Mountain Man Brewing Company

Case Analysis

Robert Bignall

For the first time in the company’s history, Mountain Man is experiencing a decline in sales

*Revenue projected to decline at the same rate of 2% until 2010

43,000,000.00

44,000,000.00

45,000,000.00

46,000,000.00

47,000,000.00

48,000,000.00

49,000,000.00

50,000,000.00

51,000,000.00

2005 2006 2007 2008 2009 2010

50,440,000.00

49,450,980.39

48,481,353.33

47,530,738.55

46,598,763.29

45,685,062.05

MOUNTAIN MAN REVENUE PROJECTIONS

• Total Market for lager beer is decreasing by 4% each year

• Aging demographic of Mountain Man beer consumers and while they are still loyal to the brand, they may not be able to drink as much and as often as they used to

• Shift in consumer preferences towards light beer and wine and spirit based drinks.

• Initiatives encouraging drinking in moderation and personal responsibility

• Repeal in laws in the state of West Virginia that previously limited in store promotions of beer in retail outlets giving top producers a competitive advantage

2

Mountain Man consumer base is getting older and, without a change in strategy, Mountain Man will struggle to remain competitive in the West Virginia beer market

Will it satisfy the needs of loyal customers?

Will it aid in attracting a younger customer base?

Does it foster long term profitability of Mountain Man Lager?

Alter packaging of Mountain Man Lager

No. Loyal customer are currently between the ages of 45 and 54. They are accustomed to the beer looking a certain way and may get disgruntled if even the slightest change is made to the beer they’ve come to know and love.

Yes. Current packaging was designed in 1925 and features a crew of coal miners which reinforces perception that Mountain is for Blue Collar workers. A more modern packaging may appeal to a more younger audience

Yes. Younger beer drinkers are well aware of the brand but perceive it to be a working mans beer. If Mountain Man lager is rebranded with a new packaging and marketing target towards them they will buy the beer

Lighlty reduce the amount of hops * and alcohol content of lager

No. Loyal Mountain Man consumers believe the product is perfect as it is

Yes. Currently the main reasons some consumers who have tried the beer do not buy Mountain Man is because of the high alcohol content and bitterness in taste. Light Beer is also becoming very popular among the younger demographic

No. While the market for light beer is growing. There is limited shelf space and the sale of Mountain Man Lager the more profitable product will be affected. Revenue of lager will be decreased by 5% annually

Increase Presence in on premise locations

Yes. By increasing the presence in on premise locations Loyal customers would be given more avenues to purchase the product

Yes. Target consumers generally make purchases at on premise locations

Yes. When there is an increase in demand at on premise locations it would cause and increase in demand by distributors as they would have to match the rising demand with supply. Persons who make purchases at on premise locations tend to have a higher repeat purchase rate.

3* Hops is a flower used as a flavoring and stability agent in beers, to which they impart a bitter, tangy flavor

Mountain Man should not venture into light beer as while the market is growing, calculations show that Mountain Man will be losing revenue by investing in light

Reasons not to enter light beer market

• Market is already saturated with brand name beers.

• Mountain Man currently does not have the budget to compete with popular brands in the light beer category

• Mountain Man will make less profit per barrel for light with light only making $25.38 and lager $30.07 per barrel

• Mountain Man will only be able to capture a small percentage of the light beer market in which it would have to take shelf space from the more profitable Mountain Man Lager

• Mountain Man lager already has strong brand equity in the West Virginia Market. Launching light will only affect brand image and decrease revenue

NPV (2,463,461.39)

Investment Cost 750,000.00

(3,213,461.39)

2006 2007 2008 2009 2010

Revenue 3,314,428.01 2,197,910.28 1,179,889.10 255,915.61 (578,203.83)

TVC 2,515,523.36 1,754,863.12 1,062,580.30 435,622.85 (128,884.41)

Gross Margin 798,904.66 443,047.16 117,308.80 (179,707.24) (449,319.42)

Fixed Cost 900,000.00 900,000.00 900,000.00 900,000.00 900,000.00

Operating Margin (101,095.34) (456,952.84) (782,691.20) (1,079,707.24) (1,349,319.42)

4

Mountain Man should consider changing the way in which we advertise to focus more on the Customers and Company History

One uniformed communication style will be utilized for all advertising and sales promotions tactics. Currently Mountain Mans offering is focused solely on blue collar men with not much appeal towards a younger demographic. These advertising messages would be replaced across all channels to be more about sociability and less about the beer itself.

Advertising should focus on company history as younger beer drinkers showed more appreciation towards independent breweries.

Mountain Mans biggest problem among the younger demographic is that they perceived the beer to be and older, working mans beer. Advertising message should focus on changing that perception. We change the perception of younger beer drinkers and get them to try and love out beer we will capture a more profitable segment with a higher customer lifetime value

Budget that would have been spent on Light will be used to rebrand Lager

Brand Awareness is already high so the bulk of Advertising will be spend on sampling to induce trial

5

Mountain Man should focus its efforts on increasing distribution and sales at on premise locations

On premise locations such as bars are restaurants are more popular among the younger drinker demographic

Will increase bargaining power over distributers as the demand for Mountain Man lager will be higher due to the fact that younger drinkers often purchase as on premise locations and have a higher repeat purchase rate. If there is a large demand for Mountain Man Lager distributers will want to match it with supply.

By increasing presence in on premise locations it would also increase the average spend per brand loyal consumers as 40% of Blue Collar men purchases at on premise locations.

6

In order to successfully penetrate the attractive yet underserved 21 to 27 market, Mountain Man Beer would have to undergo slight rebranding

An alternative Version of Mountain Man lager would be launched specifically targeting persons of a younger demographic.

Younger beer drinkers are aware of the brand but they perceive the brand as a strong and working mans beer. This means that they have not tried the beer because it did not previously appeal to them

Packaging would be slightly altered to give the product a more modern vibe which would feature just the company logo

Price would remain the same at $2.25 for a 12 ounce serving at $4.99 for a 6 pack

By doing this Mountain Man would be able to satisfy the needs of its brand loyal consumers by not drastically changing the look or taste of the Lager they have grown accustomed to but by simply creating an alternative for their offspring to enjoy.

7

Mountain Man needs to target the a younger demographic by utilizing Grassroots Marketing and sales promotion tactics at on premise locations

Objective Strategy Tactics Why it will work

To stimulate trial and drive repeated purchase of Mountain Man Lager

Beer Birthday Sales Promotion

For persons between the ages of 21 and 25, Mountain Man will offer a pack of Mountain Man Beer Free of cost on their birthday at selected on premise locations. Persons tend to hang around

people in their own age group so not only will the birthday Boy/Girl be able to sample the beer but

also their friends. If a group of 6 each try the beer chances are at least 2 will like it. This allows us to

reach a target that would not under normal circumstances try our beer

21st birthday is seen as a big day as it is the day they finally hit legal drinking age which is usually celebrated with friends and/or family by going to nearby bars/restaurants to indulge. Consumers in this age group have yet to become loyal to a particular brand and by associating our brand with this milestone consumers will become

more attached to the brand.

Enhance brand Image among first time drinkers

30 second television commercial aimed at brand loyal Mountain Man consumers with children.

Mountain Man is currently viewed as the beer their fathers and grandfathers used to/currently drink.

Due to the fact that older consumers are more loyal to our brand, Mountain Man should be seen as a

Family Tradition in which parents are encouraged to pass the baton and share a beer with their offspring

once they reach legal drinking age

Word of mouth advertising is seen as being more effective in reaching consumers. If the drinking

of Mountain Man Beer is seen as a Family Tradition persons would be more motivated than

ever to keep the tradition going.

Increase awareness among non loyal beer

drinkersPromotional flyers strategically placed in on premise

locationsPromotional flyers would communicate Mountain

Man as being a family owned independent brewery

Younger beer drinkers are seen as being "Anti Big Business" and are more likely to appreciate an

independent brewery from their home state. On premise locations was selected in a bid to reach

consumers directly at their point of purchase8

Mountain Mans Financial Position after Marketing campaign

9

The NPV after the campaign is projected to be $19,917,911.04

2006 2007 2008 2009 2010

Revenue $ 51,953,200.00 $ 53,511,796.00 $ 55,117,149.88 $ 56,770,664.38 $ 58,473,784.31

TVC $ 35,847,708.00 $ 36,923,139.24 $ 38,030,833.42 $ 39,171,758.42 $ 40,346,911.17

Gross Margin $ 16,105,492.00 $ 16,588,656.76 $ 17,086,316.46 $ 17,598,905.96 $ 18,126,873.14

Fixed Cost $ 11,830,313.73 $ 11,618,935.02 $ 11,411,701.00 $ 11,208,530.40 $ 11,009,343.53

Operating Margin $ 4,275,178.27 $ 4,969,721.74 $ 5,674,615.46 $ 6,390,375.56 $ 7,117,529.61

Mountain Man will see an increase in Revenue by 3% after Rebranding and Marketing Campaigns

Mountain Man will risk losing up to 3 Million if a younger Audience is not targeted

2006 2007 2008 2009 2010

Revenue $ 2,502,219.61 $ 5,030,442.67 $ 7,586,411.33 $ 10,171,901.09 $ 12,788,722.26

TVC $ 1,726,531.53 $ 3,471,005.45 $ 5,234,623.81 $ 7,018,611.75 $ 8,824,218.36

Gross Margin $ 775,688.08 $ 1,559,437.23 $ 2,351,787.51 $ 3,153,289.34 $ 3,964,503.90

Fixed Cost $ 1,050,000.00 $ 1,050,000.00 $ 1,050,000.00 $ 1,050,000.00 $ 1,050,000.00

Operating Margin $ (274,311.92) $ 509,437.23 $ 1,301,787.51 $ 2,103,289.34 $ 2,914,503.90

10

• Apart from 2006, Mountain Man will see an increase in profits by at least half a million annually

• The decrease in profits in 2006 could be attributed to the massive sales promotion campaign which will seek to gain a new target audience

• Mountain Man will be projected to see an increase in profits come 2007 when consumers realize that Mountain Man is not just for Blue Collar men

If implemented, Mountain Man will see a difference of $4,078,231.70 in its overall NPV

Appendix

Birthday Sales PromotionCampaign will be implemented for a duration of 1 year in which within one month of an individuals birthday they will be able to go one of the Mountain Man locations with proof of ID to show that they will be having a birthday shortly. A coupon will then be presented to the individual redeemable at participating on premise locations on the date stamped on the coupon which will be from their birthdate to the nearest weekend. These locations will then be reimbursed monthly for every coupon collected.

11

Appendix 2

Advertising Budget Breakdown for the first year will be as follows

12

Television Advertising Campaign 2,400,000

Sales Promotion 8,500,000

On Premise Location 930,313.73

Total $ 11,830,313.73

After the first year budget will be allocated to regular SG&A expenses to keep momentum in the market