Expert Answer :Mountain Man Case Study

  

Solved by verified expert:1. Undertake a break-even analysis to determine when the company is likely to break-even on introducing Mountain Man Light. In doing your analysis account for the possible effect of MM Light cannibalizing the sales of MM. The company is introducing a lower margin product that will take sales from a higher margin product therefore it will cannibalize MM contribution margin. Hints: Break-even unit sales = [fixed costs+ loss of contribution from sales cannibalization]/[contribution per barrel]. Contribution per barrel = price per barrel – variable cost) Fixed cost: Advertising of $750,000 spent each year (page 6) Incremental SG&A $900,000 (page 6)Calculate the cannibalization cost. Light beer will cost $4.69 (page 6) more per barrel to produce. Assume a 5% cannibalization rate. Calculate the total cannibalization cost for year 1 using the 2005 sales of $50,440,000 (Exhibit 1) and applying the contribution margin (Exhibit 1). Adjust for the -2% contraction in the market. Remember to tell us when you expect the company to break even on the introduction.2. Should Mountain man introduce a light beer? (Provide 3 most important pros and 3 cons. Each point should be made in no more than 2 sentences. Then conclude with your recommendation.
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For the exclusive use of S. Morataya, 2018.
2069
MAY 28, 2007
HEIDE ABELLI
Mountain Man Brewing Company:
Bringing the Brand to Light
It was February 20, 2006, in the New River coal region of West Virginia. Chris Prangel, a recent
MBA graduate, had returned home a year earlier to manage the marketing operations of the
Mountain Man Beer Company (MMBC), a family-owned business he stood to inherit in five years,
when his father, Oscar Prangel, the president and owner, retired. Mountain Man brewed one beer,
Mountain Man Lager, also known as “West Virginia’s beer.”
Due to changes in beer drinkers’ preferences, the company was now experiencing declining sales
for the first time in the company’s history. In response, Chris wanted to launch Mountain Man Light, a
“light beer” formulation of Mountain Man Lager, in the hope of attracting younger drinkers to the
brand. Over the previous six years, light beer sales in the United States had been growing at a
compound annual rate of 4%, while traditional premium beer sales had declined annually by the
same percentage. Earlier that day, Chris met with a regional advertising agency about a marketing
campaign to launch Mountain Man Light. Back in his office, he watched an agency videotape from a
focus group. He observed a half-dozen participants, 21 to 55 years old, showing various reactions to
proposals to extend the Mountain Man brand to a new light beer product.

A man in his fifties leaned into the facilitator and declared, “Mountain Man Light? Come on,
I’m not interested in light beer. Just don’t mess with Mountain Man Lager.”

A man in his early thirties, dressed in jeans and a camouflage shirt, stared at a mock
advertisement and shouted, “Fancy barbecue parties, with puppies running around…. What
do they have to do with Mountain Man?”

A man, in his mid-twenties and fashionably-dressed, said, “Sounds pretty corporate… I think
the beer is too strong for me anyway. I’ll leave it to these guys to drink.”

A woman in her early twenties wearing low-rise jeans and a trendy T-shirt commented,
“Mountain Man is kind of ‘retro cool.’ I like light beer and Miller Lite is so passé. I would
definitely try Mountain Man Light.”
________________________________________________________________________________________________________________
Heide Abelli prepared this case solely as a basis for class discussion, and not as an endorsement, a source of primary data, or an illustration of
effective or ineffective management. Heide Abelli is a former consultant with the Monitor Group, a strategy consulting firm based in
Cambridge, MA, where she consulted to a variety of consumer products companies on marketing issues. The author thanks the following
executives from the brewing Industry; their help was indispensable in refining the case: Brent Ryan of Newport Storm, Rob Schimony of
Yuengling & Son, and Charlie Storey of Harpoon Brewery.
This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional
references to actual companies in the narration.
Copyright © 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Sheryl Morataya in Market Analysis and Customer Insight-1-1-1-1-1-1-1 taught by Devon Johnson , Montclair State University from February 2018
to April 2018.
For the exclusive use of S. Morataya, 2018.
2069 | Mountain Man Brewing Company: Bringing the Brand to Light
Chris switched off the videotape and glanced up at a photograph of his father with a group of
rugged, middle-aged men from the Coal Miner’s Union. Although Chris firmly believed that the
window of opportunity for introducing Mountain Man Light was closing, Oscar had warned, “Look at
what new product lines get you… 90% more products, 90% more chance you’ll kill your core brand.”
Chris wondered how the men in the photograph would react to a billboard picture of yuppies
consuming Mountain Man Light. Could Mountain Man command as much pride for the brand from
his generation as it had from his father’s? Moreover, could he reposition the brand to drive sales of
Mountain Man Light to young people without eroding the core brand equity of Mountain Man Lager?
As Chris prepared to discuss the brand extension with Oscar, he knew that whatever strategy
Mountain Man pursued, it would have dramatic implications for the brand, the company, and his
family.
Mountain Man: The Company and the Brand
Guntar Prangel founded the Mountain Man Beer Company (MMBC) in 1925. Mr. Prangel had
reformulated an old family brew recipe using a meticulous selection of rare, Bavarian hops and
unusual strains of barley, resulting in a flavorful, bitter-tasting beer which the Prangel family
launched as Mountain Man Lager. By the 1960s, Mountain Man Lager’s reputation as a quality beer was
well entrenched throughout the East Central region of the United States.1
Mountain Man Lager was a legacy brew in a mature business. By 2005 Mountain Man was
generating revenues just over $50 million and selling over 520,000 barrels2 of Mountain Man Lager
beer primarily to distributors in Illinois, Indiana, Michigan, Ohio, and its native West Virginia. (See
Exhibit 1 for MMBC income statement.) It had held the top market position among lagers in West
Virginia for almost 50 years and had respectable market share for an old school, regional brewery in
most of the states where the beer was distributed. To accentuate the beer’s dark color, it was
packaged in a brown bottle, with its original 1925 design of a crew of coal miners printed on the front.
Mountain Man Lager was priced similarly to premium domestic brands such as Miller and Budweiser
and below specialty brands such as Sam Adams. Its price was typically $2.25 for a 12-ounce serving
of draft beer in a bar and $4.99 for a six-pack in a local convenience store.
Brand played a critical role in the beer-purchasing decision. When selecting beer, consumers
considered several factors: taste; price; the occasion being celebrated; perceived quality; brand image;
tradition; and local authenticity. MMBC relied on its history and its status as an independent, familyowned brewery to create an aura of authenticity and to position the beer with its core drinkers—bluecollar, middle-to-lower income men over age 45. (Exhibit 2 provides profiles of the average Mountain
Man Lager consumer in contrast to average profiles of premium-beer and light-beer drinkers.) In a
recent study in West Virginia, this audience had rated Mountain Man Lager as the best-known
regional beer, with an unaided response rate of 67% from the state’s adult population. In 2005,
Mountain Man Lager won “Best Beer in West Virginia” for its eighth year straight (it also won “Best
Beer in Indiana”) and was selected as “America’s Championship Lager” at the American Beer
Championship.
Brand awareness was one cornerstone of the brand’s success with blue-collar consumers. Market
research showed that Mountain Man was as recognizable a brand among working-class males in the
East Central region as Chevrolet and John Deere. The other cornerstones were the perception of
quality in Mountain Man Lager and the brand loyalty it cultivated. There were ranges of subjective
1 The East Central beer region of the United States consisted of seven states: Illinois, Indiana, Kentucky, Michigan, Ohio, West
Virginia, and Wisconsin.
2 One beer barrel = 31 U.S. gallons = 2 “half-barrel” (15.5 gallon) kegs = 13.78 cases (of 24 12-ounce bottles).
2
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This document is authorized for use only by Sheryl Morataya in Market Analysis and Customer Insight-1-1-1-1-1-1-1 taught by Devon Johnson , Montclair State University from February 2018
to April 2018.
For the exclusive use of S. Morataya, 2018.
Mountain Man Brewing Company: Bringing the Brand to Light | 2069
attributes that defined the quality of Mountain Man, like its smoothness, percentage of water content,
and “drinkability”—but it was Mountain Man Lager’s distinctively bitter flavor and slightly higherthan-average alcohol content that uniquely contributed to the company’s brand equity. One
participant in the recent focus group seemed to have spoken for many customers: “My dad drank
Mountain Man just like my granddad did. They both felt it was as good a beer as you could get
anywhere.”
Over the 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. Because these distributors tended to focus on servicing their main customer,
they would not reliably strive to build Mountain Man’s brand. MMBC therefore established its own
small sales force, which didn’t just help push the brand; it proselytized, focusing on one ultimate
objective: getting off-premise locations (like liquor stores or supermarkets) to embrace Mountain
Man. Blue-collar males purchased 60% of the beer they drank at off-premise locations. Mountain
Man sold 70% of its beer for off-premise (liquor stores) consumption, consistent with average
industry sales through this channel.
Mountain Man’s Competition
The competition in the U.S. beer market fell into four categories: Major and second-tier domestic
producers, import beer companies, and specialty brewers.
Major domestic producers consisted of a handful of companies who competed on the basis of
economies of scale in production and advertising. This highly concentrated segment of the market
was dominated by three companies: Anheuser Busch, Miller Brewing Company, and Adolf Coors
Company. Together, these companies accounted for 74% of 2005 beer shipments in Mountain Man’s
region.
Second-tier domestic producers consisted of medium-sized competitors, such as Pabst Brewing
Company and Genessee which, similar to the major domestic producers, sold their beers nationally to
distributors and retailers. In addition, there were smaller, regional players that produced between
15,000 and two million barrels of beer per year and generally limited distribution to areas
surrounding their plants, selling their beer to regional distributors and retailers. By November 2005,
there were roughly 30 regional breweries in the United States. These companies followed the same
product and marketing strategy as the major domestic producers, but lacked the financial and
marketing resources to defend their brands as aggressively. The second-tier domestic producers
accounted for 12.5% of beer shipments in the East Central region in 2005.
Import beer companies from Germany (Beck’s, for example), Holland (Heineken), Canada (Molson),
and Mexico (Corona) traditionally served the needs of sophisticated beer drinkers who desired more
flavorful, bitter-tasting beer products. They operated at a distinct disadvantage relative to domestic
competitors due to higher shipping costs, weaker distribution networks, an inability to control
product freshness, and margin reduction due to weakening of the U.S. dollar. In 2005, import
companies controlled about 12% of the region’s market.
The craft beer industry was divided into four markets: brewpubs, microbreweries, contract
breweries, and regional craft breweries. They all brewed beer using traditional malt ingredients,
were independently owned, and by definition produced less than two million barrels annually.
Brewpubs were restaurant/bar establishments with over 25% of their beer products brewed and
consumed on site. In 2005, more than 980 brewpubs operated in the United States, accounting for
10% of the craft brew volume. Microbreweries traditionally operated in limited distribution networks
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This document is authorized for use only by Sheryl Morataya in Market Analysis and Customer Insight-1-1-1-1-1-1-1 taught by Devon Johnson , Montclair State University from February 2018
to April 2018.
For the exclusive use of S. Morataya, 2018.
2069 | Mountain Man Brewing Company: Bringing the Brand to Light
and produced less than 15,000 barrels a year. In 2005, the 380 U.S. microbreweries accounted for 12%
of the craft beer volume. Contract breweries, breweries that manufactured beer for client firms,
accounted for 16% of the craft beer volume. Finally, almost 50 U.S. regional craft brewers (such as Sam
Adams, Sierra Nevada, and Harpoon), producing more than 15,000 barrels annually, accounted for
the remaining 62% of the market. In the East Central region, all craft brewers together controlled
1.5% of the total beer market. (See Exhibit 3 for competitive market shares by brewer type in the East
Central region.)
The Situation at Mountain Man in 2005
The United States was the largest beer-consuming market in the world, with over $75 billion in
annual sales in 2005. Since 2001, U.S. per capita beer consumption had declined by 2.3%, largely due
to competition from wine and spirits-based drinks, an increase in the federal excise tax, initiatives
encouraging moderation and personal responsibility, and increasing health concerns.
Of total U.S. beer sales, 18.3% took place in the East Central region. (See Exhibit 4 for East Central
beer consumption overall and by state.) Although imports and craft beers didn’t have quite the
stronghold in the “heartland” states (where MMBC sold its beer) as they did in other parts of the
country, even there, both categories were beginning to take hold. Some states in the region, including
West Virginia, had become particularly competitive; the state had recently repealed arcane laws that
had sharply limited the promotion of beer in retail establishments, and as a result, retail stores began
selling beer at deep discounts. Distributors became more discriminating about which smaller brands
they would continue to carry, paying more attention to turnover and margins, and dropping brands
that contributed little to the bottom line. Large national brewers, who maintained economies of scale
in brewing, transportation, and marketing, put great pressure on the smaller, regional breweries like
Mountain Man.
This pressure, combined with a glut of product, led to the closing of many independent breweries
in the East Central region over the past 40 years. Breweries that once reigned supreme across the
region had disappeared, taking with them the loyal allegiance of their communities. MMBC’s
survival was in large part due to the fact that it served a large enough market with a very strong
brand, and it therefore could continue to compete against national players with deep pockets such as
Anheuser Busch, the company’s most significant competitor. There were only four breweries left in
West Virginia by 2005, and Mountain Man’s 2005 revenues were down 2% relative to the prior fiscal
year. Even though the company was still profitable in spite of the sales decline, the prospect of
continued downward pressure on revenue would challenge the company’s ability to remain
profitable. Facing an aging demographic in the shrinking premium segment of the beer market, the
company struggled to maintain a steady share of its market segment against the large domestic
brewers, which were spending heavily to maintain their own sales levels in the premium segment.
Beer was not subject to sharp fluctuations in demand during economic downturns. Changes in
volume were driven primarily by changes in consumer segments. Most industry observers agreed
that the key consumer segment for beer companies was younger drinkers, 21–27 years of age. This
group represented the “first-time drinker demographic” that had not yet established loyalty to any
particular brand of beer. The segment represented about 13% of the adult population in 2005, but
accounted for more than 27% of total beer consumption and was growing. In addition, this age
group spent twice as much per capita on alcoholic beverages than consumers over 35 years of age
and was forecasted to grow by nearly four million by the year 2010.
Another significant trend was growth in the “light” beer category which had been steadily
gaining in market share and accounted for 50.4% of volume sales in 2005, compared with 29.8% in
4
BRIEFCASES | HARVARD BUSINESS SCHOOL
This document is authorized for use only by Sheryl Morataya in Market Analysis and Customer Insight-1-1-1-1-1-1-1 taught by Devon Johnson , Montclair State University from February 2018
to April 2018.
For the exclusive use of S. Morataya, 2018.
Mountain Man Brewing Company: Bringing the Brand to Light | 2069
2001. (See Exhibit 5 for a breakdown of the East Central regional market by type of beer, and
Exhibit 6 for light beer market shares in the region.) In fact, younger consumers preferred light beer
to other categories. They also typically consumed in quantity. However, they tended to buy
mainstream brands. A consumer study revealed that while Mountain Man rated high in terms of
awareness with the younger, light-beer drinking segment of the market, Mountain Man Lager tracked
very low as a purchasing preference—as did other lagers and fuller-flavor brews.
Industry observers believed new products introduced beer drinkers to both styles of beer while
simultaneously keeping them in the “brand” family. Product line extensions leveraging the core
brand name often helped brewers obtain greater shelf space for products and created greater product
focus among distributors and retailers. Mountain Man was now alone among the major and regional
beer companies in not having expanded its product line beyond its flagship lager product.
In light of these developments, Mountain Man engaged a market research firm to evaluate its
single-brand product strategy and brand extension opportunities. The study yielded three
interesting findings:
1.
Mountain Man Lager was known as “West Virginia’s Beer.” Authenticity, quality, and a
unique West Virginia “toughness” were core attributes of the brand. Younger beer drinkers
were well aware of the brand, yet perceived the beer as “strong” and a “working man’s” beer
largely consumed by the “swing” and baby boomer generations. Because younger beer
drinkers held “anti-big-business” values, they did show some appreciation for the brand’s
association with an independent brewery.
2.
Traditional advertising was not as effective as grass-roots marketing3 in building beer brand
awareness in certain states in the East Central region, such as West Virginia and Kentucky.
Mountain Man had always relied on grass-roots marketing to spread its beer quality message
by word of mouth. In contrast, national beer brands used lifestyle advertisements to reach
young drinkers. Broadcast spending for beer ads topped $700 million annually, representing
over 70% of total advertising expenditures on alcohol. (See Exhibit 7 for U.S. advertising
spending on beer.)
3.
A small percentage of MMBC’s blue-collar customers accounted for a large percentage of
sales, and those customers tended to be very loyal to Mountain Man Lager. In fact, the sole
brand loyalty rate4 for Mountain Man Lager was 53%, which was higher than the rates of
competitive product (i.e., 42% for Budweiser and 36% for Bud Light.) The non-loyal Mountain
Man Lager customers occasionally spread their consumption across up to five other beer
brands.
The Challenges Ahead at Mountain Man
Chris Prangel pondered the findings of the study. To him it was clear that product preferences in
the beer market were changing, and that a light beer product …
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