Mountain Man Brewing Company free essay sample

Prangel is facing: 1. ) Mountain Man’s current target market will not approve of this new beer, and 2. ) bringing in a light version of the Mountain Man Lager could ruin the brand image and ultimately destroy the company. Mountain Man’s biggest target market currently, and pretty much since it started in 1925, is males ages 45-54. Most of these males are blue-collar, hardworking males. It has been known as â€Å"West Virginia’s Beer† known for its authenticity, quality and its toughness. To the younger beer drinkers, the market the light beer appeals to, view Mountain Man beer as too strong and a â€Å"working man’s† beer. Not only do the younger beer drinkers have their negative thoughts about Mountain Man developed, but the blue-collar customers account for a huge percentage of sales. The brand loyalty rate for Mountain Man Lager is 53% which is higher than any of its competitors. The â€Å"light beer† appeals to the younger generation, especially the females, and Mountain Man Lager has always appealed to the older, rugged, blue-collar male. We will write a custom essay sample on Mountain Man Brewing Company or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The appearance of Mr. Prangel’s dilemma is very evident. Based on the evidence, Mountain Man should not introduce the light beer. The light beer industry is growing, that can’t be denied, however for Mountain Man, it is not in their best interest yet. Although the quantitative reasoning is included below, it would be in Mountain Man Brewing Company’s best interest to take the $750,000 and spend it elsewhere: create a new beer (non-light) that can appeal to more than the current target market without losing its brand image, spend more money for advertising to the younger beer-drinking market. Mountain Man Brewing Company needs to have a wider target market before introducing a completely new product that could potentially destroy the company if it were unsuccessful. THE PROS AND CONS OF INTRODUCING A LIGHT BEERThe most beneficial pro of introducing Mountain Man Light will be reaching the younger beer drinkers. It is shown that the younger beer drinkers enjoy the light beer better, and also in their twenties, usually haven’t committed to a brand yet. Mountain Man is very well-known by the younger beer drinkers, however, they tend to buy and consume in quantity; the Mountain Man Lager is not on their top preference, along with other lagers and full-flavor beers. Introducing this light beer could reach the younger beer drinkers and potentially lead to brand loyalty amongst them. A few cons could be losing brand loyalty amongst the older generation, losing sales of the Mountain Man Lager due to cannibalization, and a lower contribution margin. THE BRAND NAME OF A LIGHT BEERIf the light beer were introduced, the name Mountain Man Light is not the best option for the market Mountain Man is already in. A 53% loyalty rate is great for a company that produces one flavor of a brew. If the company that they have seen as for years as a rugged, authentic, â€Å"West Virginia’s Beer†, puts out a â€Å"light† version, its image could be lost immediately. In response to the introduction of a light beer by Mountain Man, it was the man in his fifties and early thirties that found it to be absurd. BREAK EVEN AND BREAK EVEN IN MARKET SHARE IN 2 YEARSBy keeping the same price for light as the lager, breakeven in dollar amount is almost $10,000,000 which then translates into 100,473 barrels. Within two years, Mountain Man Light will have to produce almost $10,000,000 in sales and sale 20% of what Mountain Man Lager has worked almost a century to sale. As for the market share, Mountain Man Light will need to gain a 26% of the market share in 2 years to break even. This seems very unrealistic since the leading brand light beer now consumers 32. 9% and the second leading brand holds 17. 8% of the market. Mountain Man Light will have to become the second leading brand in the market within only 2 years (assuming that the sales of â€Å"light beer† continue to grow annually by 4%). CANNIBALIZATION RATEBecause Mountain Man Lager produces so many units and produces such high sales already, the difference in cannibalization of 5% to 20% is pretty significant (almost 1,000,000). Two year contribution with a 5% cannibalization rate is $32,895,226. 2 compared to $31,988,859. 59 with a 20% cannibalization rate. This is a major loss in sales of the Mountain Man Lager. If cannibalization is inevitable, the lower percentage of cannibalization is the best option, it yields a higher contribution. Anything above 20% is unnecessary and definitely not worth introducing the Mountain Man Light. BUDGET FOR THE LAUNCHThe budget of $750,000 added onto the $900, 000 already annual cost of SGamp;A costs is not appropriate. Not only is it adding that money onto the annual SGamp;A costs, it adds $4. 9 more per barrel in variable costs. Yet, the price of the light will still be the same as the lager. It will produce a 60% awareness level for Mountain Man Light, however, reduces the contribution margin by 16%; the price remains the same and cost of goods sold increases. Adding an expense like $750,000, a company should expect it to be better for the company. A 16% decrease in the contribution margin is not good for a company like Mountain Man that has its one specialty product in which it is known for. THE LAUNCHAlthough it is not recommended to introduce this Mountain Man Light because of the previous stated concerns, Mountain Man should not stop there and let the company fail. Mountain Man can take their $750,000 and introduce another beer just not a â€Å"light beer†. Keep the authentic, rugged brand image by introducing a different type of brew that will continue to appeal to the target market. Mountain Man should try to increase its target market with its original idea before it tries to introduce a new brand. If this is not ideal, the $750,000 can be spent on gaining, and retaining, a younger, beer drinking crowd. There is always a way to appeal to a younger crowd, Mountain Man needs to find the window of opportunity and take those consumers. With the high awareness of Mountain Man Lager by the younger beer drinker, however, Mountain Man could change their marketing strategy and discover a way to appeal to the younger market. | Contribution of Lager and Light Breakeven in Dollars and Units (Barrels) Market Share Cannibalization of 5% Cannibalization of 20% Mountain Man Brewing Company free essay sample Marketing Mountain Man Brewing Company Bringing the Brand to Light 1. Overview Mountain Man Brewing Company (MMBC, or the Client) is a family-run business in West Virginia that has experienced much growth since launching its flagship premium beer Mountain Man Lager (MMB) in 1925. Over the decades, brand loyalty, quality and brand awareness have been the cornerstones of the Client’s success – the importance of the MMBC brand among consumers has allowed the company to build its small but consistent market share in the East Central region (ECR), particularly in its home state, the only region it distributes in (7. % of the market with more than 50 million USD in revenue). 2. Challenges amp; Opportunities * Challenges MMBC currently faces a potentially identity-changing challenge: The traditional premium beer market has been declining at a compound annual rate of 4%, and MMB experienced a 2% decrease in revenue last year, the first drop in its entire history; accordingly, M MBC’s target aim is to recover from the 2% decrease in revenue that occurred in the prior year. We will write a custom essay sample on Mountain Man Brewing Company or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page * Opportunities The light beer market – popular with younger drinkers – has also been growing at a CAGR of 4%. Although MMBC has been historically weak in the 35-years-and-under segment, there is opportunity to generate more sales by releasing a new Mountain Man Light Beer (MML) line to target this younger market. However, there is the risk of negatively impacting their current distribution of MMB through shelf-space cannibalization and higher costs; as well as the risk of alienating their core segment of older, blue-collar drinkers. . Analysis MMBC faces potentially losing more revenue at the current forecasted compound annual decrease rate of 2% – the projected decrease for MMB standalone in year-to-year net revenue from actual 520,000 barrels sold in 2005 (USD 50. 4 m) to 470,039 barrels (approximately USD 45. 6 m) by 2010 totals nearly 10% (see Exhibit 1). According to the key age demographics among beer drinkers, MMB’s customer segmentation is currently as follows: 6 4% for 45 years and up, and only 17% for 35 years and under. Yet the ECR breakdown for consumption by beer type is the opposite: 50. 4% for light and only 19. 7% for premium. Due to the overwhelming potential in the light beer market, we have prepared projections on growth in revenues and expenses for MMBC should they decide to move forward with brewing Mountain Man Light (see Exhibit 2A, 2B). * Making Mountain Man Lighter (and More Profitable) Considerations have been made regarding MMB remaining as a stand-alone product (again, see Exhibit 1). However, per the Client’s instructions, this report will focus on projected performance examining MMBC’s entry into the light beer market at their expected MMB reduction rate of 20%. According to our analysis, MML would still result in a significant increase in revenue within two years: With the new product mix, net income margin increases from an insignificant 0. 88% in MML’s first year to a robust 3. 7% by its second year (2007), even with considerations on the additional expenses that would go into launching a new product – manufacturing, advertising, general operating (see Exhibit 2A). Additionally, the projected MMB+MML sales volume after only two years would nearly match MMBC’s current volume level – 500,895 barrels to 520,000 – and would eventually overtake the 2005 figure in 2008; while standalone figures show a continuous decrease from the 2005 benchmark and eventually fall behind MML sales by 2011 (Exhibit 3). * Issues to Con sider The forecast for MMB +MML sales are promising. However, JAFREM must note significant issues to consider with the presented data: 1) Due to limited sales volume for the first six years, impact on COGS has not been taken into consideration; should the current production capacity levels be exceeded, additional inputs regarding CAPEX (for example, for new plants) will be necessary. 2) With the forecasted MML growth rate, the Client’s market share in the ERC amounts to 1. 5% after five years; MMB has not achieved this level after more than 50 years in the business and so considerations on the MMB reduction rate have also been provided (Exhibit 2B). 4. Recommendations Light beer is an attractive proposition for MMBC, especially with the decrease in the premium beer segment. Accordingly, ignoring the dynamic growth in the light segment is simply too much of an opportunity to let pass. In order to reduce the risks that come with launching MML (alienating core customers, promoting a failed product), we recommends the following measures: * To avoid losing brand equity at the consumer level for MMB, pilot the MML launch outside West Virginia, as this is MMBC’s strongest and most loyal market; should the testing prove successful, then consideration can be made on moving into West Virginia. Should the MML growth forecast not be realized after two years, return focus to MMB distribution at a national level; while advertising and sales at the grass roots level has been good for MMBC, there has been no attempt to reach a larger marketing through the traditional channel of television media. * Despite the expected decrease in the premium beer market, M MB still has potential to capture more market share by expanding its advertising activities and consumer base outside the ERC.