Drink-works: Home Bar by Keurig Case Solution
Every now and then new innovative products are launched in the market for the ease of the customer and to showcase new technology. That’s the case for Drink-works, a joint venture of Keurig and ABI. CEO Nathaniel Davis of Drink-works in the summer of 2018 had to make critical decisions before launching a new product in the market. Drink-works developed a new and innovative home bar system in collaboration with Keurig Dr. Pepper and Anheuser-Busch InBev. The reason for creating a joint venture between these coffee brewing companies was to create a system that let customers make single-serving cocktails or beer drinks with just a push of a button. Drink-works is a pod-based appliance. This pod-based appliance is designed for making a broad array of cocktail drinks, beer drinks, and sparkling drinks at the push of a button. InBev and Dr. Pepper were looking for a new strategy with the noteworthy potential to advance their global businesses. This new and innovative product was available for purchase in 5 brick and mortar stores. To move or penetrate a new and expanded market and launching this product across the country, the company Drink-works wanted to optimize its marketing strategy. This report consists of an in-depth market analysis and financial analysis of this case.
In the summer of 2018, the CEO of Drink-works – Nathaniel Davis was concerned about making several go-to-market decisions ahead of the upcoming product launch of the company. Formed through the joint venture between Anheuser-Busch InBev as well as Keurig Dr. Pepper, the company had significantly developed the system of the innovative home bar which allows customers to make single-serving beers or cocktails with the push of the button. Keurig Dr. Pepper&Keurig provided valuable regulatory expertise, supply chain, and technology to Drink-works but as the Drink-works Home Bar was the novel product in the market, there were no established market benchmarks for the team of Drink-works to follow as they prepared for the upcoming market launch of Home Bar. The company needs to interpret the results of market research experiments and make decisions around the distribution channels, pricing, product assortment, value proposition, and customer segmentation. Also, the CEO is concerned about whether the company would be the next dollar opportunity for AB InBev and Keurig.
This new, unique and innovative product “Drink-works” is a home-based drink maker. It is a counter top appliance that gives the luxury of enjoying your preferred drink in the comfort of your home. This product works a lot like the existing Keurig coffee makers, but instead of coffee, this product is issued to make cocktails and drinks. This device consists of the following components:
- Water tank (removable)
- Water filter
- Cooling tank (to cool or chill room temperature water)
- CO2 canister (to add carbonation to drinks)
To create a drink, the user would insert a pod into the pod holder, and press a button to make a drink. The device was designed to last five or more years. Drinkworks comes with multiple pod types. Pods lie into three unique categories to provide three different drink experiences:
- Alcoholic cocktail pods,
- Non-alcoholic mixer pods, and
- Pods with beer or cider.
Non-alcoholic mixer pods contained all the necessary ingredients for a particular cocktail, customers could later add their alcohol if needed. Alcoholic pods can make a finished product with a click of a button. Non-alcoholic pods are more convenient for the customers as they have the freedom to add their preferred brand of alcohol to their desired quantity.
The Drink-works Home Bar device could be distributed to the customers through liquor stores, e-commerce and traditional retails stores. The distribution of alcoholic beverages through stores was the major strength of InBev as the company has a vast network of retailers and wholesalers and have a long-lasting relationship with them, which would provide a considerable advantage to Drinkwork. But, the company would need to pay spirits to exercise tax of around .10 dollars to .15 dollars per pod, which in turn would reduce the profit levels of the company. Furthermore, the liquor stores were not keen to sell the devices which are non-repeat and slow-moving items due to which the company would not be able to expect the desirable results from selling the devices.
Another option is selling the devices through traditional retail stores which would provide the broader market coverage to the company but they would not guarantee to sell alcoholic cocktails or beer/cider pods. Moreover, the company could sell the products through e-commerce channels such as Amazon. It would lead to many benefits such as the huge potential for sales, better cash flows, and higher margins, less time-intensive, lower setup and running cost, and so forth. But there is a challenge of whether the customers would make a purchase decision of newly launched products without seeing or touching it.
The willingness of the customer is estimated to pay for the device and its pods using the online auction. In the online auction, 2300 people were recruited between the ages of 21 and 65 years old who consumed alcoholic beverages once a month. The device auction started at 999 dollars whereas beer products and mixers started at 4 dollars and restaurants and bars often priced cocktails between 8 dollars and 15 dollars. The results of the online auction survey stipulated that the customer views the Drink-works Home Bar device as a premium product.
The new appliance named – Drink-works Home Bar device is designed to give bar quality drinks at home to the customers. The machines tend to use Drink-works proprietary pods to prepare beers, ciders, cocktails, and other beverages. The launch of the Drink-works Home Bar device would add value to the company’s profit returns in a way that provides various advantages to the users such as; the product makes the preparation of beer and cocktails fast,easy, and generally more efficient.
In addition to this, the product is innovative and modern as well as on the cutting edge. Additionally, the customers perceive the Drink-works Home Bar device as fancy, sophisticated, trendy, and intriguing. Not only this, the Drink-works Home Bar device seems a luxurious product which is designed to provide various benefits to the users i.e. ease and convenience.
Furthermore, the perception amongst customers that the product would tend to spark well times and create an atmosphere of happiness and joy improve the market reputation and image of the company in the market.
Market Size and Consumer Segments
Drink-works was a unique idea. Providing a home bar system to the users was very clever and was a need of the consumers. CEO Davis wanted to capture a huge market with this product. Research studies were performed to identify a potential target market and customer segments.
In 2017, research was conducted on 1800 individuals between ages between 25 and 64 to identify if they have consumed any sort of alcoholic beverage within 4 weeks. About 59% of the study participants agreed to have taken a drink a two within the last four weeks. This research was necessary to identify if people frequently drink and would have a home-based drink bar is something people will invest in.
After this research Drink-works identified six target customers’ profiles. These profiles were based on the following factors:
- Alcohol consumption frequency,
- Age, and
- If the consumer-owned a Keurig device.
Multi-category drinkers who also like to host were more interested in purchasing the product. The multiple categories of drinks customers preferred were:
- Wine, and
The six customer segments that were identified are:
- Younger people: Weekly beer drinkers and hosts
- Older people: Weekly beer drinkers and hosts
- Monthly beer drinkers and hosts
- Weekly beer drinkers who rarely hosts
- Social infrequent spirit drinkers
- Non-social infrequent drinkers.
Younger people who like to drink weekly and also hosts parties, made up about 21% of the customer segmentation. These youngsters like to either live alone or with any sort of family.
Older people who drink weekly and at the same time likes to invite friends or host parties made up about 13% of the customer segmentation. These people like to have a drink with their fellows now and then.
Individuals who only drink once a month and also like to invite people to join them made up only 10% of the entire customer segmentation. These people usually consist of middle age men or women, who prefer quality drinks only and they only like to party on occasions.
Drinkers who like to have a glass or two every week but never invite people over made up 12% of the customer segmentation. These people prefer free time and convenience.
Social Infrequent Spirit Drinkers is a group of individuals who do not prefer spirit but instead enjoy wine or beer. They are socially active individuals and they drink inside the comfort of their home or outside when partying. This group made 17% of the customer segmentation. The remaining 27% of the customer segmentation consists of individuals who are less frequent drinkers and also do not enjoy socializing…………………..
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