Mountain Man Beer Company (Case Study Analysis)

(Case Study Analysis 1)

Summary :
To introduce the light beer by some other name in the U.S. Chris, must consider both advantages and disadvantages of taking this approach.  As an advantage, penetrating into a potential market of almost $38 Billion of sales annually is expected to increase the revenue. 

Also, meeting the growing demands of younger generations and distributors will represent 28% of the market and lead to a great presence in restaurants and pubs where Mountain Man had no previous existence.
Considering the disadvantage of the mentioned option, he will be adding additional 
advertising costs, that will result to weaken the brand name leverage, product 
cannibalization, and brand erosion. Hence, the potential brand image will be damaged, 
and will result in a brand change in the perception that has been linked to the average worker
 with middle to low income class.
Another disadvantage would be the potential risk in investments due to the rise of expenses 
such as marketing $750,000 and other SG&A expenses estimated at $900,000 which could 
financially drain the company. The last disadvantage is the nature of the beer market 
compared to Mountain Man’s capabilities in marketing spending and that other powerful 
competitors has much more capabilities to spend.

Recommendations :
  To launch the Mountain Man Light via by a brand extension, and not changing the name.
  To launch a new product using a new and separated marketing mix (Product, Price,  Place Promotion)
 To advertise the new brand using the same old name through Online Media and Social Networks.
   To provide price offers if bought in high quantity to convince retailers to stock and promote.
   To package and label the brand efficiently.
 To get more presence on locations like bars, pubs, and restaurants which are frequented by younger generation market.
  To keep on distribution and advertising to the old brand following a Multi-brand distribution system.

Feasibility of Mountain Light
Nett revenue: $50,440,000
•Barrel sold 520,000
•Selling price per barrel $97
0.25% Market Share Every Year
•Light beer market share in 2005:18,744,303With 4% CAGR:2006: 19,494,075 MMBC market share: 48,7352007: 20,273,838 MMBC market share: 101,369MMBC Revenue from light beer 2006:48,735x97
=$ 4,727,295
MMBC Revenue from light beer 2007:101,369 x97
=$ 9,832,793
Feasibility Analysis
Break Even Point = Fixed cost/Variable cost($900k +$750k)/($66.93+$4.69)$1.650k/$(97-71.62)= 65,012 barrels

Significant low revenue will be granted by introducing the light beer with a different name at the beginning. But developing brand loyalty over years with a new segment of the product line extensions will help the company obtain a greater shelf space and will create better product focus among distributors and retailers. Hence, to observe the competitor's price and strategy the company should carry out market research to determine the best pricing strategy. But it is important that price must not be too low in order to break even and not high fearing low sales.


(Case Study Analysis 2)

Mountain Man Brewing Company is a family-owned brewery located in West Virginia that has been strong presence as a larger brand in this region. Ever since, it has marketed towards the blue-collar, middle to lower-income population in the region with its bitter, higher alcohol content lager. Over the years its brand identity has been associated as an old school, regional brewing company and its consistency in taste and blend. It has, therefore, created a legacy as “West Virginia’s Beer” and a “Working man’s beer” and has not deviated from its core branding, maintaining itself as a single product company.
  We will explore the pros and cons of creating a light version of the brew and other strategic options for growth if this brand extension is not launched or if the launch is unsuccessful. We will demonstrate that launching a light beer product shows promise for improved profit through 2010.
-          The company of Mountain man revenue decreased by 2% in 2005
-          Negative impact of Mountain Man Light on sales of Mountain Man Lager (erosion rate from 5% to 20%)
-          Potential growth for Mountain Man in Light Beer market is ~0.25% each year.
-          Market for Light beer is 18.7 million barrels.

3 potential scenarios of Launching Mountain Man Light Beer:
1.      Positive scenario:  Erosion level 5%, revenue declined 2%, annual growth in Light Beer 0.25%.
2.      Neutral scenario:  Erosion level 12.5%, revenue declined 2%, annual growth in Light Beer 0.2%.
3.      Negative scenario: Erosion level 20%, revenue declined 4%, annual growth in Light Beer 0.15%.
1 Scenario
The first scenario suggests the erosion level of 5% only because people usually do not change their preferences, at least quickly. We also assume that the YoY decline rate for revenue is 2%, which is less then that of the market due to very good brand awareness and loyalty.

In this case, the project will be profitable in the second year:
1 Scenario
Year 1 Profit
2005 Profit Level:
Lost CM of Lager due to Launch of Lite
Year 2 Profit
Total Profit/Loss

2 Scenario
The second scenario suggests an erosion level of 12.5%. We also assume that the YoY decline rate is still the same and the growth rate in the light beer market is slightly lower at 0.2%.

In this case the introduction of light beer to the market will be almost breakeven in the second year:

This result is also good because the company will start earning additional profit from the third year.

3 Scenario
The worst scenario assumes an erosion rate of 20%, which is highly unlikely. It also assumes that MM Revenue Decline Rate is the same as that for the whole lager market. The chance that the MM Lager decline rate will double is very low, given the fact that the MM lager brand has great awareness and loyalty on the market. The final assumption is that the Light Beer market growth rate is only 0.15%.

Even the third scenario shows that the project will be profitable from the fourth year, we cannot underestimate it, because it is the worst scenario, which makes the project even more attractive.
Risk and Awards:
 An underlying fact of life for Mountain Man Beer is that lager sales are projected to decline by a minimum of 2% annually(Appendix). The highest growth segment in the beer industry is light beer and Mountain Man Beer would need to diversify its product portfolio in order to compensate for a potential decline in lager sales in the future. However, to introduce Mountain Man Light, the company would have to consider a possible cannibalization of Mountain Man Lager by Mountain Man Light that would end up hurting the sales of its core brand.

An advertising campaign in the east-central region would cost around $750,000 every year. The incremental selling, general, and administrative (SG&A) costs would be an annual $900,000. Even considering a 5% loss in sales for Mountain Man Lager, there should be enough barrels of Mountain Man Light sold during two years to compensate for the loss from the introduction of the light beer. While a short term investment could be avoided under a “do-nothing” strategy, over a short period of time, the revenue from Mountain Man Lager would eventually only reduce assuming the beer market grows based on its segment projections and based on revenue decline compared to previous years (2% decline in revenue). While the light beer market would continue to grow, Mountain Man Beer would be at risk of fading away from public conscience and due to low visibility among newer, younger consumers. By 2010, Mountain Man revenues would have declined by 9.2% compared to 2005 (Based on revenue in 2005 and projected revenue of $45,593,765 in 2010 from an annual revenue loss of 2%). While Mountain Man may keep its existing customer base satisfied, that customer base is being replaced in the coming years.

While the initial investment and the increased production costs and SG&A costs would cause a dent in the first year of introduction, considering an annual market share growth by a quarter-point by the introduction of Mountain Man Light, the company positions itself as a diverse player in the beer industry.

In conclusion, under all scenarios, we will cover the losses within the first three years. Even if the adverting cost will be doubled ($750,000*2=$1500000), we will remain to get a positive profit. But we decided to keep advertising cost for every year as stated on our case as $750,000.  Moreover, one of the main assumptions that the company will gain the share only among the domestic producers of the light and premium beer makes the project perspectives even brighter. By working diligently as it always has, to satisfy its new customer base, Mountain Man Light has a great potential to grow based on the reputation of the company as well as the growth in the market itself.  We strongly advise launching MM Light Beer, it will be profitable in any case!