STRATEGY

Case Study: Update

Singling out a new market.
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The Problem In January 2004, we presented the case of Wakefield, Mass.-based Keurig, a manufacturer of single-serving coffee machines, which were being sold primarily to corporate customers. But the company was thirsty for a piece of the far larger consumer market. In September 2003, the company took a big gamble, offering a $250 version of its coffeemaker to consumers on its website and through roasters and distributors. Keurig's CEO, Nick Lazaris, had high hopes: He expected to sell 20,000 machines to consumers by the end of 2003 and introduce a $150 model in retail stores in 2004. 

What the Experts Said "The price of the machine is well beyond the range of the average consumer," warned Daniel Cox, president of Coffee Enterprises, who advised Keurig to lower the price to $99. David Oreck, founder of the vacuum cleaner company Oreck Corp., said that Keurig should focus on expanding its commercial business before branching out into the consumer market. "Pursuing retailers is definitely not the way to go," he said.

What's Happened Since In 2004, Keurig found a manufacturing partner in China and rolled out $99, $149, and $199 models; the priciest machine now goes for $279. The coffeemakers are sold in 4,000 high-end retail stores, including Williams-Sonoma and Bloomingdale's. All told, the company has sold more than 150,000 coffeemakers to consumers, who now account for two-thirds of Keurig's sales. As a result, revenue has more than doubled, from $25 million in 2003 to an expected $60 million in 2005.

What's Next Keurig's $99 single-serving coffeemaker will hit Target shelves this month. Lazaris has also lined up distributors in Europe and Japan, and is adding new licensing partners, which supply the coffee, tea, and hot cocoa used in Keurig machines. "We continue to be busy around here," Lazaris says. "But at least we're caffeinated."

Last updated: Jan 1, 2006

DARREN DAHL

Darren Dahl is a contributing editor at Inc. magazine, which he has written for since 2004. He also works as a collaborative writer and editor and has partnered with several high-profile authors. Dahl lives in Asheville, North Carolina.




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