Situation Analysis
Industry
Mountain Man Lager had maintained a better market share as recent study highlights that the West Virginia audience rated the company’s core brand Mountain Man Lager, as the regions best-known beer, with an independently audited 67% response rate from the category of adult population of the state.
The main domestic producers like the Anheuser-Busch, Adolf Coors Company, and Miller Brewing Company have collectively produced the industry’s 74% of the beer shipments in the locations of Mountain Man in 2005.
On the other hand, the second-tier domestic producer like Genessee and Pabst Brewing Company produced between fifteen thousand and two million barrels of beer annually, and their distribution is limited to the surroundings of their plants. The United States happened to have realized about thirty regional breweries by 2005. The category of second-tier domestic producers had 12.5% of the total shipments of beer within the East Central region in the financial year, 2005.
Company
Mountain Man Beer Company (MMBC) was founded by Guntar Prangel in 1925. He had reformulated the recipe for the old family’s brew by use of a careful selection the infrequent, Bavarian hops alongside the unusual strands of barley, thereby coming up with a bitter-tasting and flavorful beef which the family of Prangel launched as the Mountain Man Lager.
The reputation of Mountain Man Lager had spread, and it was entrenching across East Central region of the United States by 1960s as the regions quality beer.
The Mountain Man Lager beer held the highest market position within the various lagers found in West Virginia for about fifty years and scaled a reputable market share for an old school type of regional brewery to a good number of the states in which the distribution of that beer was undertaken.
Over several years, MMBC had invested in a number of branding activities to build “brand equity” with core consumers. Mountain Man’s distributors also handled Anheuser-Busch and numerous specialty beer products.
There is a great role played by the beer brand within the alcoholic beverages market in terms of the consumers’ beer-purchasing decision. Consumers peg their selection of a specific brand of the beer on a number of issues which include, taste, the occasionally celebrated, price, perceived quality, tradition, local authenticity and brand image.
MMBC had identified all these aspects for the reasons of capturing and retaining a greater market niche across the years of their operations in the beer production business. moreover, the company, MMBC put a lot of reliance on it history and the company’s independent status, family owned brewery to build an aura of market authenticity and ensure proper positioning of the beer to link with its major drinkers – that is, blue collar, lower to middle income over the age forty-five.
The company’s brand equity has been derived from the subjective features that have been used to define the quality of the brand, Mountain Man, for instance, its water content, smoothness, and drinkability. Nevertheless, it was the Mountain Man Lager’s peculiarly bitter flavor combined with a little higher than average content of alcohol that has specifically resulted to the MMBC’s brand equity.
The MMBC has made huge investments throughout the years in various branding activities for the sole purpose of creating Mountain Man Lager’s brand equity with its potential customers. The distributors of the company’s products also incorporated Anheuser-Busch among other several specialty brands of beer.
The focus of these distributors is giving service to their main customers; the company would not rely on them to create Mountain Man’s brand across the market. the company, therefore, established a system of a minor sales force that did not only helped in pushing the brand but also focused and proselytized on a single ultimate objective, that is, catching the off-premise locations (for example supermarket and liquor stores) with an aim of embracing Mountain Man.
Trends
After the formation of the Mountain Man Beer Company (MMBC) in 1925, by 1960s its core brand of Mountain Man Lager had entrenched and was further spreading all over the East Central regions of the United States.
The Mountain Man Lager had been regarded as the most reputable and quality beer in the region by quite a big portion of the consumers of beer in the regions. The Mountain Man Lager beer has been considered as the legacy brew in beer business in West Virginia. Mountain Man was perceived to generate revenues approximately more than $50 million and it could sell more than 520,000 barrels of the Mountain Man Lager to its distributors in Indiana, Illinois, Ohio, Michigan and also within its native area, West Virginia.
In the year 2005, the company’s core brand, Mountain Man Lager was crowned the “Best Beer in West Virginia” for the eighth year in a row. The brand is also won the “Best Beer in Indiana” and this brand finally became the selected brand at the American Beer Championship as the “America’s Championship Lager.”
A major concern to the beer consumers is the aspect of brand awareness. This is regarded as a critical cornerstone for the success of the brand especially with the blue-collar consumers.
A research done on the market depicted that Mountain Man was highly recognized brand among the working-class males within the East Central region. The other aspects that would be perceived of huge influence on how the brand moved and captured that big market share among the overall trend of the product are the brand’s perceived quality and brand loyalty.
The company focused on even capturing the supermarkets and liquor stores to clasp Mountain Man brand. The blue-collar males who drank off-premises like the supermarkets and liquor stores purchased about 60% of the Mountain Man beer (Heide 284). The company sold was selling approximately 70% of the Mountain Man beer to the off-premise consumption, having a consistent figure with the average of the industry sales across this channel.
Problem
The problem in the case study is that Chris is at cross-roads to introduce the his new brand, Mountain Man Light into the market. His father’s brand, Mountain Man Lager has been commanding as much as pride in West Virginia for the lager brand for quite a long time and changing this consumer perspective with a new brand would proof not an easy task. The penetration of the new brand, Mountain Man Light into the market is the major concern that Oscar seeks to address by either repositioning the brand in order to drive the sales of new brand Mountain Man Light to the market niche of young people with no wearing down of the Mountain man Lager’s brand equity. No matter the alternative Mountain Man would prefer to pursue, dramatic impacts would still be felt for the brand, the family of Chris and the company.
Alternatives
Alternative 1: Line Extension
The brand line extension for the Mountain Man Light would be pegged on the advantage that the process of introducing this brand into the market would be established on the reputable image of the long existing Mountain Man Company. The line extension strategy would introduce the new brand within the same brand category of the Mountain Man.
The challenge that this alternative is posing is that Chris wants to introduce a brand that would capture on a different market niche a part from the market niche their core brand, Mountain Man Lager have been holding for quite a long time since MMBC was started in 1925. Secondly, Mountain Man risks undermining it’s brand loyalty.
A line extension brand in very rare scenarios expands the category demand, and again the retailers might not be in the best position to provide more shelf space to a category since there are more products. Moreover, Mountain Man can incur some costs of over-extension which always remain hidden.
Alternative 2: Status Quo
Chris pondered the status quo strategy by weighing on the impacts on revenue that the new brand would impose on the company. He looked at the revenue and the projections of net profit which he had formulated to 2010 assuming that Mountain Man Lager lost on annual basis a 2% value of its yearly revenue.
The first disadvantage coming with opting for the status quo strategy is that Chris would miss a chance to exploit on the company’s potential. The market for the young people who would prefer light beer is steadily growing, and companies would want to capture in order to expand their revenue and business spectrum.
Secondly, maintain the company’s core brand, Mountain Man Lager would mean that the business is not getting any different in terms of how they do business by just covering its obvious market share of blue-collar customer.
Alternative 3: Flanker Brand
The initiative being expressed by Chris for the company to try and introduce the Mountain Man Light brand into the market is itself a flanker brand strategy. Since Mountain Man has been in existence within the industry since 1925, the company has edged a reputable market share which would make it advantageous to roll out the flanker brand alternative.
Moreover, Chris had identified that launching the Mountain Man Light brand, as the new product in the West Virginia alcoholic beverages industry could not require huge capital expenses in relation to plant and equipment in the short term because there is already an excess capacity within the facility of Mountain Man. Therefore, the process of launching it would hugely benefit on this unique advantage of the MMBC.
Additionally, contrary the conservative perspective of the company’s CFO, Chris believed that introducing the new light brand into East Central region would make a profit in two years, thereby selling enough barrels to cater for both associated SG&A expenses and launch marketing. He claims that this would cover the negative effect on the company’s overall profitability which resulted from the potential lost on the Mountain Man Lager sales.
The demerit associated with the Chris’ idea of the flanker brand is on the estimated advertising cost of $750,000 to create the brand awareness within an extensive six-month campaign on advertisements. This cost would be rated at $900,000 annually alongside additional sales staff required, increase in SG&A costs and the marketing expenditures.
Alternative 4: Repositioning
The last alternative that Chris has to ponder about is the strategy of repositioning. Chris has to reposition the new brand Mountain Man Light so that it commands a possible greater pride as that of his father’s brand, Mountain Man Lager.
This strategy of repositioning must be undertaken to drive the new brand’s sales, Mountain Man Light to the young generation with no wearing down of the company’s core brand equity for Mountain Man Lager. Repositioning would prove to be advantageous as it strives to curtail a market share without corroding the existing brand equity for the Mountain Man Lager brand already in existence.
On the other hand, the repositioning strategy would also prove a disadvantageous one as it finds it impossible to introduce the new brand into the market without adversely affecting the current state of the company’s consumer mindset and decisions (Heide 347). Oscar believes that whether Chris pursues the repositioning strategy to undertake the initiative to extend the brand or not, there would be a dramatic implications of the brand, the family, and the company.
Recommendation
The alternative that Chris should pursue is the alternative to undertake a flanker brand strategy. Mountain Man is a highly established company with a huge market share for its core brand, Mountain Man Lager.
The introduction of the new brand, Mountain Man Light could take advantage of the image of quality the lager has in the same category of product. The target of Chris is to capture a differently categorical group of consumers to consume the light brand, that is, the market of young people.
Work cited
Heide Abelli. Mountain Man Brewing Company: Bringing the Brand to Light. Havard Business Publishing. 2007. Print .
Appendix 1
Alternative 1: Line Extension
For the line extension, Mountain Man Company needs to evaluate the breakeven-point of sales as a result of introducing the new brand, Mountain Man Light.
Break even = Fixed Costs/Price – Variable Costs
Break even = 750,000 – (66.93 + 4.69)
= 750,000 – 71.62
= $749.93
Therefore, MMBC will be at break-even point at $749.93 –the point at which sales equals all the expenses of the company.
Appendix 2:
Alternative 2: Status Quo
Mountain Man Company would maintain a status quo by retaining their 2006 net profit
Net Profit (2006) = [Total revenue – (Cost of goods sold + Operating expenses + Interest expense + taxes)]
Net profit = 50,440,000 + 151,320 – (34,803,600 + 10,995,920 + 1,677,130)
Net Profit = $3,114,670
Appendix 3
Alternative 3: Flanker Brand
Assuming that Mountain Man Light sells 4000 units at a profit of $200, there is $800,000 profit.
As a result of introducing Mountain Man Light, it sells 2000 units with the profit being at $250. It has a profit of $500,000.
However, by introducing Mountain Man Light brand, sales for Mountain Man Lager drops by 100 units.
Therefore, the profit of MMBC for 2005 would be calculated as:
For Light brand is 3000 * $200 = $600,000
For Lager brand is 2000 * $250 = $500,000
The Total new profits will be ($600,000 + 500,000) = $1,100,000
The previous profit was standing at $800,000.
Hence, the Company has increased its profits by 37.5% by cannibalizing the Light brand into its Lager brand.
Appendix 4
Alternative 4: Repositioning
Sales price Calculation
The cost that will be incurred as a result of introducing Light brand into the market will be:
Advertising $750,000
Annual cost increment $900,000
Therefore, Total cost will be 1,650,000
Profit is expected increase by 5%,
Adding 1 to the profit percentage gives us 1.05% -overall sales price percentage
Lastly, we multiply the overall sales percentage with the price per barrel of the Mountain Man Light brand;
= 1.05 * $2.25
= $2.3625
Therefore, MMBC will sell a barrel of Mountain Man Light at $2.3625 in order to realize a 5% profit increase.
