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Alfred Estaca

MKTG 489
Mountain Man Brewing Company
1
Situation Analysis

Mountain Man Beer Company is a family owned business since 1925. The company
has been passed down the Prangel family for generations, and with it the old family
brew recipe. When this case was written, Mountain Man Lager is known as Best
Beer in West Virginia and selected as Americas Championship Lager. Their
product was the best known regional beer, yielding an unaided response rate of
67% (MMBC).

However, as revenue is beginning to shrink, and there is more of an interest in light
beer, Chris Prangel is looking to diversify Mountain Man Brewing Companys
product mix. As of when this case was written, Mountain Man Brewing had one
product in its mix Mountain Man Lager.

SWOT Analysis:

Strengths: Quality and Taste, Competitive Pricing, Regional Loyalty, Generations in
business, Grass Roots Marketing

Weakness: Resources are not as strong as larger brewers, therefore if Mountain
Man spreads themselves thin, they can loose everything

Opportunity: First time drinkers not loyal to a brand. Light beer has an annual
growth rate of 4%, Cater to women market (42%), Younger demographics 25 - 44
age group constitutes 54% of light beer drinkers

Threats: cannibalization, loss of brand loyalty, R&D expensive to develop the light
beer, increase advertising costs, Other Domestic Brands take up for 9.4% market
share of domestic light beer Brands.

Problem Definition:

The issue at hand is, given cannibalization, additional fixed costs, additional variable
costs, additional production and R&D costs will initiating a new product to the mix
outweigh the 2% decline in revenue from the prior fiscal year. Additionally, will
creating a new product help battle the increase in taxes and the decrease of beer
drinking nationally (2.1%)

Options

Option 1: Keep the status quo. Do not create a new product, and keep selling
Mountain Man Lager. The pros to this course of action, is it will not require
Mountain Man Brewing to squander its resources in a new product. In addition, by
not creating a new product, Mountain Man Brewing will keep its image intact. The
Alfred Estaca
MKTG 489
Mountain Man Brewing Company
2
con however, is Mountain Man Brewing will have to figure out new ways to contend
with the 2% drop in revenue.

Option 2: Create Mountain Man Light Beer. By adding a product to the mix,
Mountain Man Brewing will be able to gain additional revenue. Diversify its market
from old blue collar working men to younger men and women. These younger men
and women which are between the ages of 21 and 27 years old have yet to establish
brand loyalty and account for 27% of total beer sales. In addition, Mountain Man
Brewing will be able to grab hold of the Light Beer Market which have sales at over
50% and growing at a compound rate of 4% annually. The con to this however are
the costs Mountain Man will incur; $1,650,000 in fixed costs, and $71.62 in variable
per unit costs. Moreover, an additional product may cannibalize the existing lager,
take up existing shelf space and hurt brand image to the established followers of
Mountain Man Lager.

Option 3: Create a light beer under a new name. By creating a light beer, which isnt
directly related to Mountain Man Lager, MMBC will be able to enjoy the fruits of
additional revenue without the cannibalization of its Lager. The con to this course of
action however is, releasing a whole new product means MMBC wont be able to
leverage its name and its market who already enjoy Mountain Man Lager.
Essentially this light beer will have to start from the ground up. This will incur more
costs for MMBC with advertising.

Decision

Create a Mountain Man Light (Option 2). By undertaking option 2, MMBC will be
able to utilize its already robust reputation. Option 2 will provide additional revenue
to outpace the 2% decline in revenue. Considering net revenues in 2005 was
$50,440,000; the 2% decline equated to $1,008,800. According to exhibit 1 the
revenue in 2006 from Light Beer alone will be $9,454,626.43 which is about 18.7%
of 2005 revenue. This profit will easily cover the fixed costs of $1,650,000 incurred
from the Light Beer. Moreover, the break-even point of 65,012 units (exhibit 2) will
easily be reached considering a market share of 97,470.38 for the year of 2006.
Additionally, the difference between the 2% from revenue decline and 18.7% from
light beer revenue gives us a 16.7% pillow to fight cannibalization. Therefore, an
ideal cannibalization would be from 2%-6%.


Alfred Estaca
MKTG 489
Mountain Man Brewing Company
3
Exhibit 1

Market Size of East Central
Region with 4% CAGR
2005 18,744,303.00
2006 19,494,075.12
2007 20,273,838.12

Mountain Man Market Share
growing at .25% per year
2005 46,860.76
2006 97,470.38
2007 152,053.79
Mountain Main Revenue from
Light Beer
2005 $4,545,493.48
2006 $9,454,626.43
2007 $14,749,217.24


Exhibit 2

Break Even Analysis

Fixed Costs Variable Unit Costs
Additional Advertising
$750,000.
00 Cost Per Barrel $66.93
Annual SG&A Costs
$900,000.
00
Per barrel
additional cost $4.69

to produce Light
Beer
Unit Selling Price: $97.00

Break Even Units: 65,012