With recent worsening gross revenues for Mountain Man Beer Company ( MMBC ) , Chris Prangel is sing establishing Mountain Man Light as a trade name extension aligned with alterations in beer drinkers ‘ penchants. He is seeking to maximise market coverage while minimising trade name convergence, and at the same clip avoiding any trade name equity harm, as MMBC ‘s nucleus consumer section is significantly different from the new targeted section. Chris expects to contradict worsening gross revenues of Mountain Man Lager and gaining control market portion in the aggressive visible radiation beer class, which accounted for 50.4 % of all beer gross revenues by volume in 2005 in the East Central Region ( Exhibit 1 ) . More specifically, Chris wants to capitalise on Mountain Man ‘s trade name acknowledgment in the part and gaining control a meaningful portion of the local visible radiation beer market, a market in which MMBC presently has no presence. In add-on, he is trusting a successful launch of Mountain Man Light in the local on-premise locations will hike the lagging gross revenues of Mountain Man Lager.
In order for the launch of Mountain Man Light to be successful, several factors would hold to aline to obtain the end of MMBC obtaining important initial market portion and subsequent old ages ‘ growing in the light-beer market. First, the new run aiming the light beer consumers, which consists mostly of younger drinkers, would non gnaw the company ‘s trade name equity by estranging its nucleus client base, dwelling of the “ swing ” and pamper boomer coevalss. ( Abelli, 2007 ) Second, MMBC would hold to minimise the light beer ‘s cannibalization of its laager. MMBC ‘s gross revenues staff would hold to convert off-premise retail merchants to allow MMBC “ incremental shelf infinite ” alternatively of replacing instances of light merchandise for the lager merchandise. MMBC would besides hold to be certain that the visible radiation ‘s gross revenues would counterbalance for any possible cannibalization of laager ‘s gross revenues. Third, Chris would necessitate to convert the senior direction squad that light ‘s gross revenues would bring forth a net income in two old ages after accounting for the selling disbursal to establish it, the incremental SG & A ; A disbursals, and the possible doomed laager gross revenues.
What has made MMBC successful? What distinguishes it from rivals? What is typical about MMBC ‘s merchandise? What is typical about MMBC ‘s clients? How is MMBC ‘s publicity different and effectual?
In 1925, Guntar Prangel reformulated an old household formula making Mountain Man Lager. Bing an independent, family-owned brewery fashioned an reliable merchandise gaining an unaided response rate of 67 % from West Virginia ‘s grownup population. Other noteworthy achievements include eight consecutive rubrics as “ Best Beer in West Virginia ” and “ America ‘s Championship Lager ” at the American Beer Championship. MMBC stands out in the market because of its deep history, position as an independent, non-corporate and household owned regional based brewery, corroborating an originality desired by its nucleus consumers. Brand consciousness, perceptual experience of quality, and trade name trueness has contributed to MMBC ‘s success. Exhibit 2 illustrates MNBC ‘s cardinal demographic as blue-collar, middle-to-lower income work forces over the age 45. This contrasts greatly to the mean profile of non-gender specific younger drinkers with higher family incomes. Quality and merchandise differentiation derive from an ingredient list including a punctilious choice of rare, Bavarian hops and unusual strains of barley, ensuing in a flavourful, bitter-tasting beer. Another differentiation was that of the somewhat higher intoxicant content.
MMBC ‘s publicity chiefly focused on grass-roots selling and acquiring its merchandise into off-premise locations. This was an effectual program because statistics indicate that the nucleus clients, blue-collar males, purchased 60 % of their beer from off-premise locations ( Abelli, 2007 ) . In contrast to larger viing companies, MMBC did non trust on advertisement and gross revenues publicities. Alternatively MMBC relied on the strong trueness of their client base to advance their merchandise. The effectivity of this publicity was apparent with their high trueness rate. Mountain Man Lager boasted a 53 % trade name trueness rate compared to 42 % for Budweiser and 36 % for Bud Light ( Abelli, 2007 ) .
What about these factors enabled MMBC to make such a strong BRAND? What is a BRAND, anyhow? What is Brand Equity? How is it created?
“ A trade name is merely an outlook or a promise of an experience ” ( Phillips, 2005 ) . The manner to construct a strong trade name is to set clients and their demands at the centre of every determination the company makes. Over clip, “ customer-centric ” actions create distinction in the market topographic point and construct emotional connexions with client, and this is where MMBC has made its grade on the beer industry. Brand is the personality that identifies a merchandise, doing the value of a strong trade name for a company priceless. In the face of an progressively disconnected media and powerful retail merchants, trade name directors can non afford to be maneuvering their trade names in the incorrect way ( Lodish and Mela, 2007 ) . MMBC understands the importance of trade name direction, and has focused on making a high grade of trade name consciousness. Research supports that Mountain Man was every bit recognizable as Chevrolet and John Deere to their nucleus clients. Mountain Man Lager is packaged in a brown bottle with their original 1925 logo, a crew of coal mineworkers. This supported the “ stamina ” and “ working adult male ‘s ” beer image.
Exhibit 3 displays the standard tool for understanding a trade name ‘s associations and clients ‘ response, Keller ‘s Brand Equity Pyramid ( Phillips, 2005 ) . Deep trade name consciousness through local genuineness is the saliency factor. Taste, trade name image, and tradition produce cognitive and emotional reactions when doing determination to buy ( judgement and feelings ) . In measuring the said pyramid, MMBC has created a resonating trade name with a high degree of trade name trueness.
Brand equity is the amount of clients ‘ appraisals of a trade name ‘s intangible qualities, positive or negative. ( Rust, Zeithamal & A ; Lemon, 2004 ) Making trade name equity frequently takes old ages and involves uninterrupted attending to consumer tendencies and penchants to keep. The typical bitter spirit and above norm intoxicant content accounted for much of MMBC ‘s trade name equity. Exhibit 4 outlines the procedure of making client equity, which is indispensable to the trade names success. MMBC invested in a big figure of branding activities to construct “ trade name equity ” . Because MNBC ‘s distributor focused much of their service on their chief client, Anheuser Busch, MNBC utilized their ain gross revenues force to advance Mountain Man. To accomplish this, MNBC utilized off-premise locations such as spirits shops and supermarkets for publicity of Mountain Man. As a consequence, MMBC was able to capture 70 % of its beer gross revenues at off-premise locations, the same as other, larger trade names.
What has caused MMBC ‘s diminution in malice of its strong trade name? ( a ) Describe the market MMBC serves and the beer market in general. ( B ) Describe the competition and MMBC ‘s menaces. ( degree Celsius ) What is the likely hereafter of competitory beer makers? What is MMBC ‘s market/competitive place?
Competition from vino and spirits-based drinks, an addition in the federal excise revenue enhancement, initiatives encouraging moderateness and personal duty, and increasing wellness concerns have led to a 2.3 % diminution in U.S. per capita beer ingestion. As a consequence of this overall diminution, MNBC ‘s 2005 grosss declined 2 % comparative to the anterior financial twelvemonth. Another lending factor was the force per unit area placed on the smaller, regional breweries such as Mountain Man by the larger, national breweries who maintained economic systems of graduated tables in brewing, transit, and selling. Due to this force per unit area, every bit good as, a oversupply of merchandise many independent breweries throughout the East Central part had closed.
MNBC ‘s market was comprised of an aging demographic in the shrinkage premium section of the beer market. Changes in consumer sections reciprocally led to alterations in volume of beer gross revenues. Younger drinkers ( ages 21 to 27 ) represented the “ first-time drinker demographic. ” The industry widely accepted this religious order as the cardinal consumer section as they had yet to set up trade name trueness. Although this demographic represented a mere 13 % of the grownup population, it accounted for a turning 27 % of entire beer ingestion. This demographics ‘ increased disbursement wonts and forecasted growing served as cardinal tendencies in the beer industry. Another important tendency was that of growing in the “ light ” beer class. Market portions increased from 29.8 % in 2001 to 50.4 % in 2005.
Four classs comprised the competition in the U.S. beer market: Major and second-tier domestic manufacturers, import beer companies, and forte beer makers. Exhibit 5 outlines the main rivals in each country, every bit good as, their competitory market portions in barrels. Presently the major domestic manufacturers accounted for 74 % of 2005 beer cargos in Mountain Man ‘s part. The arcane Torahs curtailing selling in retail constitutions brought deep price reductions. As a consequence, distributers began know aparting towards the smaller trade names, which contributed less to the bottom line. Economic fortunes resulted in the shutting of all but four breweries in West Virginia.
Competitive beer makers will hold to capture a larger market portion to stay aggressive in the beer market. With the increasing popularity of light beer, competitory beer makers will spread out their merchandise lines to include light beer. MMBC ‘s current market/product scheme is that of a single-brand merchandise line in the East Central Region. They are an independent, household owned brewery in the trade beer industry. Pricing is similar to that of premium domestic trade names such as Miller and Budweiser and below forte trade names such as Sam Adams.
Should MMBC present a light beer? What are the pros and cons for making so?
MNBC should spread out their merchandise line to include a light beer. One advantage of presenting a light beer is pulling the cardinal demographic of younger drinkers, who have non yet established trueness to a trade name. This proves advantageous due to the religious order ‘s light beer penchant and measure consumed. This would besides supply entree to female beer drinkers. Another advantage was apparent in the 4 % growing rate of the light beer class. Light beer served as the lone class to show consistent growing. In add-on, spread outing merchandise lines potentially gained extra shelf infinite and created greater merchandise focal point among distributers and retail merchants. Additionally, the merchandise life rhythm is in passage from adulthood to impregnation and worsening doing it critical to MMBC to present a new merchandise while the trade name is still strong and can be leveraged.
The debut of a light beer posed disadvantages every bit good. Increased competition came with aiming the same demographics as larger national trade names. In add-on, MNBC runs the hazard of estranging their nucleus client base and thining the Mountain Man trade name equity. Another hazard is that of cannibalization. Shelf infinite is non guaranteed and hence Mountain Man Lager could be substituted for Mountain Man Light. Much resistance comes from John Fader, frailty president of gross revenues. Fader argued that MMBC did non hold the resources necessary to vie with the big companies who continually introduce new merchandises. Therefore, he felt MMBC “ would acquire lost in the sea of new-product debuts ” and draw clip, resources, and attending off from the nucleus trade name.
Is Mountain Man Light executable for MMBC? What is required for Mountain Man Light to interrupt even in two old ages? What market portion will Mountain Man Light have to obtain to interrupt even in two old ages? What cannibalization rate is sensible? Is the budget appropriate for the launch? Can it be reduced?
Based on fiscal analysis taking a long-run position and presuming growing in the light beer market, Mountain Man Light is executable for MMBC. Exhibit 6A inside informations the income statement for MMBC. A smaller part border, extra SG & A ; A and advertisement costs, every bit good as loss of gross revenues in the premium market have to be overcome before the light beer will be profitable, but this still seems to be a executable enterprise for MMBC. Projections for the light beer market are based on a 0.25 % market portion in 2006, with a 0.25 % growing each twelvemonth until ripening. This growing is sensible, as the premium beer trade name makes up about 7 % of the East part ‘s premium beer gross revenues. At this growing rate, it will take over 20 old ages to make the same market portion in the light beer industry, but this should turn out to be more than adequate clip to set up trade name consciousness with the younger consumer. The key to the viability of the light merchandise revolves around the jutting gross revenues and eventual growing in the market. In 2006, MMBC is projected a loss on the new merchandise, chiefly due to the heavy advertisement outgo, but by 2007, projected net income is $ 298,152. This sum about triples to $ 838,451 by 2010.
Exhibit 7 shows the break-even point at 154,685 barrels. Based on 18,744,303 barrels of light beer sold in 2005 in the East Central Region, a market portion of 0.37 % is needed to interrupt even in 2006 and 0.45 % in 2007, which seems in line with the projected 0.25 % first twelvemonth market portion and subsequent 0.25 % growing. This is reflected in Exhibit 6A, where in 2006 MMBC is non projected that market portion and is demoing a jutting loss, but by 2007, MMBC should hold 0.50 % of the market and run into the above breakeven unit computation.
The loss of gross revenues of premium beer to the new light beer market is estimated between 5 and 20 % . The analysis shown in Exhibit 6B shows possible cannibalization in a best ( 5 % ) and worst ( 20 % ) instance scenario. In both scenarios, the Mountain Man Light merchandise proves to be a favourable add-on to MMBC ‘s worsening income statement. With MMBC selling 70 % of its merchandise to off premiss locations, there is a certain hazard that these providers would purchase the same volume from MMBC, merely distributed otherwise, taking to self-cannibalization. It is besides possible that cannibalization could be minimum because frequently this type of merchandise line enlargement helps unafraid extra shelf-space. The cannibalization rate is dependent on the executing of the light beer placement and run executing.
If a 5 % cannibalization rate was realized, MMBC might non hold to obtain the 60 % trade name consciousness with the initial advertisement run necessary to recognize a net net income in two old ages. Although there are many factors to see if selling outgos were decreased, such as effects on initial market portion and subsequent growing of market portion, MMBC could diminish advertisement outgos for the launch of Light. As the realized cannibalization rate additions, MMBC would hold to accomplish a higher trade name consciousness in order to derive a higher market portion to contradict the effects of cannibalization, therefore diminishing the likeliness of the house ‘s ability to diminish advertisement outgos.
Should MMBC launch Mountain Man Light? What other strategic options for growing does Chris hold if Mountain Man Light is non launched or is unsuccessful?
Consumer tendencies resulted in a displacement in the beer industry. To battle these factors, every bit good as, the ripening of their nucleus client base, MMBC must establish Mountain Man Light to stay competitory. If there is still anxiousness, MMBC could prove the light beer in the provinces of Illinois and Ohio ( Exhibit 8 ) . Keeping market portion requires capturing the cardinal demographic of younger drinkers. However, capturing a new demographic with a individual merchandise line proves hard. The add-on of a light beer is necessary to fulfill the demands of diverging market sections. By supplying merchandise distinction and an expanded merchandise line, MMBC will broaden their entreaty and client base and in bend increase their grosss.
Growth must take topographic point in order for MMBC to last in the beer industry. In stead of Mountain Man Light, other beer merchandises such as Pale Ales or Porters could be introduced. The ace premium section is little in comparing, with merely 6.2 % of the East Central part entire ingestion, but is anticipating 9 % growing. These merchandises would intermix seamlessly with the perceptual experience of quality MMBC has worked meticulously to accomplish. In add-on, this would bring forth new locale options, such as saloons and eating houses. Another option is that of marketing the light beer under a new trade name name. Younger drinkers may non happen themselves relatable to the current image of MMBC. A new trade name name would provide specifically to the younger coevals. This option would minimise the eroding of trade name equity and cannibalization. A disadvantage of this option is the increased costs necessary to establish a new trade name. Finally, MMBC could make up one’s mind to take their trade name nationwide by marketing to the same nucleus clients, but at a broader degree. This would maintain MMBC from consisting the merchandise, but widen its client base. A disadvantage to this attack is the possibility of a important investing in fabrication installations and equipment, but MMBC could get down by outsourcing the production to contract breweries.
Consumption by Type of Beer and by Origin/Packaging, 2005
Consumption by Type of Beer
Consumption by Origin/Packaging
Profile of Beer Drinkers by Beer Type by Key Demographics, 2005
Keller ‘s Brand Equity Pyramid
Developing Customer Equity
Break Even Analysis
Beer Consumption by State, 2000 to 2005 ( cargos in barrels )