With recent declining sales for Mountain Man Beer Company (MMBC), Chris Prangel is considering launching Mountain Man Light as a brand extension aligned with changes in beer drinkers’ preferences. He is seeking to maximize market coverage while minimizing brand overlap, and at the same time avoiding any brand equity damage, as MMBC’s core consumer segment is significantly different from the new targeted segment. Chris expects to negate declining sales of Mountain Man Lager and capture market share in the fast-growing light beer category, which accounted for 50.4% of all beer sales by volume in 2005 in the East Central Region (Exhibit 1). More specifically, Chris wants to capitalize on Mountain Man’s brand recognition in the region and capture a meaningful share of the local light beer market, a market in which MMBC currently has no presence. In addition, he is hoping a successful launch of Mountain Man Light in the local on-premise locations will boost the lagging sales of Mountain Man Lager.
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In order for the launch of Mountain Man Light to be successful, several factors would have to align to obtain the goal of MMBC obtaining significant initial market share and subsequent years’ growth in the light-beer market. First, the new campaign targeting the light beer consumers, which consists largely of younger drinkers, would not erode the company’s brand equity by alienating its core customer base, consisting of the “swing” and baby boomer generations. (Abelli, 2007) Second, MMBC would have to minimize the light beer’s cannibalization of its lager. MMBC’s sales staff would have to convince off-premise retailers to grant MMBC “incremental shelf space” instead of substituting cases of light product for the lager product. MMBC would also have to be certain that the light’s sales would compensate for any potential cannibalization of lager’s sales. Third, Chris would need to convince the senior management team that light’s sales would generate a profit in two years after accounting for the marketing expense to launch it, the incremental SG&A expenses, and the potential lost lager sales.
What has made MMBC successful? What distinguishes it from competitors? What is distinctive about MMBC’s product? What is distinctive about MMBC’s customers? How is MMBC’s promotion different and effective?
In 1925, Guntar Prangel reformulated an old family recipe creating Mountain Man Lager. Being an independent, family-owned brewery fashioned an authentic product earning an unaided response rate of 67% from West Virginia’s adult population. Other notable accomplishments include eight straight titles 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, status as an independent, non-corporate and family owned regional based brewery, confirming an originality desired by its core consumers. Brand awareness, perception of quality, and brand loyalty has contributed to MMBC’s success. Exhibit 2 illustrates MNBC’s key demographic as blue-collar, middle-to-lower income men over the age 45. This contrasts greatly to the average profile of non-gender specific younger drinkers with higher household incomes. Quality and product distinction derive from an ingredient list including a meticulous selection of rare, Bavarian hops and unusual strains of barley, resulting in a flavorful, bitter-tasting beer. Another distinction was that of the slightly higher alcohol content.
MMBC’s promotion primarily focused on grass-roots marketing and getting its product into off-premise locations. This was an effective plan because statistics indicate that the core customers, blue-collar males, purchased 60% of their beer from off-premise locations (Abelli, 2007). In contrast to larger competing companies, MMBC did not rely on advertising and sales promotions. Instead MMBC relied on the strong loyalty of their customer base to promote their product. The effectiveness of this promotion was evident with their high loyalty rate. Mountain Man Lager boasted a 53% brand loyalty rate compared to 42% for Budweiser and 36% for Bud Light (Abelli, 2007).
What about these factors enabled MMBC to create such a strong BRAND? What is a BRAND, anyway? What is Brand Equity? How is it created?
“A brand is simply an expectation or a promise of an experience” (Phillips, 2005). The way to build a strong brand is to put customers and their needs at the center of every decision the company makes. Over time, “customer-centric” actions create differentiation in the market place and build emotional connections with customer, and this is where MMBC has made its mark on the beer industry. Brand is the personality that identifies a product, making the value of a strong brand for a company priceless. In the face of an increasingly fragmented media and powerful retailers, brand managers cannot afford to be steering their brands in the wrong direction (Lodish and Mela, 2007). MMBC understands the importance of brand management, and has focused on creating a high degree of brand awareness. Research supports that Mountain Man was as recognizable as Chevrolet and John Deere to their core customers. Mountain Man Lager is packaged in a brown bottle with their original 1925 logo, a crew of coal miners. This supported the “toughness” and “working man’s” beer image.
Exhibit 3 displays the standard tool for understanding a brand’s associations and customers’ response, Keller’s Brand Equity Pyramid (Phillips, 2005). Deep brand awareness through local authenticity is the salience factor. Taste, brand image, and tradition produce cognitive and emotional reactions when making decision to purchase (judgment and feelings). In evaluating the said pyramid, MMBC has created a resonant brand with a high level of brand loyalty.
Brand equity is the sum of customers’ assessments of a brand’s intangible qualities, positive or negative. (Rust, Zeithamal & Lemon, 2004) Creating brand equity often takes years and involves continuous attention to consumer trends and preferences to maintain. The distinctive bitter flavor and above average alcohol content accounted for much of MMBC’s brand equity. Exhibit 4 outlines the process of creating customer equity, which is essential to the brands success. MMBC invested in a large number of branding activities to build “brand equity”. Because MNBC’s distributer focused much of their servicing on their main customer, Anheuser Busch, MNBC utilized their own sales force to promote Mountain Man. To achieve this, MNBC utilized off-premise locations such as liquor stores and supermarkets for promotion of Mountain Man. As a result, MMBC was able to capture 70% of its beer sales at off-premise locations, the same as other, larger brands.
What has caused MMBC’s decline in spite of its strong brand? (a) Describe the market MMBC serves and the beer market in general. (b) Describe the competition and MMBC’s threats. (c) What is the likely future of competitive brewers? What is MMBC’s market/competitive position?
Competition from wine and spirits-based drinks, an increase in the federal excise tax, initiatives encouraging moderation and personal responsibility, and increasing health concerns have led to a 2.3% decline in U.S. per capita beer consumption. As a result of this overall decline, MNBC’s 2005 revenues declined 2% relative to the prior fiscal year. Another contributing factor was the pressure placed on the smaller, regional breweries such as Mountain Man by the larger, national breweries who maintained economies of scales in brewing, transportation, and marketing. Due to this pressure, as well as, a glut of product many independent breweries throughout the East Central region had closed.
MNBC’s market was comprised of an aging demographic in the shrinking premium segment of the beer market. Changes in consumer segments inversely led to changes in volume of beer sales. Younger drinkers (ages 21 to 27) represented the “first-time drinker demographic.” The industry widely accepted this sect as the key consumer segment as they had yet to establish brand loyalty. Although this demographic represented a mere 13% of the adult population, it accounted for a growing 27% of total beer consumption. This demographics’ increased spending habits and forecasted growth served as key trends in the beer industry. Another significant trend was that of growth in the “light” beer category. Market shares increased from 29.8% in 2001 to 50.4% in 2005.
Four categories comprised the competition in the U.S. beer market: Major and second-tier domestic producers, import beer companies, and specialty brewers. Exhibit 5 outlines the chief competitors in each area, as well as, their competitive market shares in barrels. Currently the major domestic producers accounted for 74% of 2005 beer shipments in Mountain Man’s region. The arcane laws restricting marketing in retail establishments brought deep discounts. As a result, distributors began discriminating towards the smaller brands, which contributed less to the bottom line. Economic circumstances resulted in the closing of all but four breweries in West Virginia.
Competitive brewers will have to capture a larger market share to remain aggressive in the beer market. With the increasing popularity of light beer, competitive brewers will expand their product lines to include light beer. MMBC’s current market/product strategy is that of a single-brand product line in the East Central Region. They are an independent, family owned brewery in the craft beer industry. Pricing is similar to that of premium domestic brands such as Miller and Budweiser and below specialty brands such as Sam Adams.
Should MMBC introduce a light beer? What are the pros and cons for doing so?
MNBC should expand their product line to include a light beer. One advantage of introducing a light beer is attracting the key demographic of younger drinkers, who have not yet established loyalty to a brand. This proves advantageous due to the sect’s light beer preference and quantity consumed. This would also provide access to female beer drinkers. Another advantage was evident in the 4% growth rate of the light beer category. Light beer served as the only category to demonstrate consistent growth. In addition, expanding product lines potentially gained additional shelf space and created greater product focus among distributors and retailers. Additionally, the product life cycle is in transition from maturity to saturation and declining making it vital to MMBC to introduce a new product while the brand is still strong and can be leveraged.
The introduction of a light beer posed disadvantages as well. Increased competition came with targeting the same demographics as larger national brands. In addition, MNBC runs the risk of alienating their core customer base and diluting the Mountain Man brand equity. Another risk is that of cannibalization. Shelf space is not guaranteed and therefore Mountain Man Lager could be substituted for Mountain Man Light. Much opposition comes from John Fader, vice president of sales. Fader argued that MMBC did not have the resources necessary to compete with the large companies who continually introduce new products. Therefore, he felt MMBC “would get lost in the sea of new-product introductions” and draw time, resources, and attention away from the core brand.
Is Mountain Man Light feasible for MMBC? What is required for Mountain Man Light to break even in two years? What market share will Mountain Man Light have to obtain to break even in two years? What cannibalization rate is reasonable? Is the budget appropriate for the launch? Can it be reduced?
Based on financial analysis taking a long-term view and assuming growth in the light beer market, Mountain Man Light is feasible for MMBC. Exhibit 6A details the income statement for MMBC. A smaller contribution margin, additional SG&A and advertising costs, as well as loss of sales in the premium market have to be overcome before the light beer will be profitable, but this still seems to be a feasible endeavor for MMBC. Projections for the light beer market are based on a 0.25% market share in 2006, with a 0.25% growth each year until maturation. This growth is reasonable, as the premium beer brand makes up approximately 7% of the East region’s premium beer sales. At this growth rate, it will take over 20 years to reach the same market share in the light beer industry, but this should prove to be more than enough time to establish brand awareness with the younger consumer. The key to the viability of the light product revolves around the projected sales and eventual growth in the market. In 2006, MMBC is projected a loss on the new product, mainly due to the heavy advertising expenditure, but by 2007, projected net income is $298,152. This amount nearly 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 share of 0.37% is needed to break even in 2006 and 0.45% in 2007, which seems in line with the projected 0.25% first year market share and subsequent 0.25% growth. This is reflected in Exhibit 6A, where in 2006 MMBC is not projected that market share and is showing a projected loss, but by 2007, MMBC should have 0.50% of the market and meet the above breakeven unit calculation.
The loss of sales 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%) case scenario. In both scenarios, the Mountain Man Light product proves to be a favorable addition to MMBC’s declining income statement. With MMBC selling 70% of its product to off premise locations, there is a certain risk that these suppliers would buy the same volume from MMBC, just distributed differently, leading to self-cannibalization. It is also possible that cannibalization could be minimal because often this type of product line expansion helps secure additional shelf-space. The cannibalization rate is dependent on the execution of the light beer positioning and campaign execution.
If a 5% cannibalization rate was realized, MMBC might not have to obtain the 60% brand awareness with the initial advertising campaign necessary to realize a net profit in two years. Although there are many factors to consider if marketing expenditures were decreased, such as effects on initial market share and subsequent growth of market share, MMBC could decrease advertising expenditures for the launch of Light. As the realized cannibalization rate increases, MMBC would have to achieve a higher brand awareness in order to gain a higher market share to negate the effects of cannibalization, thus decreasing the likelihood of the firm’s ability to decrease advertising expenditures.
Should MMBC launch Mountain Man Light? What other strategic options for growth does Chris have if Mountain Man Light is not launched or is unsuccessful?
Consumer trends resulted in a shift in the beer industry. To combat these factors, as well as, the aging of their core customer base, MMBC must launch Mountain Man Light to remain competitive. If there is still anxiety, MMBC could test the light beer in the states of Illinois and Ohio (Exhibit 8). Maintaining market share requires capturing the key demographic of younger drinkers. However, capturing a new demographic with a single product line proves difficult. The addition of a light beer is necessary to satisfy the needs of diverging market segments. By providing product differentiation and an expanded product line, MMBC will broaden their appeal and customer base and in turn increase their revenues.
Growth must take place in order for MMBC to survive in the beer industry. In lieu of Mountain Man Light, other beer products such as Pale Ales or Porters could be introduced. The super premium segment is small in comparison, with only 6.2% of the East Central region total consumption, but is expecting 9% growth. These products would blend seamlessly with the perception of quality MMBC has worked meticulously to achieve. In addition, this would generate new venue options, such as pubs and restaurants. Another option is that of marketing the light beer under a new brand name. Younger drinkers may not find themselves relatable to the current image of MMBC. A new brand name would cater specifically to the younger generation. This option would minimize the erosion of brand equity and cannibalization. A disadvantage of this option is the increased costs necessary to launch a new brand. Finally, MMBC could decide to take their brand nationwide by marketing to the same core customers, but at a broader level. This would keep MMBC from comprising the product, but widen its customer base. A disadvantage to this approach is the possibility of a significant investment in manufacturing facilities and equipment, but MMBC could start by outsourcing the production to contract breweries.
Exhibit 1
Consumption by Type of Beer and by Origin/Packaging, 2005
Consumption by Type of Beer
Consumption by Origin/Packaging
Exhibit 2
Profile of Beer Drinkers by Beer Type by Key Demographics, 2005
Exhibit 3
Keller’s Brand Equity Pyramid
Exhibit 4
Developing Customer Equity
Exhibit 5
Competition
Exhibit 6A
Exhibit 6B
Exhibit 7
Break Even Analysis
Exhibit 8
Beer Consumption by State, 2000 to 2005 (shipments in barrels)
STATE
2000
2001
2002
2003
2004
2005
Illinois
9,038,323
9,165,381
9,268,188
9,108,157
9,032,851
9,063,267
Indiana
3,954,209
3,947,446
4,021,685
3,905,265
3,993,643
3,998,855
Kentucky
2,517,894
2,486,731
2,564,013
2,490,928
2,591,949
2,555,739
Michigan
6,761,561
6,695,665
6,854,064
6,774,702
6,746,578
6,700,174
Ohio
8,493,144
8,601,604
8,682,331
8,760,272
8,702,382
8,584,283
West Virginia
1,274,626
1,311,838
1,360,589
1,348,527
1,373,205
1,359,231
Wisconsin
4,741,019
4,784,791
4,890,122
4,855,313
4,877,662
4,929,529
East Central
Region
36,780,776
36,993,456
37,640,992
37,243,163
37,318,269
37,191,077
TOTAL U.S.
197,609,645
200,146,800
202,605,792
202,586,016
204,318,220
203,515,148
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