INTRODUCTION

Mountain Man Beer Company was a family owned business with only one product in its umbrella named
Mountain Man Lager also called “West Virginia’s beer”. The key attributes of their brand are:

 Product- Mountain Man Lager was made from rare Bavarian hops and barley which led to its
distinguished smoothness and bitter flavor. It had a slightly higher than average alcohol content
which made it different from its competitors. It held a top market position in among lagers of
West Virginia and had a respectable market share for old school, regional brewery in most
states.
 Customers-The core drinkers of the brand was blue collar, middle to lower income men over age
45. The brand was shown as most recognizable brand among working class males in East central
region as Chevrolet and John Deere.
 Differentiation in Distribution channels and Promotion- Over the years MMBC had invested
heavily on branding activities. According to a focus group participant, one of the important
reason for brand awareness is its availability. MMBC had established its own small sales force
which not only pushed the brand but also pushed the brand to majority of the off-premise
locations. MMBC sold 70% of its beer for off-premise (liquor stores) consumption which was at
par with its competitors. They relied heavily on brand loyalty and word of mouth “grassroots
advertising”.

ABOUT MMBC BRAND

Brand is an idea or image of a specific product or a service that consumer connect with, by its name,
design, taste ,logo or attributes which differentiates itself from the rest. When it comes to MMBC,
people recognized it due to its bottling, taste and authenticity. It enjoyed a high brand equity amongst
the baby boomers as the brand itself was a representation of their tough rugged personality.

BEER INDUSTRY

The beer industry has been succumbed to lot of changes, the overall beer segment decreased by 2.3%
from 2001.

 During the course there had been a steep change in the beer drinker’s preferences due to
introduction of wine and spirits-based drinks.
 The consumption of beer has also decreased due to increase in federal tax, increasing health
concerns and encouraging moderation and personal responsibility.
 MMBC was also losing 2% of its revenue base annually.

CONCERN FOR MMBC

 MMBC also saw a 2% loss in its revenue base annually but due to larger market capture and
better brand recognition MMBC was able to compete against national players with deep
pockets. Even though the company seemed to be profitable in spite of the sales decline, the
downward pressure on revenue would challenge it remain profitable for a longer time.
 Even the distributers became discriminating to smaller brands which contributed little to their
bottom line hence small brewery company like MMBC was getting a hit.
  The customer segment of MMBC was mostly from an aging demographic and hence it was a
difficult task for the company to maintain steady share against domestic brewers who were
spending heavily to maintain their levels.

WAY OUT AND CHRIS’S CONSIDERATION- MMBC was a brand who’s target segment was on a decline
and the upcoming key consumers for the beer segment is the young population who were yet to
establish a brand loyalty, this was a growing segment and was forecasted to be amounting to 4mn till
2010. So Chris thought that it was the correct time to extend their product line to the light beer
category. There would be pros and cons of this decision:-

PROS
1. Light beer category has been steadily gaining
market share and accounted for 50.4% of total
volume share and the younger consumers also
preferred light beer to other categories.
2. Light beer was consumer in quantities so
people tend to buy product only with better
brand name.
CONS
1. Increase in production cost and advertising
cost.
2. Concerns of alienation of their core customer
base and erosion of their existing brand equity.

3. Product line extension will help brewers
obtaining greater shelf space and created grater
product focus among distributers and retailers.
4. Diversifying will also help gain share in off-
premise location were females can also be taken
on board.
5. Association with mountain Man’s light beer
would be more due to brand recognition of
Mountain Man Lager
3. Concerns of Cannibalization of their original
product as there is a possibility that retailers
might not grant larger shelf space but would
rather replace larger product for light ones.
4. Competition from deep pocketed companies
who can throw new range of products anytime.
5. Retailers might not give larger shelf space.

BREAK EVEN ANALYSIS

Revenue projections:

Revenue projection
2005 2006 2007 2008 2009 2010
with CAGR of 4%
Light beer consumption 18744303 19494075.12 20273838.12 21084791.65 21928183.32 22805310.65
Market share of MMBC 0.25% 0.500% 0.750% 1.000% 1.250%

Total barrels sold 48735.1878 101369.1906 158135.9374 219281.8332 285066.3831

Net revenue @97 $ 4,727,313.22 $ 9,832,811.49 $ 15,339,185.93 $ 21,270,337.82 $ 27,651,439.16
 A) Without cannibalization:
For light beer
Variable cost Fixed cost
Variable cost for large beer $ 66.93 advertising campaign $ 750,000.00
Variable cost for light beer $ 71.62 S&GA Costs $ 900,000.00
S&GA Costs $ 900,000.00
revenues in 2005 $ 50,440,000.00 Total fixed cost $ 2,550,000.00
sale in 2005 520000
Price per barrel $ 97.00 Break even volume 100472.8132 (fixed cost/CM)
Break even sales $ 9,745,862.88 (break even volume* price of barrel)
contribution margin $ 25.38

B) With Cannibalization
For light beer
Variable cost Fixed cost
Variable cost for large beer $ 66.93 advertising campaign $ 750,000.00
Variable cost for light beer $ 71.62 S&GA Costs $ 900,000.00
S&GA Costs $ 900,000.00
revenues in 2005 $ 50,440,000.00
sale in 2005 520000
Price per barrel $ 97.00
With cannibalization Rate of 20%
contribution margin $ 25.38 Cost of cannibalization in 2006 3,127,280.00
Cost of cannibalization in 2007 3,064,734.40
For discount rate of 12%
Cost of cannibalization in 2006 2,792,214.29
Cost of cannibalization in 2007 2,736,370.00

Total fixed cost $ 3,550,000.00

Break even (barrels) 139873.9165
Break even volume $ 13,567,769.90

The revenue for two years is amounting to $14,560,124.71 and the breakeven volume with
cannibalization is 13,567,769. Therefore it will be correct decision to launch the light beer.There are
multiple strategies that the company can follow to increase its sales, the alternate option they can
look at is looking for a product which will satisfy the needs of other segments of the market.