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Harvard Case Mountain Man Lager Answers

Mountain Man Lager

Mountain Man Lager, also known as “West Virginia’s Beer, is a symbol of toughness, authenticity, and uniqueness. Despite the association with taste, the Mountain Man Beer Company (MMBC) was also associated with best-in-class quality. Brand equity, followed with substantially high brand awareness and loyalty, is main factor enabling the company to survive in the face of adverse market trends and increased pressure of major national players.

MMBC has strong ties with blue-collar, middle to low-income men over age 45. These are the core drinker for MMBC, very much loyal over the long period for perceived quality, taste, toughness and availability of the product. In fact, sole brand loyalty of MM Lager is higher than that of Budweiser or Bud Light.

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MMBC was wise enough to nurture&capitalize on brand equity. It is earlier efforts to get off-premise locations and effective use of grass-roots marketing and resulting m-o-w secured the company a strong enough distribution and large enough market to compete in. MM lager is sold in Illinois, Indiana, Michigan and Ohio: impressive for what amounts to a regional specialty brew. In West Virginia, Mountain Man is the market leader. Their lager is rated as the best-known regional beer, and has won “best beer” awards in both West Virginia and Indiana. Mountain Man is an established, 75+-year-old brand with a loyal, if aging blue-collar clientele.

I think main elements of the MMBC brand equity stems from its simplicity; a tough beer for mountain men of East Central America. It has a distinct flavor prepared with a century old recipe. It gives you the taste of interacting with previous generation. One participant says, “My dad drank MM just like my granddad did. They both felt it was as good as you can get anywhere”. As long as this guy remembers his granddad, MM Lager will remain best beer of Virginia for him.

Perceptual Map

Map 1: Regional Beer Market Map 2: Regional Light Beer Market

The full-flavour premium market segment on the other has been witnessing a decrease in volume and facing increased cost/marketing pressure from import and big pocket national companies. Latest trends in beer market have virtually eliminated second quadrant; small regional brewers (except high priced speciality beers). Economies of scale and skimming are only viable strategies. In this regard, two types of producers seem to stay profitable; very small/microbrewers and deep pockets (importers and big national players). For a tier-two regional brewer like MMBC, the extension is unavoidable in mid-run.

Light beer segment’s core customer base has different characteristic; less sophisticated (in terms of taste/flavour), more price-sensitive and receptive to mass marketing, health/environment conscious and mostly anti-corporate. As a result market share of major national companies is considerably high. However, we need to accept light beer being responsible for more than 50% of all beer sales in MMBC’s East Central Region. Compare that to less than 20% coming from sales in the premium beer market where MMBC’s Lager was sold.

Even a small percentage of the biggest market had the potential to be valuable. Light beer is the largest sales opportunity for a reason, it is what the market demands. Light beer is the gateway necessary to attract new consumers, and a stepping stone to introduce them to Mountain Man Lager. MMBC has a really good chance if it decides to extend into this segment with premium pricing but only if it plays the risky game of single brand strategy.

A consumer study showed a high rate of brand awareness for MM Larger with the younger, light beer drinking segment of the market but MM Larger tracked very low as a purchasing preference. Where the product association with Mountain Man Lager may be too strong in terms of flavour, directly attracting affluent light beer drinkers can broaden the identity of Mountain Man Beer Company as a quality brewer within their region. Moreover,light beer drinking segment holds “anti-big-business” values, MMBC can leverage on being “independent/family owned/regional/small”.

Mountain Man SWOT Analysis

Strengths Weaknesses
· Market leader and established brand name; It had held the top market position among lagers in West Virginia for almost 50 years. There is a possibility to leverage on brand’s “retro cool” image. · Strong brand equity: Mountain Man Lager’s distinctively bitter flavor and slightly higher than- average alcohol content that uniquely contributed to the company’s brand equity. The brand has nostalgia and sweat of bread-maker along with other bitter flavors. · High quality, company has been able to hold significant market share in its region was successful in ever city it was introduced. MM Larger is respected as “the best” beer of Virginia as testified by handful of awards.· Although company is relatively small, it already has a small sales force and already available in on and off-premise sales channels. · Loyal core customer by mostly w-o-m marketing has contributed high brand awareness in the region even among the young who don’t prefer MM Larger but know the brand. And similarly new beer may boost the popularity of Larger with new customer segment.· Independent regional brewer; young population seems to have negative connotations against “big business” and deep pockets. · Whether they follow single brand strategy or they launch the light beer under a separate brand name, funds needed for advertising campaign, staff costs and ongoing marketing expenditure is a big deal for a company of this size.· Brand equity itself; possibility of alienating core customer. Strong brand equity is double-edged sword and you need to keep brand image consistency. In this case particular, it is highly probable that core customers (couple of fellows sharing a “mountain men” experience) can feel resentment to opening the experience to hippies, sissies and girls with puppies. One participant says “Mountain Man Light? Come on!…don’t mess with my beer”. ·

Cannibalization. Although it is another type of beer, it is safe to say extension strategy is new product-to new market. In this regard substitution of MM Larger with MM Light by core customers is highly unlikely. However, as pointed out by Oscar and John Fader, distributors may substitute larger with light.· Disagreement/conflict between new CEO and old president and his crew (like John Fader). Chris seems to be a lonely cheerleader without squat. This lack of support might limit commitment to the project and the chance of success.

Opportunities*

Threats
· Rise of light beer; a relatively new, fast and consistently growing product category in a shrinking market· New fast-growing customer segment; younger drinkers – big spenders· Potential to build brand loyalty with young drinkers over the years (maximize lifetime value of customer) · Speed demographic change (mainly due to baby-boomers), shifts in income/age profile of main beer drinkers· Changes in customer preferences, steady decrease in traditional premium beer sales· Economies of scale effect in advertising and production· Increased pressure from importers/major players· Recent regulation has given the distributer more autonomy to decide which brands they will carry· Mass advertising has became increasingly effective in shaping customer preferences· Declining beer consumption mainly due to health concerns and product substitution (wine, etc.)

Key lines-Industry trends;
· Light beer sales have been growing at a compound annual rate of 4%, while traditional premium beer sales declined annually by the same percentage.
· 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.
· Economies of scale of large national brewers. Fierce competition among established players.
· Distributor became more discriminating about which brand they would carry
· Demographic changes have made young drinkers the key consumer segment while eroding the core customer base of small-time traditional beer producers as MMBC.

Key lines-MMBC:
· Decrease in sales for the first time in history.
· Light beer extension seems to be a good idea by allowing MMBC to launch a new line with a moderate advertising budget. MMBC can capitalize its brand equity and enjoy the synergy between lager and light product lines.
· Alienation of core customers (questioning the integrity of the existing product) and cannibalization by distributors pose significant risk.

Break-Even Calculations

Key Lines:
Chris’s target market share strategy checks out with break-even in a two-year goal. Break-even can be achieved at the end of 2008.

In the case of 5% cannibalization (best scenario), an increase in sales by MM Light will be high enough to compensate for the decrease in Lager sales in 3 years. Since we don’t have enough data to predict changes in fixed cost, I didn’t calculate net results in terms of profitability.

Even in the case of 20% cannibalization, an increase in sales by MM Light will be high enough to compensate for the decrease in Lager sales in 4 years. So, contrary to what he believes, even in the case of cannibalization light beer can provide an opportunity to increase sales and revenue.

Alternative Strategies

The super-premium craft beer segment seems to be experiencing fantastic growth, at 9% CAGR for the last six years. It was a smaller segment than light beer or even the premium segment that MMBC currently competed in with MM Lager, but this was a specialized segment without direct competition from the large breweries. Mountain Man is already recognized as a premium beer, attested to by their regional and national awards by beer tasting aficionados. Nonetheless, this might prove to be a difficult market to crack. It would require more specialized brewing methods and result in most likely smaller sales, due to the limited market.

Mountain Man could also try to expand their sales territory leveraging on their core competency. The feasibility of geographic expansion doesn’t look good. Mountain Man’s appeal is not only based on their product but consumer loyalties to regional brewers and doesn’t have the necessaries sources to launch a nation-wide mass advertising to try to compete with big players on a broader scale. Moreover, by stepping into another region, the Company loses its biggest asset; brand loyalty.

Launching light beer under a different brand is definitely an option but a very expensive one.

The launch of a new product is always going to be a risk, but holding on a single product for an eroding customer is surely not going to alter the ultimate fate of the Mountain Man Beer Company.

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