Mountain Man Essay
1. Evaluate the attractiveness of the light beer segment for Mountain Man Brewing Company using the three targeting criteria we discussed in class.
The three targeting criteria for points of parity and differentiating are Potential, fit and defensibility. Potential means the firm’s ability to tap into market; Fit means the match between the market and the firm’s capabilities. And defensibility means how well company can define its position.
Potential: Overall, the light beer segment has tremendous potential. In east central region, the consumption of light beer is 50.4% compared to 19.7% for premium beer. The market also has an increase rate of 4% annually compared to a 4% decrease for premium beer. In the meantime, Mountain man …show more content…
has the potential to tap into this market because 1) Mountain Man rated high in terms of awareness with the younger, light-beer. We know that current consumer of Mountain man Larger, 17% are between age 21-34 compared to 29% for domestic light beer market. This means among the young people, MMBC has already got a customer base in this young age consumer’ group. 2) Given the loyalty MMBC has among the blue-collar, middle-to lower income, beyond 45 years old consumers, it make sense to marketing Mountain Man light as a bundle product with Mountain Man larger; The marketing message can be “father and son’s beer: same brand, different flavor”
Fit: given that MMBC has already established a good brand image as exceptional, carefully brewed, authentic local beer, it has the capacity to produce the light series with the same properties.
Defensibility: Consider the points of parity and differentiation for MMBC light compared to other mainstream brand. Mountain man light mainstream brand light
Taste
5
4
Price
4
4
Occasion being celebrated
5
4
Perceived quality
5
3
Brand image
2
4
Tradition
2
4
Local authenticity
5
3
As we can see from the table, MMBC light can offer the same price which is the point of parity. But MMBC light can do much better in terms of taste, local authenticity and perceived quality. The only issue with MMBC light is that it has a brand name strongly associated with blue-collar, age >45 consumers. As long as the marketing message for MMBC light can smartly separate itself from MMBC larger, the points of differentiation are strong for MMBC light to defend itself on the market.
2. What are the pros and cons of launching a light beer with the Mountain Man brand name?
The MMBC light brand will target at younger man demographically. It will be positioned as the young, fun and authentic brand. This makes sense for MMBC because while man aged 34 and above are already have a brand associating and developed their loyalty for certain brand, man aged between 21-34 do not have a strong affinity for a particular brand. That’s partially the reason why typical younger light beer consumer tended to buy mainstream brands. With the increasing trend for light beer and a decrease trend for premium beer on the market, this is a unique opportunity for MMBC to capture these new consumers entering the beer market who often become loyal to a brand over time.
Pros of introducing MMBC light:
Uphold brand equity: By introducing MMBC light, MMBC will be able to create product that will target the younger demographic of man age 21-34 without diluting the existing brand equity. Given MMBC larger and MMBC light are two completely different products which are targeted at completely different age group, Introduction of MMBC light’s will not decrease the reputation MMBC larger has built.
Capture the new customers entering into the beer market and build brand loyalty early on: As data shows, younger consumers of beer tend to prefer light flavor compared to high concentration of alcohol.
Also,. The segment (young drinkers, 21–27 years of age) 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. Introduction of MMBC light will be capture part of this young and coming market when they haven’t developed a brand loyalty yet.
Opportunity to add another competitive advantage. Given MMBC has already establish a great brand loyalty among age group +45. It’s possible to send out marketing message as “the unique brand with offer two generations of people the same high quality, authentic beer with your preferred flavor”. It’s more of a family bonding message which encourage the celebration of family, tradition in the family and between generations. This is going to add onto MMBC’s existing competitive advantage which is authentic, local brewed and high quality beer. Who doesn’t like the celebration of family and tradition?
Cons of introducing MMBC
light:
Launching a new brand is cost intensive: Although the launch of MMBC Light would not require capital expenditures in plant and equipment in the short term, it will need $750,000 in an intensive six-month advertising campaign plus $900,000 in annual, incremental SG&A costs.
Cannibalization: with every new brand introduction, there is always the risk of losing sales on existing brand. It was estimated by the company that MMBC larger will lose 2$ of its revenue base. Also, it would cost $4.69 more per barrel to produce MMBC light on top of the producing cost of a regular lager beer was $66.93.
Mitigation plan for Cons of introducing a new brand:
Continue grass-roots marketing with family beer brand concept: On the launching cost, one way to reduce cost is to emphasize the family concept I mentioned in the pros for launching section. Continue with the grass-roots marketing but add an element of “family beer brand serving for two generation”. By sending MMBC light sample for age group +45 to take home and give it to the new generation, MMBC can continue the low-cost, mouth-to-mouth communication method but reach the targeted customer which are the younger generation.
Cannibalization: The risk of cannibalization is low in this case as the new brand will be targeting a different demographic.
3. How many barrels of light beer does Mountain Man need to sell to break even in one year? In two years? What percentage of the overall East Central Region beer market (across both years) does that represent? What percentage of the “other brands” sales of light beer (see Exhibit 6, A) does that represent?
Assumptions:
price/barrel - cost of larger
66.93
cost of light
71.62
larger barrel sold 2010
520000
larger barrel sold 2011
489216
SG&A cost
900000
ads campign
750000
larger revenue decrese rate
0.98
larger market decrease rate
0.96
Take the breakeven barrel number of 2011 & 2012 as input year2010 ratio 2010 year2011 year2012 net reveue on larger 50,440,000
100.00%
47,453,952 44,644,678 net revenue on light
26,190,000 30,070,000
COGS on larger 34,803,600
69.00%
32,743,227 30,804,828
COGS on light
19,337,400 22,202,200
Groos Margin 15,636,400
31.00%
21,563,325 21,707,650
SG&A
9,583,600
19.00%
10,483,600 11,383,600 other operating Expenses 1,412,320
2.80%
2,162,320 1,412,320
Operating Margin 4,640,480
9.20%
8,917,405 8,911,730 other income 151,320
0.30%
151,320 151,320
Net Income before Taxs 4,791,800
9.50%
9,068,725 9,063,050
Provision for Income Taxes 1,677,130
3.30%
5,894,671 5,890,983
Net Income After Taxes 3,114,670
6.20%
3,174,054 3,172,068
Output: barrel 2011
270000
barrel 2012
310000
To reach the same revenue level as 2010, we need to produce 270,000 barrels of MMBC light in 2011, which is 0.73% of the overall East Central Region beer market and 72% of “other brands” sales of light beer; we need to produce 310,000 barrels of MMBC light in 2012, which is 0.83% of the overall East Central Region beer market and 79% of “other brands” sales of light beer.
percentage 2011 percentage 2012 total cons of beer 2010 37,191,077
0.73%
0.83% cons of "other brands" in light beer 374,886
72.02%
79.51%
4. Should Mountain Man launch Mountain Man Light or not? Why? Justify your answer using your responses from questions 1-3 plus any other information from the case you find relevant to support your opinion. Regardless of your answer, assuming they were to go, what two things should they make sure to do, were they to launch?
Yes, MMBC should launch MMBC light. Because 1) we have brand equity and potentially the launching of MMBC can uphold the brand equity rather than damage it. 2) We can add an extra competitive advantage which is the family concept which is built on our existing loyalty and the their links to the new targeting market. 3) The financials works out to be ok. If we are about the charge the same price on MMBC light as MMBC larger, we need to occupy most of the “other brand” market, but it’s possibly to steal market share from the mainstream brands. So the targeted market share should work out fine.
Brand equity Adding competitive advantage: By looking at the attractive of the light beer market and the impact on the brand, We can conclude that the launching of the MMBC light will not heavily impact on the existing brand given 1) MMBC light target on very different demographic, there is no conflict between the value and quality associated with MMBC larger and the new launching of MMBC light 2) By playing with family concept “your beer brand which delivery value to different generation and add fun to your family bonding” , potentially the launching will strength the brand reputation and add a competitive advantage to it.
Capture new market and establish brand loyalty early on : By taping into the younger group age, MMBC can capture the market before this group develop their loyalty to brand. As time by, the younger group might develop a strong associating with MMBC light which will later translate into the loyalty to MMBC larger when their taste change with change. Eespecially given the current market structure where mainstream dominate the market and other brand only has 2% of the market, it means that there is a big potential to establish brand loyalty among this group. And MMBC is well positioned to do this given the strong local reputation and strong loyalty association from its existing customer.
Value capturing – the financials work out : By walking through question 3, the cost and financials, we can see that we need to occupy the majority of light beer “other brand” market to make the same revenue as we did in 2010. It’s not a easy market to reach given that there are other brands who are competing. But if we are looking at the bigger picture, we are actually competing with mainstream brands as well as other medium to small brands. So it’s possible for us to steal market if we have a strong marketing campaign and emphasize on our competitive advantage.
The two things they make sure to do when they are launching:
Bundle marketing MMBC larger and MMBC light: This is very important for the following reason. Our competitive advantage is that we are the authentic, local-brewed beer band who has a focus customer group. We don’t to lose that and we do want to keep our brand image which the customer value a lot. However, the bundle marketing is to encourage the current customer to take the new beer home and give it to their next generation. The brand image will still keep strong but with a new element added in “ the brand who delivery value to two different generations and add to your family bonding fun”.
Marketing channel and adding extra distribution channel: Except the mouth-to-mouth strategy, given the young group hang out in restaurant and bar more than in mass market, its important to consider new distribution channel. Also, given the young group use digital channel, its important to expose our market message to Tv, website etc.
The three targeting criteria for points of parity and differentiating are Potential, fit and defensibility. Potential means the firm’s ability to tap into market; Fit means the match between the market and the firm’s capabilities. And defensibility means how well company can define its position.
Potential: Overall, the light beer segment has tremendous potential. In east central region, the consumption of light beer is 50.4% compared to 19.7% for premium beer. The market also has an increase rate of 4% annually compared to a 4% decrease for premium beer. In the meantime, Mountain man …show more content…
has the potential to tap into this market because 1) Mountain Man rated high in terms of awareness with the younger, light-beer. We know that current consumer of Mountain man Larger, 17% are between age 21-34 compared to 29% for domestic light beer market. This means among the young people, MMBC has already got a customer base in this young age consumer’ group. 2) Given the loyalty MMBC has among the blue-collar, middle-to lower income, beyond 45 years old consumers, it make sense to marketing Mountain Man light as a bundle product with Mountain Man larger; The marketing message can be “father and son’s beer: same brand, different flavor”
Fit: given that MMBC has already established a good brand image as exceptional, carefully brewed, authentic local beer, it has the capacity to produce the light series with the same properties.
Defensibility: Consider the points of parity and differentiation for MMBC light compared to other mainstream brand. Mountain man light mainstream brand light
Taste
5
4
Price
4
4
Occasion being celebrated
5
4
Perceived quality
5
3
Brand image
2
4
Tradition
2
4
Local authenticity
5
3
As we can see from the table, MMBC light can offer the same price which is the point of parity. But MMBC light can do much better in terms of taste, local authenticity and perceived quality. The only issue with MMBC light is that it has a brand name strongly associated with blue-collar, age >45 consumers. As long as the marketing message for MMBC light can smartly separate itself from MMBC larger, the points of differentiation are strong for MMBC light to defend itself on the market.
2. What are the pros and cons of launching a light beer with the Mountain Man brand name?
The MMBC light brand will target at younger man demographically. It will be positioned as the young, fun and authentic brand. This makes sense for MMBC because while man aged 34 and above are already have a brand associating and developed their loyalty for certain brand, man aged between 21-34 do not have a strong affinity for a particular brand. That’s partially the reason why typical younger light beer consumer tended to buy mainstream brands. With the increasing trend for light beer and a decrease trend for premium beer on the market, this is a unique opportunity for MMBC to capture these new consumers entering the beer market who often become loyal to a brand over time.
Pros of introducing MMBC light:
Uphold brand equity: By introducing MMBC light, MMBC will be able to create product that will target the younger demographic of man age 21-34 without diluting the existing brand equity. Given MMBC larger and MMBC light are two completely different products which are targeted at completely different age group, Introduction of MMBC light’s will not decrease the reputation MMBC larger has built.
Capture the new customers entering into the beer market and build brand loyalty early on: As data shows, younger consumers of beer tend to prefer light flavor compared to high concentration of alcohol.
Also,. The segment (young drinkers, 21–27 years of age) 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. Introduction of MMBC light will be capture part of this young and coming market when they haven’t developed a brand loyalty yet.
Opportunity to add another competitive advantage. Given MMBC has already establish a great brand loyalty among age group +45. It’s possible to send out marketing message as “the unique brand with offer two generations of people the same high quality, authentic beer with your preferred flavor”. It’s more of a family bonding message which encourage the celebration of family, tradition in the family and between generations. This is going to add onto MMBC’s existing competitive advantage which is authentic, local brewed and high quality beer. Who doesn’t like the celebration of family and tradition?
Cons of introducing MMBC
light:
Launching a new brand is cost intensive: Although the launch of MMBC Light would not require capital expenditures in plant and equipment in the short term, it will need $750,000 in an intensive six-month advertising campaign plus $900,000 in annual, incremental SG&A costs.
Cannibalization: with every new brand introduction, there is always the risk of losing sales on existing brand. It was estimated by the company that MMBC larger will lose 2$ of its revenue base. Also, it would cost $4.69 more per barrel to produce MMBC light on top of the producing cost of a regular lager beer was $66.93.
Mitigation plan for Cons of introducing a new brand:
Continue grass-roots marketing with family beer brand concept: On the launching cost, one way to reduce cost is to emphasize the family concept I mentioned in the pros for launching section. Continue with the grass-roots marketing but add an element of “family beer brand serving for two generation”. By sending MMBC light sample for age group +45 to take home and give it to the new generation, MMBC can continue the low-cost, mouth-to-mouth communication method but reach the targeted customer which are the younger generation.
Cannibalization: The risk of cannibalization is low in this case as the new brand will be targeting a different demographic.
3. How many barrels of light beer does Mountain Man need to sell to break even in one year? In two years? What percentage of the overall East Central Region beer market (across both years) does that represent? What percentage of the “other brands” sales of light beer (see Exhibit 6, A) does that represent?
Assumptions:
price/barrel - cost of larger
66.93
cost of light
71.62
larger barrel sold 2010
520000
larger barrel sold 2011
489216
SG&A cost
900000
ads campign
750000
larger revenue decrese rate
0.98
larger market decrease rate
0.96
Take the breakeven barrel number of 2011 & 2012 as input year2010 ratio 2010 year2011 year2012 net reveue on larger 50,440,000
100.00%
47,453,952 44,644,678 net revenue on light
26,190,000 30,070,000
COGS on larger 34,803,600
69.00%
32,743,227 30,804,828
COGS on light
19,337,400 22,202,200
Groos Margin 15,636,400
31.00%
21,563,325 21,707,650
SG&A
9,583,600
19.00%
10,483,600 11,383,600 other operating Expenses 1,412,320
2.80%
2,162,320 1,412,320
Operating Margin 4,640,480
9.20%
8,917,405 8,911,730 other income 151,320
0.30%
151,320 151,320
Net Income before Taxs 4,791,800
9.50%
9,068,725 9,063,050
Provision for Income Taxes 1,677,130
3.30%
5,894,671 5,890,983
Net Income After Taxes 3,114,670
6.20%
3,174,054 3,172,068
Output: barrel 2011
270000
barrel 2012
310000
To reach the same revenue level as 2010, we need to produce 270,000 barrels of MMBC light in 2011, which is 0.73% of the overall East Central Region beer market and 72% of “other brands” sales of light beer; we need to produce 310,000 barrels of MMBC light in 2012, which is 0.83% of the overall East Central Region beer market and 79% of “other brands” sales of light beer.
percentage 2011 percentage 2012 total cons of beer 2010 37,191,077
0.73%
0.83% cons of "other brands" in light beer 374,886
72.02%
79.51%
4. Should Mountain Man launch Mountain Man Light or not? Why? Justify your answer using your responses from questions 1-3 plus any other information from the case you find relevant to support your opinion. Regardless of your answer, assuming they were to go, what two things should they make sure to do, were they to launch?
Yes, MMBC should launch MMBC light. Because 1) we have brand equity and potentially the launching of MMBC can uphold the brand equity rather than damage it. 2) We can add an extra competitive advantage which is the family concept which is built on our existing loyalty and the their links to the new targeting market. 3) The financials works out to be ok. If we are about the charge the same price on MMBC light as MMBC larger, we need to occupy most of the “other brand” market, but it’s possibly to steal market share from the mainstream brands. So the targeted market share should work out fine.
Brand equity Adding competitive advantage: By looking at the attractive of the light beer market and the impact on the brand, We can conclude that the launching of the MMBC light will not heavily impact on the existing brand given 1) MMBC light target on very different demographic, there is no conflict between the value and quality associated with MMBC larger and the new launching of MMBC light 2) By playing with family concept “your beer brand which delivery value to different generation and add fun to your family bonding” , potentially the launching will strength the brand reputation and add a competitive advantage to it.
Capture new market and establish brand loyalty early on : By taping into the younger group age, MMBC can capture the market before this group develop their loyalty to brand. As time by, the younger group might develop a strong associating with MMBC light which will later translate into the loyalty to MMBC larger when their taste change with change. Eespecially given the current market structure where mainstream dominate the market and other brand only has 2% of the market, it means that there is a big potential to establish brand loyalty among this group. And MMBC is well positioned to do this given the strong local reputation and strong loyalty association from its existing customer.
Value capturing – the financials work out : By walking through question 3, the cost and financials, we can see that we need to occupy the majority of light beer “other brand” market to make the same revenue as we did in 2010. It’s not a easy market to reach given that there are other brands who are competing. But if we are looking at the bigger picture, we are actually competing with mainstream brands as well as other medium to small brands. So it’s possible for us to steal market if we have a strong marketing campaign and emphasize on our competitive advantage.
The two things they make sure to do when they are launching:
Bundle marketing MMBC larger and MMBC light: This is very important for the following reason. Our competitive advantage is that we are the authentic, local-brewed beer band who has a focus customer group. We don’t to lose that and we do want to keep our brand image which the customer value a lot. However, the bundle marketing is to encourage the current customer to take the new beer home and give it to their next generation. The brand image will still keep strong but with a new element added in “ the brand who delivery value to two different generations and add to your family bonding fun”.
Marketing channel and adding extra distribution channel: Except the mouth-to-mouth strategy, given the young group hang out in restaurant and bar more than in mass market, its important to consider new distribution channel. Also, given the young group use digital channel, its important to expose our market message to Tv, website etc.