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Introduction to the case
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Group CPankajRahulRobin
SaishaShifali
Mountain Man Brewing CompanyBRINGING THE BRAND TO LIGHT
MMBC - INTRODUCTION
Strong Brand
Top market position in premium segment in East Central America. Popular for over 50 years
Popular among Blue collared working men
Family owned independent image
SWOT
STRENGTH Loyal base of customers
Strong brand image in region
Independent image
Significant support from middle aged blue-collar men
Well-recognized and significantly awarded in the field of lager
Strong presence in off-premise locations like liquor stores
WEAKNESS Loss of sales due to increase in
popularity of light beer
Lack of a diverse product line
Perceived as low-income, blue collar beer
Lack of resources to compete
Weak presence in bars, pubs, restaurants etc
SWOT
OPPORTUNITY Entering the light beer market to
increase revenue
Target younger age group
Target female customers
Generate more loyal customer base
Growing market for light beer
THREATS Brand dilution and change in brand
perception leading to loss of loyal customers
Competition from market heavyweights with more resources may drown out the new product
Getting lost in the sea of competing products
Cannibalization of core product
Annual sales of Beer Industry in USA: $75 Billion Since 2001, decline in per-capita consumption of
Beer by 2.3% year-on-year 18.3% of Beer sales in USA were from Eastern
Central Region Excessive competition from Major Domestic
Producers such as Anheuser Busch, Adolf Coors etc.
Market Scenario
Major Issues
Decline in sales of Mountain Man brewing company by 2% in 2005
Mountain Man mainly catered to blue-collared, middle-to-lower income men over age 45
MM Strong brand logo features coal miners-emotionally connects to them
Speculation over success of Light version of the Beer
Pro’s: Retain loyal customer base in East Central Region
Con’s: Losing revenue continuously-challenged by national
players Beer consumption increasing among younger
demographic. Left out of this market Left out of on-premise market-bars and pubs Loyal base is aging and shrinking. Revenue will drop. No
upturn in sight.
Scenario 1: Maintain Status Quo
Financial Projection
Projected revenues upto 2010:
Assumption:
1. MM Lager will lose 2% revenue annually
2. Expenses besides COGS remain same:
SG&A: Rs. 9,583,600
Other Operating Expenses: Rs. 1,412,320
Other income: (Rs. 151,320)
Total other expenses: $ 10,844,600
Pro’s: Reverse declining profits-tap into youth market,
who spend the most on beer Women generally prefer beer in bars &
restaurants (on-premise); cater to this segment Light beer market growing at CAGR of 4%
Scenario 2: Launch with name Mountain Man Light
Con’s Seen as a beer for old, blue-collar men Upwardly-mobile youth, women especially, stay
away from brand Mountain Man (like Old Spice case)
Repositioning brand to appeal to young a challenge
Could damage brand equity with older, loyal customer base
Cannibalisation of MM Lager sales
Net Revenue 2005 : $50,440,000 Barrels sold: 520,000 Hence, Selling Price per Barrel = $97 Price of Premium Beer = Price of Light beer So, price of light beer per barrel: $ 97
Assumption: Light beer market growing at 4% annually, beer price constant.
Mountain Man market share started at 0.25% in 2006, grows by 0.25 percentage points
annually
Light beer market in ECR
Advertising campaign: $750,000 (first year expense) SGA expenses: $900,000 annually Variable cost per barrel of Light: $ (66.93+4.69)=71.62
Assumption: consider drop in Mountain Man Lager sales due to Light’s entry (cannibalisation) : 15%
Net income on MM Light=Revenue-(variable cost+SGA)
Add advertising cost for first year
Expenses for launching MM Light
Comparison of profits
Year 2005 2006 2007 2008 2009 2010 Total
Status quo
4,791,800
4,479,072
4,172,599
3,872,254
3,577,918
3,289,467
Introduce MM Light
- 3,394,111
5,219,459
6,404,906
7,706,603
9,131,032
31,856,111
Over two years (2006 & 07), not more profitable than status quo but highly profitable further down the line
Scenario 3: Launch it as Light Beer by Mountain Man
PROs
Damage to brand equity will be minimal-core customers won’t be put off
Youth-women will try it out; will gain market share quicker
CONs
Advertising expense much more substantial
Assumptions for Calculations: Cannibalisation minimal, hence ignored Market share captured in debut year is 0.25% &
grows at 0.25% annually Advertisement expense will be $5 m over one year. Other expenses such as SGA of $ 900,000 annually,
variable cost of $71.62 per barrel will apply
Year
Light Revenue ($)
Light net income
MM Strong net income
Total net income for the year ($)
2005
4,791,800
2006
4,727,313-4,663,101
4,479,072-184,029
2007
9,832,8111,672,750
4,172,5995,845,349
2008
15,339,186 3,113,490
3,872,2546,985,744
2009
21,270,338 4,665,373
3,577,9188,243,291
2010
27,651,440 6,334,985
3,289,4679,624,452
Total 30,514,807
SGA & variable costs will be higher than assumed . Profit will be even lower
OPTION 4 : Launching two brands of light beer
STRATEGY
Launch a new light beer line of product with different naming and packaging
In the east central region (including West Virginia) launch it with a with a new name
In the other parts of the country launch it as “Mountain Man Light”
PRO’s Not diluting the existing segment of people and their
perceptions towards Mountain Man Lager Capitalize on the new and fast growing light beer market
segment No additional cost of set up Reduced cannibalization
Outside the east central region , capitalize on brand awareness
Reduced spending's on advertisement
Cons Cannibalization although reduced would still exist Increased advertisement expenditure within the
east central region