Class 3 Case Analysis - Drinkworks vF

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Boston College *

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8003

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Marketing

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Feb 20, 2024

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September 9, 2023 Drinkworks: Home Bar by Keurig EXECUTIVE SUMMARY It is the summer of 2018 and Nathaniel Davis is the CEO of Drinkworks, a joint venture of beverage giants AB InBev and Keurig Dr Pepper. Davis is reflecting on a series of decisions regarding the market launch of the Drinkworks Home Bar – a countertop appliance that uses Keurig-style single-serve pods to fashion various cocktails and beer. Having spent several years and millions of dollars conducting market research, in product development, and test marketing, Davis is determined to make the novel product a success. Davis must decide what segments should be targeted, what the value proposition should be, what channels of distribution should be used, how the device should be priced, and whether to manufacture pods with or without alcohol. The directive for this case analysis was to use the generative AI software Chat GPT to answer three primary questions presented in the case (What segments should be targeted; What are the consumer tests telling us; and should Davis launch the product?) and assess the AI tool’s analysis. Unfortunately, AI proved useless for this task, offering only a non-case-specific framework for how to analyze a product launch decision using consumer tests and segmentation. While not helpful in providing a meaningful benchmark for my analysis of Davis’ questions, Chat GPT’s framework was well structured and comprehensive true to its product value proposition as a large language learning model and provides interesting insight into the inner-workings of its analytical/research process. Without Chat GPT’s baseline, I will present my own analysis of the product and its value proposition within the competitive landscape, moving on to focus on the key questions of target market, consumer research and test insights, and finally the question of whether to launch. DRINKWORKS HOME BAR: A RELAXING, CHEAPER WAY TO DRINK The Drinkworks Home Bar is single-serve, pod-based home cocktail appliance that offers consumers a convenient, versatile, and foolproof method for crafting chilled cocktails and carbonated beer at the push of a button. Drinkworks should position its Home Bar product as “For multi-category alcohol drinkers with a busy, social lifestyle seeking a convenient, time-saving way to enjoy elevated, sophisticated beverages at home.”

Positioning the product in this way highlights the product’s compelling value proposition as a premium product rooted that removes the pain points from relaxing: reducing cost, time and effort by offering a solution that lets them sip bar-quality cocktails in under a minute and at a fraction of the price. SIZING UP THE MARKET OPPORTUNITY The market within which Drinkworks will compete is presented as large and projected to grow 24% by 2022, with 71 million U.S. households (“HHs”) consuming alcohol, and in-home consumption amounting to 55% of total alcohol sales in the U.S. each year (estimated to be $130Bn in 2017). Given it will only compete in the beer and spirits categories, I estimate that the market opportunity for Drinkworks in the U.S. is $96Bn ($61Bn beer and $35Bn distilled spirits, assuming cross-category consumption levels are equal). For this prize, Drinkworks will face a range of competitors in the market, including companies that produce RTD cocktails, like Cardinal Spirits and St. Agrestis, companies that sell subscription-based and on-demand cocktail boxes/kits, and, most directly, Bartesian, whose home cocktail appliance will compete head-to-head with Drinkworks Home Bar when it launches at the end of the year. Bartesian’s device, nicknamed “the Keurig of cocktails” by Business Insider in 2016, presents a huge challenge that is not adequately addressed in this case. Specifically, Drinkworks faces an uphill battle competing against Bartesian, with its near 1:1 value proposition, an established brand-name association within the category (that Keurig, under which Drinkworks will launch, lacks), its 6,500 preorders (which effectively removes a huge portion of Drinkworks’ target segment from the market); additionally, Bartesian has a leg up with established distribution channels and significant buzz/WOM generated by Kickstarter and the Business Insider earned media coverage. Compared against Bartesian, Drinkworks’ primary POD is that it offers alcoholic options (beyond mixers), such that consumers could avoid purchasing their own spirits to mix into cocktails and brew (the largest category THE TARGET SEGMENT & CONSUMER INSIGHTS The case outlines several pieces of data that can be used to triangulate the largest and most profitable target consumer segments, though I was uncomfortable with how much gray area separated the various data

points and some of the assumptions it made. For example, we are told how many HHs in the U.S. have consumed some type of alcohol within the past 4 weeks, but not how much of that is attributable to in-home consumption, nor the number of in-home consumption occasions by category. The case also omits details as to how consumption preferences differ by demographic, leaving us to assume that Gen X, Gen Y, Gen Z, and Baby Boomers all share similar in-home consumption preferences and behaviors. I believe Drinkworks’ research grossly overestimates its market opportunity. Given the limitations of the data available in the case, I believe Drinkworks must establish its target market based on the product’s key POD as an all-in-one alcoholic beverage solution, offering the widest breadth of pod offerings including pre-built cocktails for the “host/hostess”, customizable cocktails (non-alcoholic pods) for the brand-loyalist, and AB InBev’s top selling in-home beer varieties. The most statistically significant market research conducted by Drinkworks (2017 auction experiment) found that only 5.9% (135 of the 2,300) would consider purchasing the Home Bar device at a price above its $250 COGS. At a $199 price point, $51 below COGS, as shown in Exhibit 2, the majority of each target customer profile would not be interested in the device at all. Additionally, in its subsequent in-home use test, Drinkworks recruited a miniscule 50 individuals to demo the device and purchase pods. Of those 50 participants only 40% indicated interest in purchasing the machine, with an even higher amount still undecided, and while they provided favorable responses to drink quality and selection, a mere 8% thought the pods were a good value. All things considered, if Drinkworks launches, they should target the “Weekly Drinker + Hosts” younger demographic, 21-29-year-olds living in urban areas who socialize at home at least once a week and have “higher” household income levels. TO LAUNCH OR NOT TO LAUNCH Ultimately, the decision to launch must be based in whether the product demonstrates a clear path to profitability and consumer satisfaction. In the case of the Drinkworks Home Bar, I believe this is not the case, and they should not launch, due to the following factors:  The size of the market is unclear, as is the market share that Drinkworks could hope to capture.

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 The target customer profile as outlined in the case and exhibits show irregular and often negative perceptions of the device’s value proposition.  The complexity of the regulatory environment for selling alcohol in the U.S. (a challenge for even the seasoned AB InBev to navigate) would make distribution near-impossible on any channel other than DTC, which would still face logistical challenges in navigating state and county alcohol sale laws – a tough sell to shareholders.  Channel distribution. Presenting a novel concept like that of Drinkworks requires trialability and broad visibility, offered only by traditional retail stores. Given potentially negative profit margins on the device, Drinkworks must present a united face to the consumer, showcasing the Home Bar and the pods (the profit winners in this Drinkworks dynamic duo) together … on the shelf , precluding traditional retail as a viable option. Further, liquor stores’ reluctance to sell appliances due to low turnover, large shelf- consumption, and low margins suggest that channel is also not viable, leaving e-commerce as the only remaining contender. “Full of friction” due to complex regulations for online alcohol sales varying by state and county and low margins except DTC, where Drinkworks would face the uniquely burdensome challenge of overcoming the Keurig brands’ coffee -association established with its consumers, e- commerce fails to pass the muster test as well.  With Bartesian launch quickly approaching, its lower price points, established buzz, multi-year distribution agreement, and product portfolio that respects the strength of consumers’ alcohol-brand loyalty, Drinkworks has no clear path to profitability in an already niche market. Imagine selling that to shareholders… TAKEAWAYS AND NEXT STEPS FOR DAVIS & THE DRINKWORKS JV Sunk costs should never be considered when making a business decision. Hold off on market launch, keeping the Keurig Kold technology in your pocket, it will come in use within a different product application with greater market potential in the future. Maintain the relationship with AB InBev and consider doing more granular, larger-scale market research on in-home alcoholic consumer consumption preferences and behaviors

with a plan to manufacture and distribute alcoholic pod varieties for sale in liquor stores and compatible with Bartesian appliances once the concept gains sufficient saturation in the market. Chat GPT Prompt: “Please give me a 1500 word analysis of "Drinkworks: Home Bar by Keurig" by Sunil Gupta. What segments should be targeted? What are the consumer tests telling us? Should we launch this product?” Chat GPT answer: “I apologize for any confusion, but I do not have access to specific case studies, articles, or papers, including "Drinkworks: Home Bar by Keurig" by Sunil Gupta, as my knowledge only extends up until September 2021, and I do not have access to proprietary databases or academic journals. However, I can provide you with a general framework and guidance on how to analyze a product launch decision using consumer tests and segmentation. **1. Segmentation Analysis:** - Start by identifying and analyzing potential market segments for the Drinkworks: Home Bar product. Consider demographic, psychographic, geographic, and behavioral factors. - Evaluate the attractiveness of each segment based on size, growth potential, competition, and fit with the product's features and benefits. - Segment the market into primary, secondary, and tertiary target segments, prioritizing the most promising ones. **2. Consumer Tests:** - Conduct consumer tests to gather insights and feedback on the product concept and prototype. - Test different aspects of the product, including the taste and quality of the drinks, ease of use, pricing, and packaging. - Analyze the results of the consumer tests to understand consumer preferences, pain points, and areas for improvement. - Assess the willingness to pay for the product and compare it to the expected price point. **3. Competitive Analysis:** - Evaluate the competitive landscape to understand how Drinkworks: Home Bar compares to existing products or alternatives in the market. - Identify the strengths, weaknesses, opportunities, and threats (SWOT analysis) related to the product's competitive positioning. **4. Financial Analysis:** - Estimate the costs associated with launching and marketing the product, including production, distribution, and marketing expenses. - Calculate revenue projections based on expected sales volumes and pricing. - Perform a break-even analysis to determine how many units need to be sold to cover costs. - Assess the expected return on investment (ROI) for the product launch. **5. Risk Assessment:** - Identify potential risks and challenges associated with launching the product, such as regulatory hurdles, supply chain issues, or consumer adoption barriers. - Develop risk mitigation strategies to address these challenges. **6. Decision-Making:**

- Based on the segmentation analysis, consumer test results, competitive analysis, financial analysis, and risk assessment, make an informed decision on whether to launch the Drinkworks: Home Bar product. - Consider factors such as market fit, profitability, and strategic alignment with the company's goals. **7. Launch Strategy:** - If the decision is to proceed with the product launch, develop a comprehensive launch strategy that includes marketing, distribution, pricing, and sales channels. - Continuously monitor performance and gather customer feedback post-launch to make necessary adjustments. Keep in mind that the specific findings and insights from consumer tests and market research will greatly influence the decision to launch the product. It's crucial to gather as much data as possible and carefully analyze it to make an informed and data-driven decision.”

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Class 3 Case Analysis - Drinkworks vF

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