Case Study: Keurig Green Mountain

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Variables that can shift market supply are: Input costs such as labor and other things that are used in the production of a good or service (Hubbard and O’Brien 2015). Keurig Green Mountain has input costs of labor, K-Cup production, brewer manufacturing and purchasing coffee beans from independent coffee growers. Number of firms in the market – more firms in the market will result in more product available at a given price (Hubbard and O’Brien 2015). Keurig Green Mountain has a large number of competitors in the same market which created a vast amount of substitutes for consumers to choose from. Expected future prices – If a company anticipates the price of its product will be higher in the future, it might decrease its supply today …show more content…
When the price elasticity factor is greater than one, then the good is said to have elastic demand (Hubbard and O’Brien 2015). If the coefficient is equal to 1, then the product is said to have unitary elasticity, and whenever it’s less than one, then it’s inelastic (Hubbard and O’Brien 2015). Elastic demand means that a product is usually highly responsive to a change in the price. In-elastic demand implies that a comparable change in the price results in a lesser change in the quantity demanded (Hubbard and O’Brien 2015). This means that an inelastic good doesn't respond much to a change in the price of the product. Various factors influence the price elasticity of a product; such as availability of substitutes for the product; therefore, the more the substitute’s a particular good has, the more the elastic the product is (Hubbard and O’Brien 2015). The price elasticity of demand for a product or service measures consumer reaction to changes in price. If consumers are very likely to change their purchasing habits due to price changes, the market is elastic. If consumers are not prone to respond to changes in prices and make no changes in product consumption, the market is …show more content…
This could explain why the company may decide to not raise prices, even if its costs are increasing. If the coffee and K-Cup prices increase too much, consumers could consume less, switch to cheaper private label brands, or use refillable cups with their ground coffee. There are many different substitutes for the single serve K-cups that consumers can switch too to avoid the higher prices that Keurig Green Mountain sells their products at. Single serve K-cups are a convenient luxury good and are not a necessity due to the vast range of substitutions on the market. Keurig’s decision to use Digital Rights Management in their 2.0 brewer proved disastrous as sales of brewers and accessories went down 23 percent in 2015. Even though K-cup sales increased by 14 percent, that increase was still well below what the company had forecasted (Geuss 2015). The backlash from the company's customers was swift as was apparent in the rapid decline in sales for the company's newest brewer and the required K-Cups for those brewers. In 2014 Keurig raised K-Cup prices by nearly 9 percent due to a drought in Brazil and a disease called coffee leaf rust that damaged crops. The company had a choice to pass the higher

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