Q: What has made MMBC a strong brand?

   Great Product :  

      MMBC had made a quality product with attributes like smoothness, percentage  of
water content and drinkability, added with distinctive bitterness and higher alcohol
content. This appealed to the previous generation of beer drinkers (now at the age of
45 and above) and contributed to the company's brand equity.

 Good Product Positioning:

      MMBC  positioned the Mountain man Lager such that it appealed to their then core
customers  - Blue collar working men in the age of 45 or above & customers in the
middle to lower income customers ).The label was designed such that it is related to
the core customers and was relevant to them.

 Great brand reputation and Investment in brand equity:      

      Mountain Man Leger was regarded as West Virginia’s beer and had a very good
brand reputation owing to its history and its status as an independent family owned
brewery, creating an aura of authenticity. 

 Loyal customer base:

      MMBC invested heavily on brand equity over the years and has built a very loyal
customer base ( the brand loyalty rate for mountain man lager was 53% which was
higher than the rate for competitive products).

 Large enough market :

       It had chartered to the needs of a large enough market.
 
Q: Despite being a strong brand what caused its decline?
 
 Changing Consumer preference :
Change in beer drinkers preference.In the current beer market , light beer command
a market share of 50%, with the youth preferring light beer. The youth now occupied
27% of the total beer drinking population.

 Increasing Competition due to changes in Law:

Competition in west Virginia market increased due to removal of the arcane law that
prevented retail stores from selling beer.Retailers now started selling beers at  deep
discounts. MMBC, which concentrated its sales in retail and other off premise
locations was now facing competition from other brands sold at high discounts.

 Pricing Competition from larger players:

MMBC did not have economies of scale in brewing, transportation etc, to match the
national beer companies and thus was pressurised by them. 

 Shrinking existing customer segment:

The premium lager segment was shrinking at a rate of 4% yearly and the aging
demography meant that the segment would continue to shrink as the youngsters
preferred light beer (now increasing at 4%  yearly).

 Weaker brand presence in potential areas of sales:

Mountain man’s core customers did not have any brand preference in on-premise ,
thus weakening its position weaker in on-premise.
  Overall decrease in Beer market leading to reducing revenue:
Beer consumption per capita went down by 2.3% due Increase in federal tax in 2001,
competition from wine and spirits-based drinks, health concerns etc.
 
Q: Should MMBC introduce light beer?
 
        Yes, MMBC must introduce light beer for the following reasons:

 Light beer sales in the US has been growing at 4% annual rate and at the
same time, traditional beer sales in the US has been declining at 4%.

 Light beer now commanded the majority market share with 50% and the
young population which consumed light beer spent twice as much per capita
on alcoholic beverages as compared to consumers over 35 years of age,who
appreciated the Mountain beer Lager.

 The advantage of a large enough market, which MMBC had, is now eroding
due to aging population, meaning that the company would need to have a
foothold in new markets.
 
 Young population does not have brand loyalty yet, and thus it gives the
company an opportunity to convert them into loyal customers especially
because they are well aware of the brand and because of its goodwill among
the young due to their “anti big business “ preference .

 Young population prefers light beers, and thus a light beer from the MMBC
brand would allow conversion of youth into loyal consumers.
 
Q: Is ‘Mountain Man Light’ feasible? 
 
Yes. Cost Analysis are as below:
 
1.     Light Beer Sales Evaluation Year
 
Year 2005 200 200 2008
6 7

Light Beer Consumption 18,744,303 19,494,075 20,273,838 21,084,792

Growth % 4% 4% 4% 4%

Estimated Growth (0.25 0 0.25 0.5 0.75

compounded annually)

Estimates Sales in barrels 48,735 101,369 158,136

 Estimated revenue($97/ barrel) 4,727,295 9,832,793 15,339,192
 

 
2. Mountain Man Light Break-even analysis for Mountain Light beer(2006- 2007)
   
Variable Cost Calculations
Variable cost of MM $ 66.93
lager

Variable cost of MM light $ 66.93 + $ 4.69 = $71.62

Price/barrel $ 97

Net profit margin on Light $ 25.38 (97- 71.62)

 
3.     Mountain Man Light Fixed cost calculations(without cannibalization)
Initial advertising campaign cost $750,000

Incremental SG&A cost (2006-07) $900,000*2= $18,00,000

Total fixed cost $2,550,000

Fixed cost calculations(with 20% cannibalization 2% loss)

Cost from cannibalization(22% for 2 $437,226+$341,036 =

years) $778,262 
TFC(with cannibalization 22% for 2 $3,328,262
years)
 
 
4.     Mountain Man light To breakeven
Total Breakeven volume = Fixed $2550000/$25.38 = 100,473 barrels 
costs/Net profit margin
(without cannibalization)

Total breakeven revenue = Total $ 100,473 *$97 = $9,74,581 To

Breakeven volume * price/barrel breakeven (with cannibalization) 

Total breakeven volume = Fixed costs/ $ 3328262/$25.38 = $131,137 barrels 

net profit margin
(with cannibalization)  

Total Breakeven revenue = Total $131,137*$97 = $12, 720,308

breakeven volume *price/barrel
 
5.     Mountain Man Light Mountain Man Light beer will break even in both scenarios by
end of 2007
 Revenue needed to breakeven (without cannibalization) $9,745,881 

Revenue needed to breakeven(with cannibalization) $12,720,308 

 

Estimated revenues for Mountain Man Light beer

For 2006 $ 4,727,295 

For 2007 $ 9,832,793
Total revenues at the end of 2007 $ 14,560,088
 

Q: Should it be launched?
 
Yes. It should be launched for the following reasons :

 A 0.5% capture of market share is possible by 2007 with the given market situation
considering 20% cannibalization of shares with 2% revenue loss (as mentioned in
feasibility study).

 The Return on investment can be realised in 2 years (in accordance to CFO’s

requirement).

 Chris should devise an effective marketing strategy using the 4-Ps mix to enhance
brand image and provide value to newer customers without losing focus on their core
customers. He must design the bottle and advertise the light beer to target the young
beer drinking population, just as the original Mountain Man lager bottle was designed
for its then core customers.

 Focus should be on  on-premise sales for light lager and off-premise for lager. This
is because while the youth (both men and women) frequented restaurants and bars,
the Core customers (older customers) predominantly purchased from off-premise
locations.
This would ensure less to no cannibalization.

 The core customers were extremely loyal and as said by the 50 year old customer in
the focus group they are satisfied as long as the mountain man lager is not changed.