General, Problem solving

Mountain Man Brewing Company: Bringing the Brand back to Light

Ayoola Sosan Written by Ayoola Sosan · 1 min read >

Background

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

Decision Problem

For the first time in the company’s history, it experienced a 2% decline in revenue as a result of an aging demographic and change in preference of customers. Chris Prangel, the marketing manager wants to decide whether to launch Mountain man Light (MMI) or not.

Objective

Sustainability of MMBC.

Alternatives

  • To introduce Mountain Man Light.
  • To not introduce Mountain Man Light.

Criteria

  1. Impact on Mountain man brewing company brand.
  2. Impact on Mountain man brewing company revenue.
  3. Cannibalization effect.
  4. Breakeven/Payback.
  5. Gross profit.

Analysis

Cost Analysis

  • 2005 Sales revenue for MMBC = $50,440,000
  • 2005 Sales volume for MMBC = 520,000
  • Market price per barrel of MMI   = $50,440,000/520,000  = $97 per barrel
  • Cost price of Mountain man Lager (MML) = $66.93
  • Cost price of Mountain Man Light (MMI) = $71.63 ($66.93 + $4.89)
  • Contribution for Mountain man Lager = $97 – $66.93 = $30.07
  • Contribution for Mountain Man Light = $97 – $71.62 = $25.38

Revenue of Mountain Man Light

Market price per barrel of MMI$97
Profit per barrel$97 – $71.62 = $25.38
Advertising cost$750,000
Annual incremental SG&A cost$900,000
Total advertising investment (2007)$2,550,000

Breakeven Calculation for Mountain Man Light

  • Total advertising investment (2006)= $1,650,000
  • Total breakeven volume =1,650,000/25.38 = 65,011.8 barrels (# of barrels to recover advertising cost and SG&A)
  • Total breakeven revenue = 65,011.8 x $97 = $9,776,679.8

Revenue Forecast for Mountain Man Larger (MML) Beer

Year($)  2005($)  2006($)  2007($)  2008($)  2009($)  2010
MML Revenue50,440,00049,431,20048,442,57647,473,72446,524,25045,593,765
MML Sales in quatity520,000509,600499,408489,420479,631470,039
MML contribution15,636,40015,323,67215,017,19914,716,85514,422,51714,134,067
Sales declines by 2% from 2005 till 2010

Revenue Forecast for Mountain Man Light Beer

Year200520062007200820092010
Light beer consumption in barrels (East central region)18,744,30319,494,07520,273,83821,084,79221,928,18322,805,311
MMI annual growth rate 4%4%4%4%4%4%
MMI estimated sales in barrels (0.25% of base Market share)$48,735$101,369$158,136$219,282$285,066
MMI Revenue (at $97 per barrel)$4,727,313$9,832,811$15,339,186$21,270,338$27,651,439
MMI Contribution$1,236,899$2,572,750$4,013,490$5,565,373$7,234,985
MMI estimated sales in barrels by a quarter  of a percent each year off of a 2006 base market share of 0.25%

Cannibalization effect on Mountain Man Lager

 Year($)  2005($)  2006($)  2007($)  2008($)  2009($)  2010
Larger 5% decrease (No. of barrels)520,000494,000469,300445,835423,543402,366
Larger 20% decrease (No. of barrels)520,000416,000332,800266,240212,992170,394
Larger revenue @5% decrease50,440,00047,918,00045,522,10043,245,99541,083,69539,029,510
Larger revenue @20% decrease50,440,00040,352,00032,281,60025,825,28020,660,22416,528,179

Based on analysis

  • MMI contributes ($25.38) lower than MML ($30.00).
  • However, in 2 years (2007), MMI will begin to breakeven and contribute to MMBC.

Analysis result based on criteria

To not introduce MM lightTo introduce MM light
Impact on MMBC brandNeutralNeutral
Impact on MMBC revenuesAnnual declineAnnual Increase
Cannibalization effectNeutralNegative
Break even/paybackYes
Gross profitDeclineIncrease

Decision

For MMBC sustainability, mountains man light should be launched. Based on projections, MMI covers investment cost and becomes profitable from 2007.

Recommendation

MMBC Should:

  • Maintain the quality of mountain man Larger to mitigate cannibalization effect. 
  • Work towards increasing the market share of MMI
    • Engage in product awareness for MMI especially amongst youth.
  • Make MMI easily available in both on-premise (to access youth) and off-premise locations.

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