Mountain Man Beer

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Mountain Man Brewing Company : Bringing Brand To LightMade by : Deepika Shokeen-20/007Megha Sharma-20/025Saloni Sharma-20/080Saurabh Kumar-20/084

Mountain Man Brewing CompanyFounded by Guntar Prangel in 1925Reformulation of old family brew recipe using bavarian hops and unusual strains of barleyBy 2005 revenues moved just over $50 million selling over 520000 barrels of Mountain Man LagerHeld a top market position in west virginia for more than 50 yearsPriced similarly to premium domestic brands such as Miller and Budweiser and below speciality brands

Company Background : ContinuedSeveral Factors in selecting a beer are: taste, price, the occasion celebrated, perceived quality, brand image, tradition and local authenticityUnaided response rate of 67% among adultsAwarded as Best Beer in West Virginia in 2005, also was selected as American Championship Lager Distinctive bitter flavor and slightly higher alcohol content60% of the Blue collar males drank at off-premise locations

Case SummaryThis case talks about the challenges Chris Prangel, inheritor of family business at Mountain Man Brewing Company face on planning to launch a new product Mountain Man Light under the umbrella brand name as an extension to the core product Mountain Man Lager

Mountain Mans CompetitionThe competition in the U.S Beer Market fell into four Categories-Major Domestic producers: Handful, competed on the basis of economies of scale. For example Anheuser Busch, Miller and Adolf Coors Company

Second Tier Domestic Producers: Medium sized, operated at all national, regional levels. Followed the same marketing and product strategy as major domestic producers, but lacked by financial and marketing resources

Continued..Import Beer Companies: Satisfied the needs of more flavorful and bitter tasting beers. Operated at distinct disadvantage due to high shipping cost, weaker distribution, inability to control freshness. For example Heniken, Corona, etc.The Craft Beer Industry:Divided into four markets- Brewpubs- restaurants/pubs with more than 25% of the beer products brewed and consumed on siteMicrobreweries- Operated in limited distribution network Contract Breweries- Breweries manufacturing for client firmsRegional Craft Brewers

SWOT ANALYSISSTRENGHTSMarket leader and established brand name Strong brand equityWEAKNESSNew brand extension will spread already thin resources of the companyMMBC doesnthave the marketing budget to compete in the light beer market

OPPORTUNITIESYounger demographic and increase lifetime customer valueLight beer appealed to womenTHREATRisk of canalization of core brandAlienation of core consumerthrough new brand that might notbe in line with their aspirations ofMMBC

STRENGTHSMarket leader and established brand name

Held the top market Position among lagers in West Virginiaforover50years. Won American Champion Lager

Strong Brand Equity

Distinctive bitter flavour and slight higher than average alcohol content uniquely contributed to companys brandequity

New Brand extension will spread alreadythin resources of the companyTV advertising estimated $10-$20 million . Likely to suffer Financial Crisis.

Company does not have the budget tocompete in the light beer advertisingmarket

WEAKNESS

OPPORTUNITIESTo reach younger demographic

Increase lifetime customer value

Light beer category is only category showingconsistent growth as over the six years , light beer sales in the USA had been growing at a annual rate of 4%

THREATSRisk of canalization of core brand

Fears that mountain man would not get incremental shelf space by the retailers

Alienation of core customer through newbrand that might not be in line with theiraspirations of MMBC

Alienating core customer base

MARKETING MIXPRODUCTBrand name Mountain Man LightPackaged in a green bottle to differentiate from its lagerThe green bottle also indicated a lower alcohol contentPRICE

Need further market research to determine theoptimal pricing

PROMOTIONGrass-roots marketing by word of mouth

PLACE

On-premise locations: restaurants and bars

Domestic Light Beer Domestic Premium BeerMountain Man largerGenderGenderMale 58%68%81%Female42%32%19%Age21-249%8%2%25-3420%20%15%35-4424%23%19%45-5422%23%32%55-6414%14%19%65+12%12%13%Household IncomeUnder $25k14%16%20%$425K-$49.9K25%24%27%$50k-$74.9K21%21%25%$75k-99.9K16%15%15%$100K+24%23%13%THE SITUATIONS AT MOUNTAIN MAIN IN 2005U.S was the largest Beer consuming market in the world. Since 2001, U.S per capita beer consumption had declined by 2.3%.Due to the competition from Wine and Spirit based drinks.The state had recently repealed arcane laws that had sharply limited the promotion of beer and retail stores began selling beer at deep discounts and also started dropping small brands.

MMBCs survival was large part due to the fact that it served a large enough market with a very strong brand.They were facing 2% decline in sales but still they were making profits.Key consumer segment was younger drinkers (21-27years of age) who preferred light beer and accounted for more than 27% of total beer consumption.They were called first time drinker demographic that they had not established any loyalty with the brand

Consumer preference changes and shifts in tastes towards light beer.In exhibit 5, light beer category was gaining the large market share and accounted for 50.4% of volume sales in 2005Mountain beer was the only brand which was having only one product line and other brands were having product extension.

FINDINGSThey engaged a market research to evaluate its single brand product strategy and brand extension opportunities:Mountain Man Lager was known as West Virginias Beer. Young beer drinkers were well aware of the brand, yet percieved the beer as strong beer.

Mountain man had always relied on GRASS ROOTS MARKTING to spread its beer quality and word of mouth. In contrast, National beer brands used lifestyle advertisements.A small percentage of MMBCS Blue Collar Customers accounted for a large percentage of sales and most loyal customers for the company.

Should Mountain Man Brewing Company Introduce Mountain Man Light?

Pros:

BrandimageofMountain Manwill helpforthe sales of light beer.

Easy to convince retailers to stock and promote.

Light could re-invigorate lager & would not harm Lagerimage because it target segment is completely different.

Light beer salesin the U.S.had been growing data compounded annual rate of 4%, while traditional premium beersales had declined annually same percentage. Light beer categoryaccountedfor 50.4% ofvolume sales in 2005 compared with 29.8% in 2001.

Itdoesntrequire majorcapital expenditures and equipments for possible packaging and labelling efficiency.

Cons:

Could dilute lager equity.

Potential for cannibalizations of lager brand.

Exceeds the boundary of brand meaning of lager is full-flavoured, authentic, working class, while light is trendy, light, young, modern.

The fact of lager beer is dark, bitter and a higher alcohol content with a product label shows a crew of coal miners is not a fit with the light beer demographic.

Competition from existing National Light Beer manufactures.

Distributors could become more discriminating about which product would they carry.

CHALLENGESProduct preferences changing in the market

Light beer showing consistent growth

MMBC can gain share in on premise locations, restaurants and bars

Appealing to young adults and women.

Popularity could change demand in mountain man lager

No requirement for new purchase ofplant and machinery for mountain man light due to existing excess capacity in mountain main facility

Launching mountain man light would alienate the core customer base and ultimately erode and dilute mountain man brand equity.It will add to cost structure- inventory, packaging, SG&A.

Expensive to launch it on a big scale as itwould cost more than a $10 -$20 million

To launch it even regionally it would require a $7,50,000 for a six month campaign which would further cost $9,00,000 in annual. Pg 6

Mountain Man light would cost $4.69 more perbarrel as incomparison tomountain manlager becauseof the contribution margin

Challenge to convince the senior management team that mountain man light would generate enough funds in2 years

Mountain man light will never achieve the volume ofsales of larger light beer like miller lite or coors light

Mountain man light would not be able to compete with other big brands but will only be able to replace or able to draw attention from mountain man lager which is not doing well.

No. of barrels = COGS/66.93 =5,20,000

SP = Revenue/520000 = $97

Cost of light beer = 66.93 + 4.69 =$71.62

CM(%) of light beer = (97-71.62)/(97) = 26.16%

Break even and feasibility analysisBreak even sales =25,50,000/.2616 = $ 97,47,707 in two years

Break even quantity = $ 97,47,707/97 = 100,492 in two years

Break even quantity to be attained in a year= 100492/2= 50246

Expected gain in market share in a year: 50246/19494075.12 = 0.257%

Chriss Decision(2 options)First Decision was to launch Mountain Man Light Financial projections showed regional revenue growth of the beer at 4% and steadily growing at 0.25% market share

Other decision tying a knot in chriss stomach is to continue focusing on the core product Mountain Man Lager