimates.............................................................................67
Scenario Analysis..........................................................................68
Sensitivity Analysis........................................................................72
Conclusions..............................................................................................75

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Executive Summary
For a new growth strategy, Keurig Green Mountain, decided to weigh in on it’s
revolutionary innovation in quick single-serve hot beverages, and in-home hot
beverage machines, and bring the experience out of the home, making your beloved
premium Keurig products readily available to you wherever you may travel. Keurig
has built a well-valued brand by introducing a single serve coffee brewing machine
that is fully capable of preparing your favorite hot beverages, one serving at a time, in
the comfort of your own home. The process of moving this machine from your kitchen
counter to your office building, university or anywhere you may be taking a city stroll,
is Keurig’s next venture, “Keurig-On-The-Go”. Keurig has designed a state of the art
hot-beverage vending machine where you can now enjoy a premium Keurig beverage,
while at work, school, or just on the move.
To promote Keurig’s fresh take on hot beverage vending, the appropriate
market research has been provided to locate and identify Keurig-On-The-Go’s target
customers and their purchasing behaviors. Keurig has then implemented sales
promotions to reach our demographic. The sales promotions include using social
media and music applications to intrigue and offer incentives to Keurig’s potential
consumers.
For the introduction of Keurig-On-The-Go, Keurig has announced that 1,000
machines will be placed in high traffic cities along the East Coast in Florida, New York,
Boston, Philadelphia, and Maryland. After creating a base case pro forma income
statement spanning 3 years, promising results indicated positive gross profits
exponentially increasing year to year by an average of 9%.

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1
COMPANY
Who is Keurig?
Keurig Green Mountain is an innovative personal beverage system company.
Through new technology and partnerships Keurig strives to deliver a brewer on every
counter.2 Keurig prides their company on revolutionizing the beverage experience and
has done so by expanding their brand into Keurig KOLD. What creates a competitive
advantage for Keurig is their ability to partner with the use of their K-Cups. Currently
Keurig Green Mountain encompasses 80 brands and 575 beverage varieties. The
company distributes Fair Trade Certified, certified organic, flavored, limited edition and
blends of coffee. These are offered in K-Cup and Vue packs. Keurig also sells whole
bean, ground coffee, fractional packages, and cans. Although Keurig isn’t limited to
coffee, they also produce other beverages such as soda, hot apple cider, hot and iced
teas, iced coffee, iced fruit brews and hot cocoas.
1http://www.underconsideration.com/brandnew/archives/keurig_green_mountain_logo
_detail.png
2http://www.keuriggreenmountain.com/en/OurCompany/Overview.aspx

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Keurig’s brewing systems provides great taste and convenience with beverages
at the touch of a button. Keurig Green Mountain also considers the environment, they
identify as a socially responsible company. Keurig shows their attempts in brewing a
better world by using sustainable products, resilient supply chains, and a water secure
world3. As a company Keurig Green Mountain has put in more than 57,000 volunteer
hours with over 51% employee participation. Keurig operates in the United States and
Canada, these two segments are known as the domestic segment or “at home” and
Canadian segments or “away from home”. The company has also expanded globally
into the UK recently 4. Keurig Green Mountain employs over 6,600 employees globally
with a 90% retention rate. As a company, they live by their values and believe it will be
the key to their success for the future of Keurig.
Keurig Corporate Goals
Keurig Green Mountain holds very tightly to their corporate values, as these are
the key to accomplishing the goals they plan to achieve. Keurig’s mission is to place a
Keurig brewer on every counter and provide a beverage for every occasion. Keurig
has taken this goal into affect with their launch of Keurig KOLD. A new machine they
have released that makes soda. Keurig’s corporate goals can be put very simply, as a
company they strive to “create the ultimate beverage experience in every life they
touch from source to cup – transforming the way the world understands business” 5.
One of Keurig Green Mountain’s corporate goals is sustainability, they do this through
3 http://www.keuriggreenmountain.com/en/OurCompany/Overview.aspx
4 http://quotes.wsj.com/GMCR
5 http://www.keuriggreenmountain.com/en/OurCompany/OurValues.aspx

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a resilient supply chain, the use of sustainable products, thriving people and
communities and water stewardship. Keurig has set out to be a leader in the coffee
industry without harming our planet. 6
KEURIG SWOT ANALYSIS
Keurig Green Mountain has many internal strengths, the company can provide
high quality products every time. This is due to the suppliers from who they receive the
products; all of Keurig’s coffee is Fair Trade Certified and Organic Certified. Another
strength comes from the convenience of the brewers; Keurig coffee is brewed in less
than a minute with virtually no clean up. This provides an advantage over many
competitors in which the coffee maker takes a longer time to produce the same
amount and quality of coffee. Keurig differentiates itself as a company through its
6 http://www.keuriggreenmountain.com/Sustainability/Overview.aspx
Strengths
High Quality
Product
Speed and
Convenience
Large Variety of
Products
Industry Leading
Technology
Weaknesses
Dependance on
Suppliers
Loss of Patent
SEC
Investigation
Opportunites
International
Expansion
Expand to Food
and Snacks
Expanding
Partnerships
Improve
Systems
Expansion to
New Markets
Threats
New
Competitor's
Machines
Starbucks at
Home Machine
Intensity of
Specialty Coffee
Industry
Health and
Safety

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ability to partner with other brands. The K-Cup design allows partners to provide their
coffee in the packaging made for a Keurig Brewer. Some of these companies include,
Dunkin Donuts, Starbucks, Caribou Coffee, and Swiss Miss just to name a few. This
sets the company apart from their competitor because it allows for Keurig to provide to
their customers almost any type of beverage they could ever desire. Keurig is a leader
in innovative technology of personal brewing systems. They are always striving to
have the newest technology available, this is a major advantage for Keurig.
While Keurig Green Mountain is a leader in the personal beverage system, they
have a few internal weaknesses as most publicly traded companies do. Firstly, Keurig
struggles with the criticism it has received form the U.S. Securities and Exchange. The
SEC held an investigation into Keurig’s accounting practices. This negatively affects
how customers perceive Keurig and will deter customers from supporting them.7
Another weakness affecting Keurig Green Mountain is the loss of their patent in 2012,
which has allowed other companies to manufacture K-Cup like pods without Keurig’s
partnership. However, Keurig plans to conquer this patent loss by the release of the
Keurig 2.0 machine that will reject any unlicensed K-Cup. The final weakness facing
Keurig Green Mountain is their dependence on coffee bean and machine
manufacturers. This can be harmful to their business because it limits how flexible the
company can be with pricing. Keurig Green Mountain has to conform to the prices of
the raw coffee beans and material that goes into building their machines.
7 http://www.wsj.com/articles/sec-ends-keurig-accounting-probe-with-no-enforcement-
action-1413549605

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While Keurig Green Mountain must function with these internal limitations and
weaknesses, there are many external opportunities for growth and profit. The first
opportunity for Keurig Green Mountain is to expand internationally. As a company,
Keurig has been working on selling their machines outside the domestic market with
expansion to Canada and the UK. This will put more Keurig brewing systems in the
homes of consumers around the world. Another opportunity for Keurig is to expand
into foods and snacks, they have already partnered with Campbell’s to create soup
that is compatible with Keurig machines. Keurig could expand to many other food
types and other markets. Keurig could also venture into food service, workplace,
higher education, and hospitals. This would create more consumers and a new outlet
to reach their existing customers. Keurig also has opportunities to expand through
their owned and partnered brands. This can include partnerships with their K-Cups
and other products Keurig produces. Not only can Keurig Green Mountain benefit
through expanding their coffee and products, they can also improve through their
machines. Working to promote their new KOLD machine and existing hot brewing
machine can create a larger market share and a more profitable company.
Keurig Green Mountain also faces a few external threats that could be harmful
to the company. The first threat taking a toll on Keurig are companies making their
own brewing machines and K-Cups. These can harm the company because they
increase competition and some customers may choose to purchase these machines
over the Keurig machines. The coffee industry is very intense and competitive. It is
difficult to be a leader in the coffee industry and if Keurig loses what differentiates it
from the other coffee machines is can be very negative to the company. One of the

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company’s major competitors creating a home brewing machine is Starbucks. This is
a threat to Keurig because Starbucks is a leader in specialty coffee and shares many
of the same customers with Keurig. Lastly, the risk of chemicals in the brewing
machine is a threat to Keurig. The company can avoid this by ensuring that their
materials used to build the machines and package the coffee are safe, as well as
making sure that raw coffee beans are from safe and healthy sources.
Keurig Organizational Structure
Looking at Keurig Green Mountain Company’s organizational structure, when
referring to their products, we can see that the company uses a “high degree of
specialization”.8 When a company has a high degree of specialization, referring to its
products, this means there is a “division of labor between machine manufacturers,
coffee bean producers, K-Cup producers,” and any other products the company
offers.7
When we look at Keurig Green Mountain Company’s leadership organizational
structure it can be defined as “highly centralized”.7 A highly centralized structure
means “most power and critical decision making responsibilities are concentrated with
a few key leaders”.9 Centralized structures benefit large corporations by “keeping all
levels of an organization focused on one vision or purpose” which is set by the
companies CEO’s and presidents, allowing for faster execution; “with fewer people
involved in discussing and deciding on strategy and action” it allows for a quicker
8 https://sites.google.com/site/gmcrstrat/chapter-11
9 http://smallbusiness.chron.com/advantages-centralized-organizational-structure-
21410.html

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reaction time “to a dynamic market place”.8 Centralization reduces conflict by leaving
the responsibility of a critical decision to the executive team and company presidents.8
Centralization also helps the company’s leaders who are in charge of major decisions
to “retain more control over operations of the company and development of its
culture”, which in return makes the accountability of these decisions easy to track.8
The actual structure and layout of Keurig’s organization can be defined as a
combination of “functional/geographic structure”.8 This structure is due to the highly
centralized decision process as well as Keurig’s presences around the world.
Here is a simplified example of the Functional/Geographic Organizational
Structure that would apply to Keurig’s executive leaders. 10
KEURIG GREEN MOUNTAINS HIERARCHY OF LEADERS
Brian Kelley - President & CEO
Mark Baynes - Chief Marketing Officer
Mark Choe - Chief Technology Officer
Michael Cunningham - Chief Digital & Information Officer
Michael Degnan - Chief Legal Officer & Corporate General Counsel
Stephen Gibbs - Chief Accounting Officer
Stéphane Glorieux - President, Keurig Canada
Kevin Hartley - Chief Innovation Officer
Derek Hopkins - President, US At Home Business
Linda Kazanova - Chief Human Resources Officer
10 http://catalog.flatworldknowledge.com/bookhub/7?e=collins-ch06_s03

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Pete Leemputte - Chief Financial Officer & Treasurer
Paul O'Brien - President, Asia-Pacific
Robert Ostryniec - Chief Product Supply Officer
Monique Oxender - Chief Sustainability Officer
Fran Rathke - Strategic Advisor to the CEO
Kevin Sullivan - Future Technology Initiatives
Warwick White - President, International
Mark Wood - Chief Business Development & Partners Officer
(list of leaders)11
Industry Environment
A company like Keurig, who provides both coffee products, as well as
manufactured products, spans several markets, which has a great impact on
competition. Keurig’s manufactured brewing systems must compete with several firms
ranging from basic coffee pot styles to hand-assembled, state-of-the-art machines.
The coffee market has many competitors and will increase with Keurig’s recent
“Keurig-On-The-Go” growth strategy.
The brewing system market is filled with conventional coffee makers from home
appliance companies such as Kenmore, Black and Decker, Bunn, Cuisinart, and
Krups. Keurig’s competitive advantage comes from its machines’ single brew method
in which they heavily dominate the market. The closest competing firms, such as
Bosch’s Tassimo machine, only share a sliver of the market.
In the single-serve coffee market, Keurig offers its own brand, “Green
Mountain” K-Cups (single-serve beverage container), which do not own the highest
portions of K-Cup sales. Fortunately, Keurig machines, which are the leading single-
11 http://www.keuriggreenmountain.com/en/OurCompany/OurLeadership.aspx

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serve coffee brewing machines in the market, use only Keurig’s K-Cups to brew
beverages. These K-Cups are licensed to established beverage companies such as
Caribou Coffee, Dunkin Donuts, Swiss Miss, Starbucks, Coca-Cola, and many more.
These licensing agreements make up for the lack of market domination by Keurig’s
own coffee brand and still returns some of sales to Keurig.
With Keurig’s new Keurig-On-The-Go vending service, Keurig will be entering
into new markets, competing for sales with coffee shops and small restaurant
environments. Companies such as Starbucks and Dunkin Donuts will be the most
challenging competitors in this new market.
CUSTOMERS
Who are Keurig’s Customers?
The target market for Keurig coffee vending machines will consist of college
educated individuals who have begun their professional careers, and have begun to
solidify themselves within corporations. The age range of Keurig’s target market is 25-
65. Keurig has chosen their target age by determining the average age of employees
at companies that are headquartered in metropolitan areas of where their vending
machines will be stationed12. The estimated age of retirement of employees in white-
collar industries is 65. In the age ranges of 35-44, 45-54, and 55-64 more than half of
the individuals live in a household that consume coffee daily13. The median pay of
12 http://www.payscale.com/data-packages/employee-loyalty/full-list
13 http://www.experian.com/blogs/marketing-forward/2009/12/01/demographic-and-
preferences-of-coffee-drinkers-in-america/

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Keurig’s target market ranges from $50,000-$80,000014. Keurig coffee aims for a more
affluent range of individuals, but not at a wealth that is beyond the need for buying
specialty coffee on the go.
Expected Customer Attitudes and Behaviors
When we look at our society as a whole, it is easy to see certain trends and
changes when it comes to the attitude and behavior of today’s consumers. Due to the
quickly evolving technology available in our society customers are always looking for
the fastest, cheapest, and least amount of human interaction as possible when it
comes to purchasing a product. We see these trends when looking at the success of
companies such as Netflix and Amazon. These companies eliminated the need to
leave your house in order to rent a movie or purchase a phone charger, and have
found a way to do it at a low price for the customer and at a speed that is subject to
that of your internet provider. These demands from consumers for a quicker and
simpler way to obtain a product fit perfectly with Keurig’s new business growth
strategy.
Fortunately for Keurig, the world is expected to consume much more coffee in
the upcoming years. According to The Wall Street Journal the demand for coffee is
“likely to rise almost 25% in the next five years”.15 This increase in coffee consumption
is influenced by “societies in India, China and Latin America as they continue to be
westernized”.14
15 http://www.wsj.com/articles/coffee-consumption-expected-to-jump-1424119985

16
Coffee drinkers are starting to drink more and more specialty coffees such as
espressos, lattes`, cappuccinos, etc. Of all the coffee drinkers, “about a third of them
drink a gourmet coffee” 14 and that number is expected to grow as the knowledge of
these specialty coffees increases.16 The graph below shows the increasing daily
consumption of specialty coffees from 1999 to 2014.
17
Another big customer trend in attitudes is the fast-growing “Going Green”
movement. A study found that “87% of global respondents believe that companies
should place equal weight on business and pressing social issues” such as going
green.18 According to Forbes, a study found “72% of consumers would recommend a
brand that supports a good cause over one that doesn’t”.19 Keurig Green Mountain is
trying to keep up by developing a plan to increase sustainability and decrease the
16 http://www.forbes.com/sites/robertpassikoff/2013/09/16/u-s-consumers-drinking-
a-latte-more-coffee/
17 http://www.scaa.org/chronicle/wp-content/uploads/2014/12/Screen-Shot-2014-12-
10-at-2.34.52-PM.png
18 https://www.ashoka.org/story/people-want-business-purpose-will-social-
intrapreneurs-deliver
19 http://www.forbes.com/sites/ashoka/2013/09/11/going-green-how-a-simple-
transparency-tool-can-make-businesses-and-consumers-put-their-money-where-their-
mouth-is/

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company’s environmental impact. The complete plan can be found at
http://www.keuriggreenmountain.com/en/Sustainability/Overview.aspx.
Why do Customers Buy Keurig?
Keurig Green Mountain coffee is a high quality coffee, and the machines allow
the ability to choose specialty coffees. Keurig’s market includes all genders and all
ethnicities, as well as all professions. Keurig wants to serve the market that is working
for large corporations, who have tight schedules and want to grab a coffee on the run.
Some of Keurig’s customers prefer no face-to-face interaction within the transaction. If
employees work late then they have the option to get a warm and delicious cup of
coffee without the hassle of driving to the nearest coffee shop.

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The typical daily coffee drinker will consume an average of 3.1 cups a day 20.
Keurig customers will choose to buy Keurig coffee over their competitors because
vending machines offer the ultimate level of convenience. Keurig customers have
different schedules and they recognize that. Coffee is a beverage that is consumed at
all hours of the day, so Keurig has decided to bridge that divide, and allow their
customers the flexibility to get a hot cup of coffee whenever they would like with very
little effort. Since Keurig is placing some machines in hospitals a machine offers them
the ability to make a sale 24 hours a day, 7 days a week. Vending also decreases
payroll, which offers more room for a larger profit. The Keurig brand is known for
specialty coffees and that is what they offer their customers without having to drive to
a shop. In the U.S. 30% of all daily coffee drinkers prefer to drink specialty coffee
compared to a non-special brew21.
20 http://www.statisticbrain.com/coffee-drinking-statistics/
Daily U.S.
specialty
coffee
drinkers
30
Million
Daily U.S.
coffee
drinkers
100
Million

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CONTEXT
Industry
There are a number of positive trends in the coffee industry that evoke the
notion that coffee vending is a viable avenue to peddle the Green Mountain brand of
coffee. Vending machine sales in the United States are reported to be around $7
billion annually, 22 with coffeehouses projected to produce an additional $31 billion in
revenue for 2015. With a market that large and the ability for Keurig to supply its own
vending machines with its own product suggests that Keurig is in an acceptable
position to plan and implement a successful marketing strategy to compete in the
vended coffee segment. It is also important for Keurig to perpetuate the Keurig and
Green Mountain Coffee brand by making it available to consumers outside the home.
The concept of high-quality, gourmet coffee being at the ready for consumers is what
has allowed Keurig to grow in to the household name it has become. With the
extension of our brand availability outside the home, it reminds consumers that Keurig
is convenience wherever they are.
An important aspect of introducing vending machines and vending the Green
Mountain Coffee is for Keurig to maintain its core competency. In this light, Keurig is
able to allocate a minimal amount of resources to this segment of the company due to
the relationships forged with subcontractors. Machines are available for lease to our
exact specifications through many alternatives of vending machine producers.23
Furthermore, the day-to-day operations and management of individual machines is the
22 http://brandongaille.com/23-intriguing-vending-machine-sales-statistics/
23 http://www.autoretail.com/tablet/index.html

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responsibility of local vending machine service subcontractors.24 Developing and
maintaining relationships with subcontractors is going to help maintain a high quality of
product and distribution to consumers who appreciate it the most.
With respect to coffee-on-the-go, it is also necessary to address coffee
availability in other arenas. Coffee is the second most popular choice of beverage for
adults after water.25 This translates into the average US coffee consumer spending
over $21.00 per week for a convenient coffee beverage.26 With the ability for Keurig
to offer gourmet-level, customizable beverage choices through a lower cost vended
distribution channel, it mirrors most of the product choices that make coffeehouses so
popular. What it adds is the convenience of even more localized retail choices that
prevent consumers from seeking alternatives at a further distance from their place of
business. It also adds the capability of 24-hour sales without the increased costs
associated with a brick-and-mortar business.
Market trends toward social media based marketing have grown to include the
vending industry. With industry leaders like Coca-Cola and Pepsi garnering attention
in the world of interactive marketing, it appears to be a perfect domain in which Keurig
can capitalize.27 Pepsi and Coke are market leaders in the vending industry. By
introducing the vending industry to social media, it creates a new way for coffee
drinkers to unite and for Keurig to convey a sense of community. Interactive screens
at the point of purchase allow the customer to benefit from the level of customization
24 http://www.canteen.com/Pages/Canteen.aspx?ItemID=22
25http://www.ars.usda.gov/SP2UserFiles/Place/12355000/pdf/DBrief/6_beverage_choi
ces_adults_0708.pdf
26 http://www.statista.com/topics/1670/coffeehouse-chain-market/
27 http://www.pepsico.com/live/pressrelease/PepsiCo-Introduces-Social-Vending-
System-the-Next-Generation-in-Interactive-Vend04272011

22
that is generally only available to consumers who purchase from brick-and-mortar
coffeehouses. Staying connected with consumers’ favorite brands and products will
allow Keurig to enhance its standing as the leader in coffee convenience.
Finally, the vending experience will also be augmented by the advent of mobile
payment enabled devices. Android, Apple, and Samsung have each implemented
their own flavor of a “digital wallet” that makes payments faster and easier.28 Adopters
of the new technology will be capable of higher levels of convenience due to faster
transaction speed at vending machines. This is important due to the average price of
a credit transaction being approximately 50% more than a cash transaction.29
As for hindrances to the vending industry in the United States, despite strong
waves of automation across a multitude of industries, the vending industry as a whole
has suffered a marginal decline in the years since the global financial crisis of 2007-
2008.30 While not a sharp decline, and not off pace with the declines in many other
industries,31 it is a statistic that will have to be monitored in order to create and
maintain a competitive edge.
Economic
The coffee industry is a huge industry that shows no signs of slowing down at
the moment. Drinkers of coffee or caffeinated beverages are habitual drinkers, and
would prefer to follow a routine. There is plenty of research to show the economics of
28 http://time.com/money/4068133/apple-samsung-android/
31 https://www.washingtonpost.com/11-industries-hardest-hit-by-the-
recession/2012/06/15/gJQArvVpfV_gallery.html

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coffee is still on the up and sales are rising. Sales are not the only thing to change
from year to year but “coffee shop chains grow more than 10 percent annually”32. With
more people drinking specialty coffee and spending time at coffee bars lines start to
form, and that is where vending has the competitive advantage. As of 2010 vending
machine sales were over 40 billion dollars33. Keurig goal is to control 3% of the
vending industry, which is 1.2 billion dollars. Coffee is more than just a drink to
thousands of people. Coffee fuels the lives of thousands of individuals inside and
outside of the United States. Coffee is one the most traded commodities on planet
earth only second to oil34. The importing of coffee to the U.S. is essential for some
countries to survive.
Since the unveiling of the Keurig home brewer, and the loss of patents on k-
cups many other companies have flooded the market with their version of k-cups.
Keurig plans to implement their machines, to put pressure on their competitors to join
Keurig in the new coffee vending wave. Keurig will be the first of its kind to unveil their
coffee vending machines, so Keurig will maintain brand recognition if competitors
decide to join the market.
32 http://www.sbdcnet.org/small-business-research-reports/coffee-shop
33 http://www.statista.com/statistics/200646/total-sales-volume-of-vending-machines-
in-the-us-since-1999/
34 http://www.pbs.org/independentlens/blackgold/economics.html

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35
With well over half of the American population regularly drinking more than one
cup of coffee per day, Keurig is entering a very large market with several avenues to
make a profit36. The economic impact that Keurig will place on the coffee market is
tremendous in the sense that there are very few companies who are using vending as
a point of sale. Many companies focus on retailers or wholesalers, but do not focus on
the younger generations who are more time oriented and focus on completing several
tasks while on the move. Generation Y or the millennials can be described as seeing
“the world as a 24/7 place; want fast and immediate processing37.” The millennials will
comprise a majority of the workforce by 2025, and have already begun their takeover.
35 http://time.com/2913062/k-cups-war/
37 http://www.marketingteacher.com/the-six-living-generations-in-america/

25
38
Keurig has strategically planned to target generation Y specifically because
they can draw their machines the highest volume of foot traffic. Keurig’s plan is to
increase foot traffic towards their machines to increase the odds for the number of
sales. Generation Y offers Keurig their greatest chance for drawing in a maximum
revenue.
Technological
It is easy to see that technology is going to play a huge part in the new Keurig
Green Mountain vending machine growth strategy. The technology that goes into
these vending machines must provide the same high quality coffee in a short period of
time, just as the consumer would get from his personal counter top Keurig K-Cup
machine. For this growth strategy Keurig has partnered with C&S Vending Company,
Inc. “C&S Vending provides the latest, state-of-the-art equipment, so that your vending
38 http://alfa-img.com/show/the-generations-in-workforce.html

26
machines will be long-lasting and fulfill your company's vending needs for years to
come. If your machine has a problem, or if it just needs a restock, you can rest-
assured that our staff will be available to service your machine any time, 24/7.”39 C&S
Vending has a large list of major cliental including “over 80 different Pepsi items” and
“over 70 different Coke products” as well as 6 hot beverage vending machine
products.38
A large portion of the technology in the new growth strategy is in the actual
vending machine, but there are other places that technology will save money.
Technology will help Keurig track inventory, machine efficiency, and even sales on a
daily basis. Instead of waiting for a machine to run out of a particular beverage and
then restocking, with technology Keurig is able to track the inventory within a vending
machine and restock products before they run out which increases the efficiency of
the machines. Being able to provide the exact amount of inventory need can steadily
cut costs and waste for the overall company. This same concept can be applied to the
overall functionality of the machines. Technology allows the machines to notify either
Keurig or C&S Vending when an issue or error occurs with the machine. This allows
for a quick reaction time to the broken machine therefore we are able to repair and
have the machine running efficiently as soon as possible. Since this is a new project
that Keurig is jumping into, technology is also going to help when it comes to tracking
sales and profitability with these machines. During the first year Keurig plans to place
up to 1000 machines along the east coast in highly populated business areas.
Technology will allow Keurig to analyze which machines are being used most and
39 http://www.csvending.com/vending/

27
which ones are being used least. With this information Keurig will be able to relocate
existing inefficient machines to better place machines in the future. With these
implementations of technology working with Keurig’s new line of vending machines
Keurig will be able to easily and efficiently monitor and control nearly every aspect of
the machine. Long term this could save Keurig millions with machine downtimes and
supplying the correct amount of inventory.
40
Societal
Keurig Green Mountain is a very environmentally conscious company; they
hold their products at a very high standard. Keurig prides themselves as being a
sustainable company. Keurig improves their sustainability in four major ways, these
include: the use of a resilient supply chain, sustainable products, thriving people and
communities and water stewardship. Keurig keeps their supply chain resilient by the
use of the “Bean Belt” their coffee comes from three major areas, The Americas,
Africa and Indonesia. 100% of Keurig’s primary agricultural and manufactured
products follow Keurig’s responsible sourcing guidelines. Keurig is constantly working
to ensure a long-term and consistent supply chain. They create this through long-term
40http://www.keuriggreenmountain.com/en/Sustainability/SustainableProducts/Overvi
ew.aspx

28
relationships with their suppliers and provide them with the skills and tools to improve
their business to provide Keurig with the highest quality products 41.
From building an efficient supply chain gives Keurig the opportunity to create
sustainable products. Keurig is working to continuously improve the environmental
performance of their products. The company is dedicated to creating high quality
products that are good for people and good for the planet. This dedication is shown
through the goals Keurig Green Mountains recycling goals to achieve by 2020, they
are as follows: 100% of K-Cups will be recyclable, to reduce the life-cycle greenhouse
gas emissions of brewed beverages by 25%, and achieve zero waste-to-landfill at
their owned and operated manufacturing and distribution facilities. 42
Keurig Green Mountain believes thriving people creates a striving business,
which creates thriving communities. Keurig engages 100% of employees to
understand their visions, values and present opportunities that allow them to
contribute to their targets. Keurig is focused on engaging with their people and
communities.
43
41http://www.keuriggreenmountain.com/en/Sustainability/ResilientSupplyChain/Overv
iew.aspx
42http://www.keuriggreenmountain.com/en/Sustainability/SustainableProducts/Overvi
ew.aspx
43http://www.keuriggreenmountain.com/en/Sustainability/WaterStewardship/Overvie
w.aspx

29
Keurig’s last benchmark towards sustainability is their commitment to water
stewardship. Water is an essential part of Keurig’s supply chain as it is needed to
grow coffee beans with the their major raw material. After recognizing that many water
shortages were happening in countries in their supply chain Keurig knew it was time to
promote conservation and resiliency. Keurig’s target is to engage one million people in
their supply chains to significantly improve their livelihoods including water security
and climate resilience44. Their water reservation approach includes three important
components. The first component being “Optimize” this step sets out to optimize
resources through efficient use of water withdrawn. The second component is
“Balance” this targets to balance the water volume of our beverage through projects
that restore an equal volume of water for natural and community uses. The third and
final component to Keurig’s water stewardship commitment is “Connect”, this is simply
connecting people with clean water sources.
Political/ Legal
From a political perspective, it is not frequent to hear headlines regarding major
issues in the coffee industry aside from pricing changes. However, when these price
changes do occur, they may result in a price increase for the consumer, or a price
drop for the farmers. Due to the majority of coffee being harvested by poor rural
farmers in faraway nations, it is likely that concerns for the farmers may have a
negative impact on price and availability of the beans they produce. Protectionist
legislation in the future would create difficulties for Keurig to procure the quantity of
44
http://www.keuriggreenmountain.com/en/Sustainability/SustainableProducts/Overvie
w.aspx

30
product required and will inherently increase the cost of the one commodity that
Keurig is hyper-sensitive to.45
Legally, Keurig is taking advantage of a political and legal environment that is
heavily regulated. Particularly in urban areas where population is high, taxes are
increasing, and legislation geared toward consumer protection has made it cost
prohibitive for one to purvey coffee in a traditional coffeehouse establishment.
Fortunately, this is one arena where vending machines hold a distinct advantage. In a
locale that is inundated with multiple levels of municipal regulation stemming from a
city, township, borough, county, or state, Keurig vending machines are able to
circumvent a majority of the requirements that inhibit brick-and-mortar establishments
that produce food and beverages to be served to the public for immediate
consumption.46
A final concern is regarding the litigious nature of society in the United States.
Warranted or unwarranted, lawsuits concerning the temperature of a hot beverage
that is provided by an establishment for immediate consumption or served to
individuals by said establishments are rampant and may be a hurdle Keurig is forced
to face in the event that an unfortunate occurrence results in the injury of a patron of a
Keurig owned vending machine.47 While it has been well documented what is a safe
temperature for skin contact with a beverage versus what is a potentially injurious
temperature, it is also necessary to brew coffee at a far higher temperature range to
45 http://www.economist.com/blogs/economist-explains/2013/07/economist-explains-
9
46http://stosselintheclassroom.org/videos/lemonade_stand_consumer_protection_gone_
wrong/
47 http://dailycoffeenews.com/2013/07/02/hot-coffee-lawsuits-keep-coming-are-you-
ready/

31
produce a superior quality product than the safe temperature for skin contact. This
creates an obvious quandary as to what the relationship between a quality product, a
safe product, a sellable product, and a satisfied customer really is. In the situations
litigated, it is understood that the product was served at a temperature exceeding the
safe temperature for skin contact. What is unknown is where the line will ultimately be
drawn between what is acceptable for the hot beverage industry to serve and what is
acceptable for coffee drinkers to consume.
COMPETITORS
Who are Keurig’s Competitors?
Keurig Green Mountain is a leader in innovative coffee machine and coffee
distribution. Their competitors include coffee distributors such as Maxwell House and
Folgers; also coffee machine brands, which include BUNN and Technivorm.
Maxwell House is owned by Kraft Foods, which is the third-largest food and
beverage company in North America.48 They provide high quality products at home
and in restaurants. Maxwell House or Kraft Foods has multiple strengths because they
are so large the coffee is available in many markets. They are the fifth largest food
and beverage company in the world. Maxwell house makes their own coffee that is
compatible with Keurig machines. The company also has their own creamer in the
market, available to their consumers. 49
However, Kraft does make many weaknesses, these include the fact that they
are not specialized in coffee and coffee accessories. A major weakness of Kraft Foods
48 http://www.kraftfoodsgroup.com/home/index.aspx
49 http://www.kraftfoodsgroup.com/home/index.aspx

32
in the coffee industry is that they are a food company. Appliance companies already
have customers who have other household appliances and trust them to create
reliable machines. Therefore, these customers are more likely to purchase a coffee
machine from them. Another weakness of Kraft is that they are easily replaceable by
other brands, they do not brand Maxwell house as a specialty coffee. This means that
consumers will commonly choose other brands over it due to price differences.
Many opportunities are available for Kraft to expand as a company. They could
build partnerships with other companies. Create alternative foods products to create a
larger product line. Maxwell house can work on creating a longer shelf live for their
products they already have to improve the quality and demand of their products.
While Kraft Foods is a leader in the food and beverage world they do face
some external threats. One of their major competitors in Nestle company, they are
also a large brand while covers many foods and beverages. Externally, Kraft must
abide by strict food laws and regulations. This especially comes into play when
expanding to international markets, Kraft must insure their products follow the different
laws of the countries they are expanding.

33
KRAFT FOOD SWOT ANALYSIS
A second large competitor Keurig Green Mountain faces is Folgers coffee,
which is owned and operated by JM Smuckers.50 The Smuckers brand has been
around since 1897 and continues to be a leader in the food industry. The coffee
portion of the brand in the most profitable segment. Smuckers purchased the Folgers
brand from Proctor and Gamble in 2008 as has since been selling it under the JM
Smuckers name51.
Folgers operating under JM Smuckers has many strengths that set them apart
in the intense coffee industry. Folgers is a market leader in terms of market share.
They have decades of experience in roasting and manufacturing, this sets them apart
50 http://www.smuckers.com/about-smucker-company
51 http://www.fool.com/investing/general/2014/01/05/4-things-you-may-not-know-
about-jm-smucker.aspx
Strengths
Many
Markets
Fifth Largest
Food & Bev
Company
Weaknesses
Not
Specialized
Appliance
Company
Competition
Easily
Replacable
Opportunities
Partnerships
New
Products
Improve Shelf
Life
Threats
Nestle
Company
Laws and
Regulations

34
from newer company not yet established in their techniques. They have a high recall
value brand in the coffee segment, which makes them extremely profitable. Folgers
has had success in ad campaigns, which has reinforced their brand position. A major
strength is their robust distribution and retailer network, being owned by such a large
brand like JM Smuckers allows for Folgers to be available in every major retail outlet
so it can reach the mass amount of consumers.
Although they are a large and growing leader in the coffee industry they do
have some internal weaknesses. These include having a limited global presence.
Most of JM Smuckers products, including Folgers are domestically distributed. The
coffee industry is very intense and this leads to brand loyalty, where this could be a
great thing if consumer are loyal to your brand it can be extremely hard to switch them
over if they are using another brand. Consumers tend to select the same kind of
coffee they have always bought when they go to the grocery store. This means that
brands must use intense marketing to penetrate their current market.
There are many external opportunities for Folgers to expand as a coffee brand,
these include the introduction of ready coffee mixes for travel. It is a trend that more
people want convenience items on the go. It seems more Americans are having less
time everyday and there is a huge market for quick ways to get coffee. If Folgers were
to export more coffee to an over seas market they could expand the amount
consumers and create a loyal customer base that they might not have domestically.
Folgers has opportunities to expand into related items like ice creams and energy

35
drinks. Belong to a large food and beverage company like Smuckers would allow for a
brand expansion such as this and could be beneficial to Folgers. 52
Externally, Folgers does face threats to their company. A major threat to
Folgers is the shift in self-brewing to readymade coffee. The main way consumers
purchase readymade coffee is on-the-go coffee shops. If consumers decide to get
their coffee from a coffee shop on the way to work, school etc. they wont have a need
to have coffee at home.
FOLGERS SWOT ANALYSIS
52 http://www.mbaskool.com/brandguide/food-and-beverages/14035-folgers.html
Strengths
Decades of
Experience
High Recall
Value
Sucessful
Campaigns
Market
Leadership
Robust
Distribution
Weeknesses
Limited
Global
Presence
Intense
Competition
Opportunities
Ready
Coffee
Mixes for
Travel
Export
Overseas
Ice Creams
and Energy
Drinks
Threats
On-The-Go
Coffee
Shops
Self-
Brewing
Coffee
Price of
Coffee
Fluctuates

36
Keurig Green Mountain is a major producer in coffee, but also in machine to
brew coffee, two of their major competitors in the coffee brewing systems is BUNN
and Technivorm. BUNN prides themselves on making simple, fast coffee. BUNN is a
global brand operating in both at home and commercial equipment. They are an
industry leader and continue to strive for customer driven patented solutions53.
BUNN has many strengths that other coffee machine companies do not have
because they are such a large company. BUNN has an advantage because they have
personal consumers and business customers, this means they have dependence on
two separate markets. They also have a major strength because they are licenses to
manufacture for Starbucks, this is a very important partnership because Starbucks is
one the largest coffee shops in the world. BUNN does produce single serve option
which is important with the convenience trend most customer are wanting lately. This
also is important because they have a three-minute brew, many busy consumers will
appreciate this feature and will choose to purchase the brand for this reason.
Weaknesses of BUNN include their higher price point, overflow complaints, and
the outdated name. Many consumers will not purchase BUNN because they are out of
their price range. BUNN needs to target consumers interesting in luxury items to buy
their machines. Also, BUNN is having issues with customers complaining about their
products, specifically about the machines overflowing. Lastly, the name BUNN-O-
MATIC is driving away customers because it is very outdated. It sounds like
something that would have been popular in the 1950s. This is going to turn away
customer who are looking for a high-tech, expensive product.
53 http://www.bunn.com/why-bunn

37
Opportunities for BUNN are to expand internationally, stick to the luxury market,
and develop new machines. If BUNN were to expand overseas, they could expand the
amount of customers they could be reaching to buy their products. BUNN should take
advantage of the opportunity to enter into a strictly luxury market. They have a high
price point that isn’t going to attract those looking for an everyday machine. They
should create and market with the luxury market and customers in mind. Another
opportunity for BUNN is to expand to machines that can make other things than coffee
such a tea. More consumers want machines that can do it all, especially if they are
spending a lot of money on the machine.
Although BUNN is a large company with many customers, there are still some
external threats that could become harmful to staying successful. First, the global
competition is a threat to BUNN if they take opportunities to expand overseas. The
coffee machine companies that are already taking up the market there will become
their competition. BUNN also has a disadvantage compared to commodity pricing.
BUNN has a higher price point compared to other coffee machines. This will limit the
amount of customers that are willing to purchase. Lastly, there is a threat to BUNN
because they have limited custom options. Many consumers of BUNN products are
part of the luxury market, therefore they expect a customizable product. BUNN doesn’t
offer very many options to do this, which may cause some customers to choose other
brands.

38
BUNN SWOT ANALYSIS
Technivorm is an innovative specialty coffee machine company, Technivorm is
located in the Netherland and distributes their products to consumers around the
world. 54 Technivorm’s major internal strength is their production of the Moccamaster.
This is their coffee maker. It guarantees first class beverage production55. Another
strength benefiting Technivorm is their ability to hand-make all of their products. This
is an advantage in the luxury market where customers are willing to pay more for a
product that has been hand-made.
54 http://www.technivorm.com/about_us/
55 http://www.technivorm.com/
Strengths
Consumer and
Business
Customers
Starbucks
License
Single Serve
Options
3 Minute Brew
Time
Weaknesses
Higher Price
Point
Overflow
Complaints
Outdated
Name
Opportunities
Tea Brewers
Luxury Market
International
Expansion
Threats
Global
Competition
Commodity
Pricing
Few Custom
Options

39
Technivorm also faces some weaknesses that could be damaging to their
success if they don’t keep them under control. The first weakness is their expensive
pricing. This limits the company to only consumers in the luxury market because the
average person cannot afford to purchase their machine. Secondly, they have a large
operation expense because Technivorm is hand-making these products, which is a
very expensive process. Where this can be seen as an area of strength to draw in
customers, it could be harmful to the company if they do not make the profit needed to
cover their operational costs.
There are many areas of opportunity for Technivorm to succeed. The first of
these is to focus on being part of the luxury market, this means focusing on products
that’s will fulfill the needs of consumers in this market. Another opportunity for
Technivorm is to expand into the commercial market. With having such a high-quality
product, there are company’s that could be seeking to purchase machines to use in
their business settings.
There are also some threats in the external market that could affect
Technivorm. First off, consumers have limited buying power. This goes back to the
fact that Technivorm is not fully within the luxury market. If the company continues to
market their products to the average consumer, they would be better off lowering their
price and trying to decrease their cost. Another threat is the coffee bean prices. Cost
of coffee is constantly fluctuating and very is competitive. There is a very intricate
supply chain and many regulations. This causes the price to go up and down all the
time. This can deter customers from purchasing coffee which would also decrease the
amount of coffee machines they purchase.

40
TECHNIVORM SWOT ANALYSIS
Competitive Advantage
Keurig Green Mountain’s competitive advantage is their ability to partnership.
Keurig’s customers use their machines mostly with the use of K-Cups, many of these
are coffee brands of other companies like Starbucks and Dunkin Donuts. What
differentiates Keurig is their capacity to provide their customers with coffee from
almost any brand they would want.
However, the loss of their patent in 2012 allowed for other companies to
produce K-Cup like pods that were compatible with Keurig’s first model of coffee
machines without a partnership. With Keurig’s release of their new machines Keurig
2.0, non-licensed K-Cups are no longer compatible. This prevents customers from
purchasing non-licensed K-Cups if they have the Keurig 2.0, which would be beneficial
Stregths
Handmade
Product
The
Moccamaster
Weaknesses
Expensive
Pricing
Large
Operation
Expense
Opportunities
Luxury Good
Maker
Commerical
Market
Threats
Consumers
Limited
Buying
Power
Coffee Bean
Prices

41
to Keurig because the profit of K-Cups should increase. Although some customers
may not want to upgrade their machine from the original to the Keurig 2.0 because
they can no longer purchase the non-license K-Cups. This could cause less sales of
Keurig’s new machines
Financial Ratio Analysis Vs. Starbucks
Financial ratios are key indicators to measure the performance of a company.
Ratios such as a current ratio can measure liquidity of a firm. Ratios like a debt-to-
equity ratio can convey what kinds of financial leverage a firm may have. Ratios like
profit margin and return on equity measure profitability. No single ratio is a perfect
indicator of a company’s financial situation, however when analyzed correctly they can
provide valuable insight on a company’s finances.
A current ratio incorporates all of a company’s current assets and liabilities and
expresses its ability to pay off short and long-term debts. As of the most recent
quarter, September 2015, Starbucks has a current ratio of 1.1956, while Keurig Green
Mountain has a current ratio of 2.5257. In most cases, a ratio closer to or below one
expresses that the company does not have enough assets to cover the incurred
liabilities, which can result in financial downturn. From the respective current ratios of
each company one can infer that Keurig has a higher ratio, indicating it has a better
ability to cover costs of liabilities.
56 http://www.nasdaq.com/symbol/sbux/financials?query=ratios
57 http://finance.yahoo.com/q/ks?s=GMCR+Key+Statistics

42
A debt-to-equity ratio explains the proportions of debt and equity that finance a
company. Starbucks has a debt-to-equity ratio of 40.9558, while Keurig’s is listed as
16.6459. Interpretation of these ratios show, that Starbucks as a company has
financed their company mostly by debt, this brings an element of risk to investors.
Keurig also has a higher ratio, suggesting the same as Starbuck’s, however it can be
argued that Starbucks ‘s higher ratio reveals a more aggressive financing strategy
involving debt and risk.
Profit margin measures the financial health of a company. It compares profits
earned with total sales of the firm. Keurig yields a profit margin of 11.2%60, and
Starbucks has a margin of 14.39%61. Both ratios are high, positive ratios, which are
characteristics of financially successful companies. It can be determined from the
ratios that Starbuck’s profit margin is indeed higher, however Keurig’s growth strategy
is expected to make Keurig a strong competitor in the “coffee shop” market and
hopefully improve the profits of the firm.
Return on equity, is another profitability ratio that measures profits earned for
each dollar invested in the company. Keurig has a return on equity of 16.12%62
compared to Starbuck’s 49.75%63. Consistent with Keurig’s profit margin, Keurig’s
58 https://finance.yahoo.com/q/ks?s=SBUX

43
return on equity is lower than Starbuck’s, however, it is expected like the profit margin,
to increase with this new project as we enter into this market.
Price to earnings ratio is a common method to measure the value of stocks.
The ratio is expressed as the market value per share as a proportion of earnings per
share. Keurig’s price to earnings ratio is $13.4564 while Starbucks has a $38.9065
price to earnings ratio. These numbers may be valuable to potential investors wishing
to purchase stock in either company. With forecasted success in Keurig’s new market
it can be expected to see a raise in Keurig’s earning per share ratio.
Entering a new market with such strong competitors such as Starbucks, permits
the opportunity for risk as well as success. These financial ratios show a promising
introduction point to enter into this latest market.
COLLABORATERS
Keurig Green Mountain has many important collaborators in forms of suppliers,
customers and partnerships. Keurig has developed business plans with other
competing coffee brands in order to profit from the popularity and preference of the
consumers favorite coffees. Some of the main partners Keurig included in the figure
below:
64 http://www.nasdaq.com/symbol/gmcr/pe-ratio
65 http://www.nasdaq.com/symbol/sbux/pe-ratio

44
66
These are just a select few companies that Keurig has partnered with. These
partnerships are very important to the success of Keurig and the growth of single
serve Keurig coffee stations. “We take pride in our ability to forge partner relationships
with those some may consider to be our biggest competition. But that’s the idea: we
endeavor to satisfy everyone’s taste, even if that taste is not our own.”67 These
partnerships with other major coffee manufactures and suppliers allows Keurig to
profit off of the popularity and the large customer segment that drink only Starbucks
brand coffees or only Folgers brand coffees. Keurig is also exploring new possibilities
with company such as Campbell’s Soup, in which they want to launch a “Fresh
Brewed Soup K-Cup. Not only does this open up the window for more hot soup
concepts but Keurig says we “believe these new product offerings fuel excitement for
66 http://www.keurig.com/content/discover
67http://www.keuriggreenmountain.com/en/OurStories/PartnershipsStories/Partnerin
gforMutualSuccess.aspx
Starbucks
Dunkin’
Donuts
Folgers
Maxwell
House
Swiss
Miss
Snapple Lipton
Caribou
Coffee
Kahlua
Campbell
Soup
McCafe`

45
current Keurig Single Cup brewer owners and users; raise system awareness; attract
new consumers to the system; and promote expanded use of the system”.68
69
Another company that Keurig has partnered with is Coca-Cola. In order to help market
and fund the new “Kold Beverage” line by Keurig, “Coke bought 16% of Keurig Green
Mountain for more than $2 billion starting a year ago”.70 These business partners will
also help with the success of our new Keurig vending machines. Being able to stock
our vending machine with Starbucks, Folgers, Dunkin Donuts, and other major coffee
retailers allows Keurig to tap a large section of the coffee drinkers that only drink
certain brands of coffee instead of limiting them to only Green Mountain when using
our vending machines. Also with the help of brands such as Coca-Cola, Keurig has
the ability to expand and innovate new technology into our vending machines and
Kold Beverage products.
68 http://investor.keuriggreenmountain.com/secfiling.cfm?filingid=1047469-13-
10696&cik=#A2217408Z10-K_HTM_IT1
69http://www.keuriggreenmountain.com/en/OurStories/PartnershipsStories/FreshBre
wedSoup.aspx
70 http://www.forbes.com/sites/forbesleadershipforum/2015/10/08/how-coca-cola-
uses-entrepreneurs-and-keurig-to-jump-start-innovation/

46
GROWTH STRATEGY
Growth Strategy Description
Our growth strategy is to create a new way for people on the go to enjoy the
same cup of delicious coffee or their favorite hot beverage without standing in line at
the local coffee shop or going home and brewing it themselves. Our plan as Keurig
Green Mountain is to develop a brand new line of high-end hot beverage vending
machines that provide the same high-quality and efficiency that is expected from in-
home Keurig products. With the recent upgrades in vending machine technology, we
will be able to offer a large selection of different varieties and styles of coffee. Existing
partnerships with companies such as Folgers, Starbucks, Maxwell House, and a
number of other name brand coffee manufacturers will allow Keurig to offer a selection
of brands and new flavors in our vending machines. Capitalizing on these partnerships
will help Keurig broaden the market from, people who prefer only Keurig Coffee, to
people who prefer Starbucks, Folgers, or any of the other brands that Keurig stock in
the vending machines.
The purpose of the Keurig hot-beverage vending machine is not only a way to
provide a cup of coffee on the go, but instead it is much more than that. Our vending
machine is designed to completely eliminate the need of standing in line at a
Starbucks or Panera. With the innovative technology that is evolving in the vending
machine industry our Keurig coffee machines will be able to customize and edit your
coffee the same way your average coffee shop may do. For example, exact
measurements for cream and sugar, adding shots of espresso, whipped cream, and
extra additives such as caramel or chocolate. By including a variety of customizing

47
options and a large variety of coffee selections, Keurig coffee vending machines
introduces an easier, more efficient, faster, and more practical way for the customer to
purchase their favorite cup of coffee while on the move.
Goals and Objectives
Intended goal of our growth strategy.
 Make a vending machine that efficiently produces high quality coffee and other
hot beverages in a quick manner.
 Provide a machine that is innovative enough to steadily compete with nearby
coffee shops such as Starbucks, Panera, and Biggby.
 Provide a product that is nearly the same if not better than the in home brewing
machines that Keurig customers are familiar with.
 Provide a machine with a high variety of customizable options and a huge
selection of different coffees in order to satisfy every consumer’s needs and
preferences.
 Use Keurig’s existing reputation for high quality products and technology to
expand our product line and the way we deliver our products to the final
consumers.
 Overall Keurig’s goal for the new hot beverage vending machines is to provide
a consistent quality cup of coffee for the average white-collar worker that is on
the move.

48
Segmentation
Variables Used for Segmentation
 Geographic
o Where
 Demographic
o Age
o Generation
o Life Cycle Stage
o Income
o Occupation
 Psychographic
o Social Class
o Lifestyle
 Behavioral
o Coffee Drinkers and non-Coffee Drinkers
Segments best fit for Keurig’s new growth strategy, and the criteria.
 Geographic
o Highly populated big cities, Areas with plenty of foot traffic.
 Demographic
o Ages: 25-54 years of age
o Generation: Generations X & Y
o Life Style Stage: Young and Married (22-30) – Empty Nesters (50-59)
o Income: $40,000+

49
o Occupation: White-collar business workers.
 Psychographic
o Social Class: Middle to Upper Class
o Lifestyles: Highly active, on the move, working, never at home
 Behavioral
o Repetitive Coffee Drinkers
We decided on these segment variables by evaluating the specific customers
we want/expect to use or machines and the current customer base that Keurig has
already developed. Of all the segments Geographic seemed most challenging to
decide. We wanted to pin point specific areas with highly populated middle to upper
class white collar citizens. After much thought and discussion we have decided to start
with Philadelphia, Boston, Washington, Florida, and New York City. These locations
have the highest population density and most fortune 1000 companies throughout the
area. Also these locations are located along the east coast which is convenient for our
company which is located in Vermont.
Next we decided on the demographics of our customers. These included
people ages 25-54 years old landing them in the Generations X and Y. We have
chosen this age group and Generation for a couple of reason. These groups are more
likely to be on the go and moving outside of their homes and they presumably work in
urban/metro areas with lots of foot traffic. Generation X and Y are also adapted to the
fast moving pace of today’s society which matches our goal of providing a fast and
efficient product from our machines. All of generation X and most of generation Y are

50
over the age of 23 and have started careers and families which help them fall directly
into our customer segmentation.71 Generation X holds most of the buying power as
seen in this graph.
72
Generation Y consumers are even more important than ever because they hold the
power for demand in future markets; their kids will be our next generation of
customers and consumers. Also with generation Y’s large use of mass communication
over websites such as Twitter and Facebook they hold power when it comes to
sharing new products and trends.73 After researching the large portion of coffee
drinkers and Keurig coffee customers we have decided to target people with income
starting around $40,000 and working in a white collar environment. People with these
occupations tend to be on the move with less time to enjoy basic commodities. White
collar workers ages 24 to 54 seem to spend more money on average towards luxury
commodities such as premium coffees, making them more likely to purchase from one
of our name brand coffee machines.
71 http://www.socialmarketing.org/newsletter/features/generation3.htm
72 http://contraryinvesting.com/financial-gurus/harry-dent/harry-dents-outlook-on-
demographics-debt-and-deflation-an-exclusive-interview/
73 http://www.socialmarketing.org/newsletter/features/generation3.htm

51
When it came to narrowing down psychographics we stuck with Middle to
Upper Class to best fit our targeted customers. “The U.S. upper-middle class consists
mostly of white-collar professionals who have a high degree of autonomy in their work.
The most common professions of the upper-middle class tend to center on
conceptualizing, consulting, and instruction.”74 The highly active on the go lifestyle that
seemed to parallel the upper middle class fit perfectly with the desired customer of our
vending machines. These people prefer higher quality products and do not mind
paying a premium rate for something they believe holds value. They enjoy a lavish
break from their fast moving cluster filled life, which they can conveniently get from a
fresh/premium cup of coffee produced by a local Keurig vending machine.
When referring to behavioral segmentation we simply looked for everyday
coffee users. Specifically everyday premium coffee drinkers that normally use the
services of Starbucks or their local coffee shops. We hope to conveniently provide a
quicker and simpler way for the everyday coffee drinkers to purchase and receive the
high quality coffee they are used to. Targeting upper middle class white collar workers
that regularly drink coffee will be the main step in the success of Keurig’s new hot
74 https://www.boundless.com/sociology/textbooks/boundless-sociology-
textbook/stratification-inequality-and-social-class-in-the-u-s-9/the-class-structure-in-
the-u-s-75/the-upper-middle-class-444-3310/

52
beverage vending machine.
75
Targeting a Specific Segment
According to the 2015 Nielsen PRIZM segment explorer the best fit segment for
our growth strategy would be considered Bohemian Mix. The Bohemian Mix segment
fall into the targeted segment we discussed earlier. Bohemian Mix is described as “a
collection of mobile urbanites, Bohemian Mix represents the nation's most liberal
lifestyles. Its residents are an ethnically diverse, progressive mix of young singles,
couples, and families ranging from students to professionals. In their funky row houses
and apartments, Bohemian Mixers are the early adopters who are quick to check out
the latest movie, nightclub, laptop, and microbrew.”76 This demographic usually lives
in larger metro city areas, classified as upper middle class, between the ages of 22
and 55, standard family mix with children, renting homes, and white collar workers.
According to Nielsen PRIZM Bohemian Mix accounts for 1.87% of the population
which equals 2,262,800 people, all of which have a median income of $59,064.6
75 http://www.wikihow.com/Act-when-You-Are-in-Company-With-Upper-Class
76https://www.claritas.com/MyBestSegments/Default.jsp?ID=30&menuOption=segment
explorer&pageName=Segment%2BExplorer

53
Positioning
In regards to the new Keurig On The Go machines our customer positioning is
as follows: To the white collar business man our new machine offers a brand new way
to receive the same familiar coffee that nearly 50% of Americans enjoy every morning.
The “On The Go” machines offers the customer a quick break from their busy lives
with a quality cup of coffee at a reasonable price with the same taste and efficiency
they get from their in home brewing machines or local coffee shops.
In regards to our position when referring to Keurig’s competitors the new On
The Go machine offers a “more for the same” value position. “A "More for the Same"
value proposition entails offering a product, service or brand with comparable quality,
at a lower price.”77 Keurig uses this position for the new vending machines in order to
counter the “more for more” position that is offered by competing coffee shops or in
home brewing machines.7 “More for the same” offers the same quality product, in this
case a cup of coffee, for a cheaper price. Using this value position allows us to
compete efficiently with our competitors such as Starbucks, Biggby, or other retail
coffee shops. The way Keurig is able to sustain a profitable business when offering
coffee at a discounted rate is due to the fact that we have no standard brick and
mortar costs. For example the machine does not allocate employee wages or wasted
inventory from employee errors.
77 http://marketmedialife.blogspot.com/2014/02/marketing-101-selecting-overall.html

54
STRATEGY EXECUTION
Product
Goals
Keurig will purchase 1000 Green Mountain Coffee branded vending machines
for placement along the major metropolitan areas along the East coast of the United
States. Placement of the machines will be targeted in the highest traffic areas of
these cities in places like major international airports, high-rise office complexes,
colleges and universities, and generally any viable location that is capable of
generating in the neighborhood of $200,000.00 per year of revenue. It is Keurig’s
intentions to be a practicable alternative to the neighborhood coffee shop or the
internationally recognized coffeehouse.
Keurig’s own brand of Green Mountain Coffee is already popular at home,78 but
without your Keurig single-serve K-cup brewer at the ready it may be less recognized
outside the home. Providing our clientele with an alternative outside the home that is
readily available where you travel or where you work is paramount to the continued
growth and success of the brand. Keurig will provide you with a fantastic gourmet
coffee experience with the ultimate level of convenience on your kitchen counter, but
now you will be capable of quickly and conveniently make a purchase at a Green
Mountain Coffee vending machine. Providing alternative avenues for distribution of
Green Mountain Coffee reflects Keurig’s desire to better serve the customers who
already enjoy the brand at home, and reminds those customers that it is not necessary
78 http://marketrealist.com/2015/11/keurig-green-mountain-sales-declined-fiscal-
4q15/

55
to seek out a different coffee purely by virtue of that customer stepping foot out of his
door.
Description of the Product
Keurig will be working alongside vending contractors to place state-of-the-art
Green Mountain Coffee vending machines in popular places to provide current
consumers of Green Mountain Coffee a convenient location to purchase a custom cup
of the same high-quality coffee that they already enjoy at home. Keurig’s vending
machines will be fast, efficient, and consistent. They will provide customers with a
multitude of choices to custom brew a hot, fresh coffee beverage just the way they
prefer.
Each customer will be given the opportunity to pay with cash, credit, RFID,
Apple Pay, Android Pay, or Samsung Pay. Keurig’s revolutionary coffee brewing
vending machines will provide a better relationship between coffee drinkers and their
barista. Each customer will have the option to create a custom profile with Keurig via
a user-friendly smartphone app. This app seeks to bring the consumer the ultimate in
personalized experience by preselecting drink choices, communicating, and paying all
on their own smart device. And, of course, the standard passer-by may bypass all
ancillary forms of communication by interacting with the machine with the intuitive LCD
touch panel display. Users will be able to view a menu on front of the machine, and
exercise those options right on the interactive display to produce a custom cup of
conveniently vended coffee that mimics the quality otherwise reserved for brick-and-
mortar coffeehouses.

56
Complementary Services & Warranties
Keurig appreciates each and every customer of Green Mountain Coffee. In this light,
Keurig wants the consumer to appreciate that they are appreciated by utilizing an
interactive marketing app that provides Green Mountain Coffee drinkers a superior
level of kinship and personalization with their vending machine. Each customer will
have the ability to pay with cash, credit, RFID, Apple Pay, Android Pay, or Samsung
Pay. Keurig’s coffee brewing vending machines smartphone application will provide a
better relationship between coffee drinkers and their provider. Each customer will
have the option to create a custom profile with Keurig. This app seeks to bring the
consumer the ultimate in personalized experience by preselecting drink choices,
communicating, and paying all on their own smart device.
In addition to the speed and efficiency of the process of purchasing a fully custom cup
of Green Mountain Coffee, users of the smartphone app will be eligible for rewards
based on consumption or any other parameter Keurig deems worthy of recognition.
This two-way-street of promotion will allow Keurig to customize its promotions for each
user by saving their purchases on their device, interacting with Keurig and other
Green Mountain Coffee drinkers to provide feedback and create a sense of community
with their new automated barista.
Place
Keurig believes that introducing our machines on the east coast is the best
decision because Keurig headquarters are located in Vermont. To begin Keurig has
decided to implement 1,000 Keurig coffee vending machines. We want to place our
vending machine services in areas that generate a large amount of foot traffic. Areas

57
that are ideal for generating foot traffic are densely populated metropolitan cities. The
states that are the most densely populated according the U.S. Census are: The
District of Columbia, New Jersey, Rhode Island, Massachusetts, Connecticut,
Maryland, Delaware, New York, Florida, and Pennsylvania79. The population clock
tells us that the ten most densely populated states are all along the east coast.
A large portion of the machines will be placed in New York City because it will
give the machine the highest volume of foot traffic possible. New York City has a
population of 8,491,079, and a population per square mile of 28,163.480. As a state
the District of Columbia has the largest population per square mile at 10,776.9, while
Florida has the largest population at 19,893,297. Keurig will place 200 machines
located at or near retirement home villages along with machines within company office
buildings. 500 machines will be placed in New York City within the companies that are
headquartered there. 5 out of the top 10 fortune 1000 companies are located within
New York City and 6 of the top 20 companies along with 16 of the top 50 companies81.
Some of the companies mentioned include IBM, Phillip Morris, Merrill Lynch, Time
Warner, and AT&T just to name a few. 100 Machines will be placed throughout the
city of Washington in the offices of Fannie Mae, Lockheed Martin, in malls, and placed
at other public areas. 100 Machines throughout the companies located in Boston.
Finally Keurig plans to place 100 machines throughout the businesses and the city of
Philadelphia.
79 http://www.census.gov/popclock/
80 http://www.census.gov/popclock/#density-states
81 http://www.gislounge.com/fortune-1000-companies-by-state/#florida

58
Goals
 Have a machine located in every metropolitan region on the east coast within
ten years.
 Become a leading company in coffee vending.
 Serve all the greater metropolitan areas along the east coast.
Level of Market Exposure
“Keurig-On-The-Go” is an expansion in the Keurig line for on the move coffee.
Keurig has allocated millions of dollars towards their new project. Keurig has targeted
the east coast, which is close to where they are located. They are targeting the east
coast because of the thousands of people who are consistently walking throughout the
city. Keurigs base case scenario for their new project allocates over ten percent of the
total cost of goods sold, while the creamer cost accounts for nearly sixty percent of the
total cost of goods sold. Keurig realizes that the product in their machines accounts for
a large portion of the costs, but there is no need for the hiring of employees to
maintain the machines thanks to C&S vending.
Florida:
Florida is a great location for drinking a hot caffeinated cup of coffee. The great
state of Florida has a very large population as mentioned above. Florida is very unique
to Keurig’s growth strategy because of the several large metropolitan areas scattered
throughout the state. The greater metropolitan regions within Florida are Miami,
Tampa, Orlando, and Jacksonville. Keurig will place 50 machines throughout each of
the four largest metropolitan cities listed above. The reasoning behind Keurig placing
these machines throughout Florida is for reaching a large audience. Since Florida has

59
a very large population it is essential to place these machines where the largest
amount of people will have the ability to walk by these machines.
82
New York City:
New York City has the seventh largest population per square mile among cities
across the United States. The six cities that rank ahead of New York City are cities
within the state of New York and New Jersey83. New York City is Keurig’s number one
market that they want to enter. Keurig has determined that the sheer volume of people
living, traveling, and working within New York City is reason to infiltrate and saturate
82 http://www.creativeclass.com/_v3/creative_class/2011/04/06/the-metro-story-
growth-without-growth/
83 http://www.census.gov/popclock/

60
the market within. Keurig’s plan is to place most of the machines on several floors
over several large companies. With the machines dispensed on several floors more of
the employees and staff within the building will walk by the machine.
Washington:
Washington falls in line with the theme of placing machines throughout
company buildings. There are only a few large corporations including: Lockheed
Martin, Black and Decker, and Fannie Mae84. An employee at Lockheed Martin is
about 34 and makes around $74,000 dollars85, which falls in line with Keurig’s target
market.
Boston:
Among the companies that Keurig would like to locate themselves inside is the
Massachusetts General Hospital which “is the city’s largest employer with 14,752
employees, followed by Brigham and Women’s Hospital with 11,229 employees”86 not
only are they the largest employers in the city, but they also have many new people
entering their facilities everyday. Keurig is not only interested in office buildings, but
also buildings that provide services and require face-to-face contact with their clients.
Philadelphia:
84 http://www.gislounge.com/fortune-1000-companies-by-state/ - florida
86 http://www.bostonredevelopmentauthority.org/getattachment/7ced9a9e-cb5c-4d6b-
a840-2a0042f68ce5/

61
Along with the others Keurig is firm in sticking to office buildings. As with any
big city on the east coast Philadelphia has some major companies headquartered
within its district, such as, Wells Fargo, Jefferson Health Systems, and Comcast87.
Most large companies require thousands of employees, which is great for Keurig’s
machines. As of 2013 Jefferson Health System employed 18,740 individuals88. Keurig
believe that all five of their selected locations are essential for developing their brand.
Channels
87 http://www.gislounge.com/fortune-1000-companies-by-state/ - florida
88http://www.selectgreaterphiladelphia.com/industries/leading-employers/

62
The main distributing channel that Keurig will be using is a Producer-Servicer-
Retail Outlet-Consumer. Keurig has chosen to license out the re-supply and
maintenance work to a third party company. C&S Vending will stock,
maintain, and provide the machine89. C&S Vending stocks Keurig’s product into
the machine, and is then sold to the end consumer. Vending machines can be
considered to be a “concession”. Dictionary.com defines concession as “a space or
privilege within certain premises for a subsidiary business or service”90. By contracting
the work to C&S Vending Keurig can analyze data while not having the risk of dealing
with vandalism or regular machine maintenance.
89 http://www.csvending.com
90 http://dictionary.reference.com/browse/concession
Producer
Servicer
Concession
Consumer

63
Promotion
Goals
Keurig Green Mountain’s goal is to inform everyone on the eastern seaboard of
the release of the Keurig On-The-Go. Keurig will to do this through intense advertising.
The outlet in which they will advertise is through music apps, emailing and on K-Cup
and Keurig machine’s boxes.
Promotional Blend
Keurig will advertise on Pandora and Spotify, Keurig-On-The-Go targets
customers 25-65 years old who are working, busy and use convenience items. In
2014 Pandora had 81.5 million active listeners91 while Spotify has 15 million paid
subscribers and 60 million total users92, these include many of Keurig’s target market.
When a consumer registers for one of these apps they must input their zip code, this
way advertisements are relevant to those with access to the product being advertised.
Keurig Green Mountain would insure that the ads would reach users with a zip code
near a Keurig-On-The-Go.
Keurig Green Mountain will utilize their existing customer email database to
promote Keurig-On-The-Go to incise their exiting consumers. Keurig will send out
emails to their current customers with in the east coast cities to announce the launch
of the new Keurig-On-The-Go. This will insure that the customer Keurig is adverting
91 http://expandedramblings.com/index.php/pandora-statistics/
92 http://www.theverge.com/2015/1/12/7531261/spotify-hits-15-million-paid-
subscribers-60-million-listeners

64
are already users of the machines and or coffee, many existing customers would be
interested in a new way to receive a product they are already love.
Lastly, Keurig Green Mountain will take advantage of their existing products by
advertising on and inside K-Cup and Keurig brewing machine boxes. This way when a
customer goes to a retailer or grocery store to stock their at home machine they are
alerted of a new way to receive Keurig coffee. Keurig will create new boxes with
advertisements to be specifically disturbed to retailers near the cities where Keurig-
On-The-Goal will be located.
Price
Goals
Keurig’s overall pricing goal runs consistently with our “more for the same”
value positioning. Keurig plans to discount the average cup of coffee from a store such
as Starbucks or Panera. A medium cup of coffee from Starbucks in an area similar to
big cities like New York runs about $2.75 for coffee and for specialty drinks such as
Music
Apps
Adversiting
on Pandora
and Spotify.
Email
Use of
Keurig's
existing
email
database.
Ads on
Prodcuts
Adverstments
on Keurig
Machines
and K-Cups

65
lattes and cappuccinos the price is around $4.75.93 Keurig’s price goal for the “On the
Go” machines is to discount this rate at around 5%. Therefor a standard cup of coffee
from one of our machines will cost around $2.60 and for specialty drinks such as lattes
and cappuccinos Keurig will price them at $4.50. Using these prices will allow for
Keurig to maintain nearly the same profit margins that the company has seen in the
past which is between 9% and 15%.
For these new machines Keurig wants to maintain the same customer value
that they associate with their in home brewing machines or the service provided from
their favorite coffee shop. This is the reason the coffee prices were not discounted at a
higher rate, by keeping the prices closer to high end coffees customers will perceive
the product in the machines as a higher quality. With these prices customers should
be compelled to purchase coffee from the Keurig On The Go machines because of the
quick easy and efficient service and product provided by the machines.
Value Proposition and Price Sensitivity
Keurig intends to create value for the new machines by offering customers the
happiness and satisfaction they get from their favorite cup of coffee at a readily
available machine, which is conveniently located in their place of work. Keurig’s
customers don’t have time to run home and brew a cup of coffee, or stand in line at
Starbucks, which is why Keurig’s On The Go machine offers a quick and easy way to
drink coffee without dealing with the hassles normally associated with coffee. The
93 http://www.fastfoodmenuprices.com/starbucks-prices/

66
machines allow for customers to reach the familiar tastes and good times they
experience when enjoying their coffee.
Because Keurig is targeting white collar workers in the middle to upper
economic class we believe the customer price sensitivity will not be very high. Also a
majority of Keurig’s customers are everyday coffee drinkers which means they are
going to buy and drink coffee that taste good and is easiest to obtain. Therefore minor
fluctuations in prices will not alter the amount of sales in the On The Go machines
because coffee is such a high commodity in our customers everyday life.
Pricing Strategy
The pricing strategy that Keurig plans to us is a pricing penetration. “A
marketing strategy used by firms to attract customers to a new product or service.
Penetration pricing is the practice of offering a low price for a new product or service
during its initial offering in order to attract customers away from competitors. The
reasoning behind this marketing strategy is that customers will buy and become aware
of the new product due to its lower price in the marketplace relative to rivals.”94
Because Keurig is offering a new service in which the customer receives coffee the
best way to attract customers and divert them to our machines.
IMPLEMENTATION AND CONTROL
Timing and Implementation
94 http://www.investopedia.com/terms/p/penetration-pricing.asp

67
Research and Development for Keurig’s new On The Go machine began in
October of 2015. Keurig plans to have the first 1000 machines, spread across the east
coast of the United States, to be up and running by Spring of 2016. Advertising and
marketing for our machines will begin in January of 2016 which allows time for
popularity and anticipation before the debut of our first machines. “January is one of
the worst months for coffee sales”, which is why Keurig has scheduled the debut of
these machines during the months of rising coffee sales.95 During the beginning
months marketing and advertising will continue in order to spread the awareness of
the new machines and where they are located.
Sales Estimate
In order to forecast sales for the Keurig On The Go machine we estimated a
certain average number of people that would walk by and purchase one cup of coffee
on a daily basis. By targeting large metro areas with the goal of placing at least one
machine in each major office building along the east coast we estimated the amount of
foot traffic surrounding each machine to be a minimum of 2500 people everyday.
Based on the statistic provided by USA Today the nearly 80% of adults drink coffee
daily, with that we can estimate at least 60% of our target demographic are regular
coffee drinkers.96 If this is true, 1500 out of the 2500 people we have passing our
machines drink coffee regularly. Assuming most coffee drinkers rely on in home
brewing machines we estimated a minimum of 11.2% of the 1500 coffee drinkers
95 http://www.seattletimes.com/business/local-business/coffee-shops-find-january-is-
worst-month-for-sales/
96 http://www.usatoday.com/story/money/business/2013/04/09/coffee-
mania/2069335/

68
would purchase one cup of coffee from our machines on a regular basis which equals
168 cups of coffee everyday per machine. With each machine selling an average of
168 cups of coffee everyday that equals 61,320 cups per year, per machine.
Scenario Analysis
After we had or sales estimates and forecasts we needed to calculate the cost
of goods sold. Starting with coffee, we used a pounds per cup method. First we had to

69
find out how much one pound of coffee costs, and then we calculated the number of
cups one pound of coffee is able to produce. With these numbers we were able to
figure out that one cup of coffee would cost us $0.0461 in coffee alone. We applied
the same method when figuring out the costs of sugar and creamer and came up with
an average costs of creamer per cup to be $0.2509, and an average costs of sugar
per cup to be $0.0051. Finally we were able to find the costs of coffee cups and
sleeves on a per unit basis, which equaled $0.058 per coffee sleeve and $0.072 per
coffee cup. In order to find the total costs of goods sold we take these individual per
cup costs and multiple them by the total number of sales that we estimated in our
sales forecast.
Next we calculated the operating expenses and depreciation. Starting with S,
G, & A, which we found by using a rough estimate based on Keurig’s actual S, G, & A
costs. Currently Keurig’s S, G, & A accounts for 17% of the total sale, based on this
number we decided to set our S, G, & A expenses at a rate of 12% of our total sales.97
Since a lot of our S, G, & A is already accounted for by Keurig Green Mountain we
figured our rate would be lower which is why we are comfortable with 12%. The
technology, programming and engineering of these machines is all accounted for by
the Research and Development expense during the first year. We estimated the total
cost of R & D for a total of 1000 machines to equal 135 million. With these machines
comes the responsibility of fully servicing them on a regular basis, which includes,
restocking, repairing etc. This expense is created by our business partnership with a
large vending company that allows us to pay a set price of $10,000 per machine per
97 https://finance.yahoo.com/q/is?s=GMCR

70
year. The $10,000 expense covers all services required by the machine, Keurig’s only
liability to these machines is supplying the product to stock them.
For the best case scenario, estimates for both the sales price and the quantity
of cups of coffee have been adjusted upward. The original estimated average price of
$3.50 per cup intends to represent a relatively equal mix of sales of low, medium, and
high priced offerings. In this best case scenario, the estimated price is increased to

71
$4.50 to represent a higher percentage of sales of premium coffee offerings. Sales
were manipulated to represent an additional 10% of cups sold. With a combined
increase of $1.00 per cup and 10% more units vended, an additional $86,000 in gross
profit is reported.
For the worst case scenario, estimates of both the sales price and the quantity
of cups of coffee have been adjusted downward. The original estimated average price
of $3.50 per cup intends to represent an equal mix of sales of low, medium, and high
priced offerings. In this worst case scenario, the estimated price is decreased to
$2.60 to represent a higher percentage of sales of inexpensive coffee offerings. Sales
were manipulated to represent 10% fewer cups sold. With a combined decrease of

72
$.90 per cup and a 10% reduction in units vended, a reduction in gross profit of
$69,000 reported.
Sensitivity Analysis

74
Above are three different sensitivity analyses that could affect our growth
strategy and net present value. The first analysis shows the sensitivity to the increase
in the cost of coffee. The pro forma shows an increase in coffee prices as a cost of
goods sold equal to 10%. This increases the total cost of coffee to $3,109.54 from the
original cost of $2,826.85. Compared to the base case pro forma it is easy to see that
our growth strategy is extremely sensitive to the price of coffee. We can see that the
NPV decreases nearly $6 million dollars when compared to the base case because of
a 10% increase in coffee costs.
Next we analyzed the sensitivity of the costs of creamer. For this situation we
increased the cost of creamer by 10%. Doing this we see that our growth strategy is

75
even more sensitive to the cost of creamer than to the cost of coffee. Our NPV takes a
huge dive to $31,144.26, which is almost a $9 million decrease from the base case
NPV of $39,788.60.
Finally we decided to analyze the affect of an increase in the fixed cost of the
vending machine service per year. To do so we increased the vending expense by
15% so that it now equal $11,500 per year. This increase in vending expenses
decreases the NPV to $36,481.96 from the original NPV of $39,788.60. This analysis
proves that our growth strategy is not as sensitive to vending expenses as it is to the
costs of creamer and coffee.
Conclusion
After extensive financial analysis and market research Keurig has decided to
choose the growth strategy, “Keurig-On-The-Go”. After the creation of several pro
forma income statements, revenues were projected at realistic, obtainable dollar
amounts and have exceeded the project’s well thought out expenses year after year.
The only negative net income forecasted for the project came from our worst-case
scenario pro forma, in which market characteristics were rare and unlikely. Also, for
the first year the project is in action, the net present value was calculated to be
$39,788,600,000(base case), which is a significant amount greater than zero, giving
us a strong indicator of a successful project. All in all, the project is a go. Beginning in
the spring of 2017, coffee consumers in high foot-traffic cities along the east coast will
be amongst the first to experience the innovative, one-of-a-kind, Keurig-On-The-Go.

CORE PROJECT (1) (Pohl, Andrew W)

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