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I. SITUATION ANALYSIS A. Nature of Demand

Mountain Man Brewing Company (MMBC) is a known and well-established brand for its specialty beer, ‘Mountain Man Lager’. It was a success in 2005, generating over $50 million and selling over 520,000 barrels primarily to distributors in Illinois, Indiana, Michigan, Ohio, and its native West Virginia (HBS, p.2). Overall, brand plays a critical role in the beer-purchasing decision; hence, this is considered as a brand-loyalty purchase with considerations such as taste, price, the occasion being celebrated, perceived quality, brand image, tradition, and local authenticity. Furthermore, to develop strategy based on those evaluative criteria, Fishbein’s Multi-Attribute Model would be best to determine the consumers’ attitude toward the brand. In fact, brand awareness was the cornerstone of MMBC’s success (see Appendix A). B. Extent of Demand

Mountain Man Beer Company targets blue-collar, middle-to-lower income males over age 45 in the East Central region (HBS2). This group of consumers purchased 60% of the beer they drink at liquor stores, where 70% of Mountain Man products were sold at (HBS 3). By 2005 Mountain Man Beer Company sold over 520,000 barrels of Mountain Man Lager beer in the East Central region for over $50 million (HBS 2). In its native city, West Virginia, Mountain Man Lager was rated as the best-known regional beer (HBS 2). Mountain Man Beer Company was not only a recognizable brand, it was also known for its good quality of its product (HBS 2). As discussed previously in the case, Mountain Man Beer Company’s success was mostly because of its loyal blue-collar consumers and the good quality of Mountain Man Lager (HBS 2). According to the case, Mountain Man Lager consumers are already favorable for lager beer instead of light beer; however, the general consumer preference has been changing towards light beer (see Appendix B). C. Nature of Competition

The U.S. beer market is divided into four major groups of beer producers: major domestic producers, second-tier domestic producers, import beer, and specialty brewers. In 2005 in the West Central U.S., the major domestic producers shipped 74%, the second-tier domestic producers shipped 12.5%, the import beer companies sold 12%, and the specialty brewers made up of 1.5% of the total beer market in the West Central region (see Appendix C). D. Environmental Climate

The beer market became more competitive since consumers started buying wine and spirits-based drinks. Additionally, due to the federal excise tax, increasing of moderation of personal responsibility and health concerns; as a result, the beer consumption declined by 2.3% since 2001 (HBS 4). Particularly in the East Central region, including West Virginia, the states had withdrew arcane laws that limited beer promotions, which forced retail stores to offer discounts on beer (HBS 4). Distributors began to favor on carry large national brewers’ products because of the larger turnover rate and margins, which forced many small breweries to close down businesses

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(HBS 4). By 2005, there were only four breweries left in West Virginia; furthermore, Mountain Man’s revenues decreased by 2% (HBS 4). Recent studies found that the beer consumer segment has changed to younger drinkers, 21-27 years old. In 2005, this market segment made up for more than 27% of total beer consumption and was growing. The beer market preference had changed to light beer instead of traditional beer; hence, light beer category increased its market share for 50.4% of volume sales in 2005 (HBS 5), where as the traditional premium beer sales had dropped at an annually rate of 4% (HBS 1 & Exhibit 5) (see Appendix D). E. Stage of Product Life Cycle

Mountain Man Lager is moving from Maturity stage into Decline stage, while Mountain Man Light will be in the Product Development stage (see Appendix for Product Life Cycle theories/models). On the other hand, Mountain Man Light is in the Product Development stage since it has not yet been decide to be produced. Its sales are zero and company’s investment costs are expected to grow as the product moves into the Introduction stage (Appendix). However, the light beer industry is in its Growth Stage, which indicates significant opportunity for companies to invest in. The sales are soaring, the revenue is increasing, consumers are growing, and the number of competitors would be mounting too due to the favorable, attractive market (see Appendix E). F. Cost Structure of the Industry It would cost MMBC $750,000 to invest in a 6-month intensive advertising on top of the $900,000 in annual, incremental SG&A costs, which includes cost for hiring Mountain Man Light product manager, additional sales staff, and ongoing marketing expenditures (Abelli, p6). The variable cost per barrel for Mountain Man Lager is $66.93 and it would cost $4.69 more per barrel to produce Mountain Man Light (p6). This new product would have a lower contribution margin than Mountain Man Lager, therefore, it would need to sell more to maintain the revenue (p6). G. Skills of the firm

By being selected as “America’ Championship Lager” and “Best Beer in West Virginia” (2) for its eighth year straight in 2005, MMBC’s infrastructure system including marketing, production, management, financial, and R&D skills have no doubts to be honorably recognized. Especially, R&D skills of MMBC help to define clear product attributes that consumers evaluate. It can also identify current target customers and particular regions where has high consumption rate. The constant market research develops MMBC’s “perception of quality in Mountain Man Lager” (3) and its brand loyalty. Moreover, MMBC widely work with a market research firm to consider “brand extension opportunities” (5) and define consumers’ attitudes toward current products and advertising issues. The research finds out current situation of MMBC’s poor advertising and production skills as well. One, they needs new advertising strategy to reach new young drinkers rather than just relying on “grass-roots marketing” (5). The other is that they need to extend production lines to reach younger beer drinkers since just relying on word of mouth is limited and unproductive strategy among beer companies (see Appendix G).

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H. Financial Resources of the Firm Although Mountain Man Brewing Company “did not have the resources to match the marketing efforts of

the large, national, light beer brewers” (Abelli, p7), and sales and revenues are declining, the company is still profitable. It serves “a large enough market with a very strong brand” and “could continue to compete against national players with deep pockets such as Anheuser Busch” (p4). Furthermore, launching the Mountain Man Light “would not require capital expenditures in plant and equipment in the short term due to existing excess capacity in Mountain Man’s facility” (p6), which could allow the company to save some investment in the start off. However, Chris needs to prove to the conservative CEO of Mountain Man that the new product would generate profit within 2 years to cover the cost of marketing, incremental SG&A expenses, and potential lose of profitability in Mountain Man Lager’s sales. The company would have to spend at least $750,000 in an intensive 6-month advertising campaign on top of the $900,000 that they need to spend on the annual, incremental SG&A costs attributed to the new product launch (p6). I. Distribution structure

Mountain Man focuses on developing their “brand equity” by new strategy of using distributors. They emphasize on one ultimate distributor by targeting “off-premise locations” such as liquor stores or supermarkets. Since Mountain Man’s distributors also deal with other beer products, they concern about their “brand equity” and “small sales force” (3). Also, it will be beneficial to focus on the “off-premise locations” because 60% of the beer is purchase by Blue-collar males at those distribution areas. In addition, 70% of their beer are purchased at liquor stores and keep consistent sales through this channel (3). II. SWOT ANALYSIS Strengths

Mountain Man Brewing Company was known as the “Best Beer in West Virginia” because of its flavor and distinctive bitter taste; additionally, it was selected as “America’s Championship Lager” at the American Beer Championship in 2005 (HBS 2). Also, it had held the top market position in the lager market in West Virginia for almost 50 years (HBS 2). As a result, Mountain Man succeeded at the beer market by earning over $50 million and selling over 520,000 barrels of Mountain Man Lager beer within the West Central region (HBS 2). Mountain Man had high brand awareness, and it was especially recognizable among working-class males in the East Central region (HBS 2) because of its product quality, positioning, and brand equity (Appendix H). In order to keep favorable relationship with its customers, Mountain Man had many branding activities. Hence, Mountain Man Brewing Company remained strongly in the beer market due to its strong brand loyalty (HBS 2). Since Mountain Man was from West Virginia, the locals were very supportive; hence, it was the best-known regional beer (HBS 2). Weaknesses

Mountain Man Brewing Company produced only one product, Mountain Man Lager, and distributed to only the West Central region with limited distributions. Moreover, Mountain Man targeted on only one segment,

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the blue-collar men who are mid-age and above. Although its core consumers love Mountain Man Lager, the market product preference had changed to light beer instead of traditional beer; therefore, Mountain Man Lager was rated very low as a purchasing preference (HBS 5). Unlike many other major beer producers, Mountain Man did not have any advertisement; in fact, it relied only on word of mouth (HBS 5). Last, Mountain Man might not have enough money to launch Mountain Man Light that follows the modern trend. Opportunity

Mountain Man can consider three possible opportunities, which causes of increasing more potential consumers and gaining their revenues. Firstly, number of younger beer drinkers has been consistently increased and expected to positively influence the growth of the profits. Secondly, If Mountain Man launch light beer category, it may reach younger drinkers who both show positive attitudes towards light beer and brand awareness of Mountain Man itself. The favorableness of younger drinkers toward the light beer will optimistically affect the Mountain Man’s revenue. Lastly, by expending product lines, product and distributors may build stronger beneficial relationship with brewers. (Appendix H) Threats

One of the threats Mountain Man Brewing company faced was the declining in beer overall consumption per capita by 2.3% since 2001 in United State. According to the case, the declining consumption largely caused by the competition from wine and spirit-based drinks, an increase in federal excise tax, initiatives encouraging moderation and personal responsibility, and increasing health concerns (HBS, p.4). Furthermore, discriminating distributors might also be a threat to this company because they became more cautious about which brands would be carried and ditch away small brands that have low margins and turnover. The increasing number of large breweries has also challenge the company in the market to remain profitable; smaller companies are put on pressure to stay in the beer market. III. 5Ps Positioning:

If MMBC chooses to remain status quo- not introduce a new product, it will have 2 options to its Mountain Man Lager, which is moving into the Decline stage in product life cycle: 1. reposition/reformulate Mountain Man Lager in hopes of moving it back into the growth stage of the product life cycle, or 2. harvest the product (Kotler and Armstrong, p298). As long as the brand and the product satisfy those brand loyal consumers, they will continue to buy Mountain Man Lager even when no modifications are made to the product. (Appendix) For the second option (harvesting Mountain Man Lager), the company would need to reduce various costs, hoping that sales could be maintained (this would be further discussed in the other 4Ps). Meanwhile, it will need to reduce its expenditure and make the most out of its strong brand equity. (Appendix H) If MMBC decides to launch Mountain Man Light, it will need to reposition the Mountain Man Light as a smooth, authentic, high quality with “less strong” taste beer manufactured from independent brewery for young drinkers age 21-27. It is important that the company

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try to change the perception of the consumers and the taste of the Mountain Man Light from a “strong” taste beer to a “less strong” taste beer. Also, the company will need to create product awareness and trial for Mountain Man Light since it is moving from the Product Development stage into the Introduction stage (Kotler and Armstrong, p299) (see Appendix H).

In order for MMBC to achieve its break even for its Mountain Man Light beer, it has to sell at least 65,012 barrels more on top of its initial sales of 520,000 barrels (585,012 barrels) (Appendix: Incremental Break Even Analysis). Furthermore, if 5% to 20% cannibalization takes place, according to the case, MMBC would have to sell more to reach its break even due to the additional cost of cannibalization on the total fixed cost (Appendix: Cannibalization Assessment). By investing in its new product, Mountain Man Light, MMBC would gradually earn their profit in some period of time on top of taking into account the break even volume it has to reach. Nonetheless, MMBC could expect some profit when it has sold more than the break even volume. Moreover, the company also needs to be aware of the possible cannibalization; it has to increase barrels sales even more due to the higher break even volume to be able to generate profit (see Appendix F). Product:

If MMBC chooses the status quo strategy, they do not need to reformulate the product since current loyal consumers, which are the target market for Mountain Man Lager, are very satisfied about its taste. However, choosing to harvest the product, the company should cut down unnecessary production cost, such as any idle plant or equipment that is not being used. Not only can this reduce maintenance cost, it can also allow the company to rent or sell those unused facility/space to others. Also, the company should cut down the R&D cost to the minimal since no reformulation is needed for Mountain Man Lager. The only change that the company can consider is changing the size of the beer bottle to allow the company to sell more beer to consumers at a one time purchase, meanwhile, earning more profits due to the higher price for the larger Mountain Man Lager beer bottle. If the company decides to launch Mountain Man Light, it should keep up its smooth taste, its authenticity, and its high quality. But Mountain Man Light should have less alcohol content so that consumers can taste the difference between a Mountain Man Lager and a Mountain Man Light and/or be able to perceive Mountain Man Light as a “light” beer so that it can be more easily accepted by younger drinkers (Appendix H). Place:

MMBC should have selective distribution if it chooses to remain status quo. The company should keep those off-premise locations that are profitable and phase out unprofitable distribution channels. However, within those profitable off-premise locations, fight for more shelf space, to strengthen the sales. If MMBC chooses to launch the Light beer, it should start launching the new product at those selected, profitable off-premise locations to ensure more brand awareness and sales, and reduce its risk of failure. The shelf space occupancy ratio for

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Mountain Man Light will start off in a small percentage and gradually take more shelf space away from Mountain Man Lager if it is doing well (Appendix H). Price:

Price is one of the most important factors for consumers to consider and is included in the evaluative criteria when making a beer purchase (Appendix H). In addition, MMBC’s variable cost per barrel of its lager beer was $66.93; nonetheless, it would cost $4.69 more per barrel to produce Mountain Man Light, which becomes $71.62. Because the company would receive the same price per barrel for both products, its light beer contribution margin would be lower than the lager beer. Hence, if MMBC decides to maintain its status quo, it should sustain its price and increase sales by having “shelf-talker” (Appendix H). On the other hand, if it decides to launch the light beer, MMBC should set its price on the same level to the competitors (Appendix H). Promotion:

By choosing to remain status quo, MMBC should harvest the product by reducing advertising to the level needed to retain its hard-core loyal consumers. All advertising efforts should be directed to its target market, blue-collar, middle-to-lower income aged over 45 men. The company can hold special events that are exclusive to the brand loyal drinkers of Mountain Man Lager to enhance their brand loyalty and build its brand equity. Brand loyal consumers show commitment and they buy the product out of habit (Assael, p100). By engaging the brand loyal consumers with exclusive events, they will continue to have high involvement with Mountain Man Lager and have the habit of repurchasing the product. It should also reduce its sales force to the minimal level needed to maintain its shelf space in the off-premise locations.

By choosing to launch Mountain Man Light, the company needs to build product awareness among early adopters and dealers. Here, the early adopters are those that are excited to try Mountain Man Light and lead or influence the people around him/her to try the new product too. Grass-roots marketing, which the company is skillful at, can be used to spread the message for Mountain Man Light. This strategy is especially effective in West Virginia and Kentucky compared to the traditional advertising. Therefore, when the company tries to change perception of the consumers that Mountain Man Light is a “less strong” taste beer through advertising, make sure the use of TV, magazine, newspaper, outdoor, and grass-roots marketing are appropriate for each state. Company should emphasize effort on grass-roots marketing through word of mouth when selling Mountain Man Light to states like West Virginia and Kentucky, while TV and outdoor advertising can help spread awareness quickly for this new product from Mountain Man to numerous consumers. Word of mouth is an effective marketing tool since it is often used among family, peer groups, or friends to spread the message. These groups of influence, also called Primary Informal Groups, are the “most important groupings because of the frequency of contact and the closeness between the individual and group members” (Assael, p403). The more important the groups are to the individual, the more likely he/she will be influenced by the message and believe what the groups said about

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the product. Generating positive word of mouth for Mountain Man Light would be effective and trusted by the consumers. On the other hand, just like what the national beer brands have done, MMBC should use lifestyle advertisements to reach the younger drinkers in TV, magazine, and outdoor advertisements. It is not until Mountain Man Light moves into the Growth stage that it needs to work on both building brand awareness and interest in the mass market (Kotler and Armstrong, p299). Meanwhile, MMBC should use heavy sales promotion to induce trial, and then gradually reduce the sales promotion when the product is successfully moving into the Growth stage to take advantage of the heavy consumer demand (p299). Most advertising and sales budget that is used for Mountain Man Lager will be allocated to launch Mountain Man Light instead, since the company may be tight on budget. IV. Decision

MMBC should launch Mountain Man Light as a smooth, authentic, high quality with “less strong” taste beer manufactured from independent brewery for young drinkers age 21-27. The company needs to change the perception of the younger drinkers and the taste of the Mountain Man Light from a “strong” taste beer to a “less strong” taste beer by having less alcohol content for the Light beer, making the label for alcohol % for the new product more obvious either through packaging or using shelf talker, and using grass-roots marketing and other effective marketing tools to spread and increase product awareness, generate positive attitude, and induce for trial. Utilizing Primary Informal Groups influence through word of mouth in grass-roots marketing, MMBC can make effective message about Mountain Man Light while gaining credibility from younger drinkers about its quality and new “less strong” taste beer. On the other hand, just like what the national beer brands have done, MMBC should use lifestyle advertisements to reach the younger drinkers in TV, magazine, and outdoor advertisements. It is not until Mountain Man Light moves into the Growth stage that it needs to work on both building brand awareness and interest in the mass market (Kotler and Armstrong, p299). Meanwhile, MMBC should use heavy sales promotion to induce trial, and then gradually reduce the sales promotion when the product is successfully moving into the Growth stage to take advantage of the heavy consumer demand (p299). Most advertising and sales budget that is used for Mountain Man Lager will be allocated to launch Mountain Man Light instead, since the company may be tight on budget.

MMBC should offer discounts for Mountain Man Light in the beginning few months to induce trial for the price sensitive young drinkers. But it would generally offer similar price for Mountain Man Light compared to its main competitors after a few months of discounts to maintain its perception for the consumers that it is a high quality, smooth taste, independently brewed beer to differentiate itself from the rest of the Light beers. MMBC should only start off with those profitable, selective distributions to ensure brand awareness and sales through generating more interest and shelf space from distributors. This would also help to reduce risk of failure and minimize potential cannibalization for the new product. The company would allow Mountain Man Light to have a

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small proportion of shelf space to start off and if the new product does well, the company can substitute more shelf space for it from its Mountain Man Lager and also offer more intensive distribution for the new product by asking more off-premise locations to carry its new product. If Mountain Man Light is going well, the increase of shelf space would also increase brand awareness in those locations since it would be easier for people to spot the new drink, and thus increase sales to compensate for the sales lost for Mountain Man Lager.

Alienation would be less likely to occur since brand loyal consumers will still continue to buy Mountain Man Lager, while the Mountain Man Light would be attracting a new market, younger drinkers. Each different target segments will buy the type of products that most suited their needs. Therefore, if Mountain Man Light is successful in relating itself to the younger drinkers and have all the characteristics to be a “light” beer, it will be perceived as one and be accepted. For example, a certain group of people may prefer drinking Coke Diet because they are convinced that Coke Diet has less sugar compared to the regular Coke. Meanwhile, Coke lovers will continue to consume regular Coke without having a dissonance in the product extension. Having variety in the products under the same brand allows the company to target different segments of people and helps expand the market share.

There would be some cannibalization since both products are sharing the same shelf space. Nevertheless, brand loyal consumers of Mountain Man Lager will continue to support Lager since they are brand loyal and would be more likely to continue buying Lager even if it is not on discount or if it introduces a new product. According to Elaboration of Likelihood Model, consumers will only elaborate on changes that are relevant to them; in this case, lovers of Mountain Man Lager will only focus on the lager drink and its quality. They will less likely to get offended about the introduction of Mountain Man Light since light beers are irrelevant to them. However, if Mountain Man Light is successful in its sales, it may compensate for the loss in cannibalization of Mountain Man Lager. It is obvious that the Light beer market is growing annually while the Lager market is declining. Sooner or later, MMBC would realize this trend will drag down the company if they do not do a product extension. They will find themselves behind all those competitors who have already established other product extension in the market. On the other hand, light beer drinkers will more easily accept Mountain Man Light since only light beer is relevant to them (see Appendix I for ELM).

Mountain Man Light will take advantage of its brand name, Mountain Man, to leverage from its strong brand equity in order to have higher unaided brand awareness and positive attitude from consumers. Mountain Man Light must be as smooth and as good quality as Mountain Man Lager, to translate the perception of high quality, smoothness, and its distinctive bitter flavor from its lager into its new product. It would also need to bring perception of toughness in lifestyles that relates to the young drinkers, like how Mountain Man Lager is perceived as being “tough” for the working men.

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Bibliography Arens and Weigold, Contemporary Advertising, McGraw-Hill Companies, Inc., 2008. Assael, Henry, Consumer Behavior: A Strategic Approach, Houghton Mufflin Company, 2004. Kotler and Armstrong, Principles of Marketing, 11th edition, Prentice-Hall India, 2006. Heide, Abbelli, Mountain Man Brewing Company: Bring the Brand to Light, Boston: Harvard

Business School Press, 2002.

Weitz, Castleberry, and Tanner, Selling: Building Partnerships, McGraw-Hill Companies, Inc., 2007.

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Appendix A Nature of Demand

It had invested in many branding activities to build ‘brand equity’ with core consumers and gives knowledge to consumers about its product. One way to do it was establishing its own small sales force to push its image and assist consumers in making purchase as well as selling its beer to off-premise locations such as liquor stores and supermarkets. Moreover, the company segmented its market to ‘blue-collar’ with middle to lower income, and mostly men over 45 years of age (HBS, p. 2). On the other hand, for its new product, ‘Mountain Man Light Beer’, the company segments its market to typically younger consumers than the lager beer; 21 to 27 years of age who are mostly the “first-time drinker demographic”, consume twice more per capita than the lager drinkers, and have not yet established loyalty to any particular brand of beer. Additionally, the purpose of consuming beer is to fulfill consumers’ hedonic need and also, not much risk involved in purchasing beer apart from the physical risk that might be caused by over-consumption of beer.

1. Brand loyalty purchase involves consumers making purchases with little deliberation because of past satisfaction and a strong commitment to the brand as a result (Assael, p. 100). This is also considered as a high involvement process because a beliefs/evaluation/behavior hierarchy describes it, except that forming beliefs and evaluating brands are not necessary part of the choice process in brand loyalty.

2. Brand Image represents the overall perception of the brand and are formed based on the inferences consumers make about the brand, whether based on external stimuli or fantasies.

3. Fishbein’s Multi-Attirbute Model describes an attitude formation as function of consumer beliefs about the attributes and benefits associated with a particular brand. It also allows marketers to diagnose the strengths and weaknesses of their brands relative to those of the competition by determining how consumers evaluate brand alternatives on important attributes (Assael, p. 225). The formula for this model is A= ∑ni=1 bi.ei, where A stands for the overall attitude of consumers, b is the consumers’ belief that a product exhibits certain attributes, and e is the salient measure on the importance of the attributes in the brand. Therefore, MMBC should analyze its beer according to its evaluative criteria as following:

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Evaluative Criteria bi ei A Taste b1 e1 b1e1 Price b2 e2 b2e2 Special occasion b3 e3 b3e3 Perceived quality b4 e4 b4e4 Brand image b5 e5 b5e5 Tradition b6 e6 b6e6 Local authenticity b7 e7 b7e7

4. According to the statistical data, 81% of male consume Mountain Man Lager beer, with the age of 45-54 years old (32%), and 27% with $25,000-$49,900 household income.

5. Statistic shows that light beer has the highest consumption rate in east central region, 50.4% (18,744,303), compared to the other types of beer.

6. Hedonic need is the need to achieve pleasure from a product; most likely associated with emotions or fantasies derived from consuming a product (Assael, p. 602). In this case, consuming a beer tends to portray the hedonic need fulfillment by its drinkers rather than the utilitarian needs that deals largely with the fulfillment of need by the practical benefits a product exhibits.

7. Consumers might face several different types of risk in purchasing decision; financial risk, social risk, psychological risk, performance risk, and physical risk. The last one (physical risk) would be appropriate in this case; it involves bodily harm as a result of product performance. Health conscious consumers may be faced with this type of risk because over-consumption of beer could cause harm to one’s body as well as other injuries that might be caused to one’s physic, for instance, drinking too much beer with alcohol might increase the risk of accident while driving.

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Appendix B Extent of Demand

Mountain Man Beer Company was founded in 1925 and unlike other breweries; Mountain Man Beer Company produced only one product, Mountain Man Lager, which had been popular within the East Central region (HBS 2). Mountain Man Lager was the “Best Beer in West Virginia” for eight years, and was selected as “America’s Championship Lager” at the American Beer Championship (HBS 2). Furthermore, Mountain Man Beer Company was the top beer company in West Virginia for almost 50 years (HBS 2).

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Appendix C Nature of Competition

Mountain Man Beer Company positioned its Mountain Man Lager similarly with premium domestic brands with its price of $2.25 for a 12-ounce serving of draft beer in a bar and $4.99 for a six-pack in a local convenience store (HBS 2). Since Mountain Man Lager stands in the place with most beers, it faces the majority of beer companies in the U.S. beer market. The U.S. beer market is divided into four categories: major domestic producers, second-tier domestic producers, import beer, and specialty brewers. Among the major domestic producers, there are three dominated beer companies in this group, and they are Anheuser Busch, Miller Brewing Company and Adolf Coors Company. These three companies particularly focus on their production and advertising to increase their sales (HBS 2). In 2005, 74% of the beers from this category were shipped to the East Central U.S., which was within Mountain Man’s region (HBS 3). Second-tier domestic producers are similar to the major domestic producers, but they sell less than the major domestic producers. This group of producers sold between 1.5 and 2 million barrels of beer per year to limited distributions (HBS 3). Furthermore, second-tier domestic producers used the same product and marketing strategy as the major domestic producers, but second-tier domestic producers did not have enough financial and marketing resources to position and market their brands as the major domestic producers (HBS 3). In 2005, second-tier domestic producers shipped 12.5% of beer to the East Central region. The third category of beer producers is the import beer companies, such as Heineken and Corona. Unlike the domestic beer producers, the import beer companies focus on the flavor and taste of products. They fulfill consumers’ need of wanting bitter-tasting and flavorful beer. In 2005, 12% was shipped to the East Central region. Last the specialty brewers are the independently owned beer companies who used traditional brewing process to produce beer, and this type of beer producers make less than 2 million barrels annually (HBS 3). The specialty brewers are divided into four markets: brewpubs, microbreweries, contract breweries, and regional craft breweries (HBS 3). Brewpubs are restaurants or bars that sell 25% of their beer on site and their products made up 10% of the craft brew volume in 2005(HBS 4). Microbreweries produced less than 15,000 barrels annually and distributed to limited markets and this type of beer accounted for 12% of the craft beer market (HBS 4). Contract breweries produce beer for only client firms, and formed 16% of the craft beer volume (HBS 4). Regional craft breweries made up for the rest of the 62% of the market, and these breweries produced more than 15,000 barrels a year. The specialty brewers sold total 1.5% of the total beer market in the East Central region (HBS 4).

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Perceptual Maps Brand Awareness vs. Price among the Competitors

Taste vs. Local Authenticity among the Competitors

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The Occasion Being Celebrated vs. Quality among the Competitors

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Appendix D Environmental Climate

Research had shown that this segment will purchase alcoholic beverages twice as much as the consumer over 35 years of age, and by the year 2010, the total beer consumption made by this market segment will be nearly 4 million (HBS 4). Also, these younger beer consumers, who typically consumed in quantity, preferred mainstream light beer than any other beer category (HBS 5).

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Appendix E Product Life Cycle (PLC) (Kotler and Armstrong, p283, 290)

Mountain Man Lager is moving into the Decline stage because it has declining sales and profits, more than half of its customers are brand loyal, and it has declining number of competitors. It has “lost 2% of its revenue base annually”, 53% brand loyalty rate, and has left with only 4 breweries (competitors) in West Virginia by 2005 (Abelli, p4, 5, 7). Moreover, aging demographic in the shrinking premium segment of the beer market is a trend that hurts the company’s market share since its core customers are over age 45 (p2, 4).

The light beer category has been “steadily gaining in market share and accounted for 50.4% of volume sales in 2005, compared with 29.8% in 2001” (Abelli, p5). Meanwhile, the projected regional revenue growth for light beer product is at 4% annually, which would allow Mountain Man Light to grab a potential 0.25% market share annually from the regional light beer market (p7). Light beers are preferred by younger consumers and they usually consumed in quantity (p5). Though younger drinkers only represent about 13% of the adult population in 2005, they “accounted for more than 27% of total beer consumption” and are “[spending] twice as much per capita on alcoholic beverages than consumers over 35 years of age and was forecasted to grow by nearly 4 million by the year 2010” (p4).

PLC means the course of a product’s sales and profits over its lifetime. It involves 5 stages:

1. Product Development begins when the company finds and develops a new-product idea. During product

development, sales are zero and the company’s investment costs mount. Aside from calling for a large jump in investment, this stage will show whether the product idea can be turned into a workable product.

2. Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.

3. Growth is a period of rapid market acceptance and increasing profits. 4. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most

potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition.

5. Decline is the period when sales fall off and profits drop.

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Sales and Profits over the Product’s Life Cycle

Kotler and Armstrong. "Sales and profits over the product’s life from inception to demise" Chart. Principles of Marketing. 11th ed. New Jersey: Prentice-Hall India, 2006.

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Appendix G Skills of the Firm

MMBC has an interaction with a regional advertising agency about a marketing campaign to launch Mountain Man Light. Through watching an agency videotape from a focus group, MMBC could identify their consumers’ age range, target segment, and product preference towards the idea about launching a new light beer product. Also, MMBC’s market research identifies that they have the high level of brand awareness for younger beer drinkers. Their unique and core attributes are defined as “tough” (5), “bitter flavor,” and “slightly higher-than-average alcohol content” (3) than beer competitors. Moreover, the research firm confirms that the brand has high reputation among “working-class makes in the East Central region” (2) with “18.3% of total U.S. beer sales” (4).

Mountain Man’s advertising and production skills are relatively behind compared to their competitors. Mountain Man only depends on “grass-roots marketing” to provide quality of the product and messages by “word of mouth” (5) relative to national beer brands who successfully reach young drinkers through lifestyle advertisements. They show the less confidence on their limited advertising and distribution that causes them to stay behind the “larger light beer brands like Miller Lite or Coors Light” (7). Moreover, Mountain Man requires developing their production skills since they are “alone among the major and regional beer companies in not having expanded its product line” (5).

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Appendix H SWOT Analysis Strengths:

Mountain Man Brewing Company is a family-owned brewery that sent out an image of independence and local authenticity. Because it is from West Virginia, many locals supported this brand and formed strong brand loyalty. Furthermore, Mountain Man focused only its core consumers, blue-collar males; by doing this, it also built strong relationship with this market segment. Mountain Man is known for its quality and taste; additionally, it was “Man Lager’s distinctive bitter flavor and slightly higher-than-average alcohol content that uniquely contributed to the company’s brand equity” (HBS 3). Mountain Man’s main consumers were also attracted to its product because of its product position. Mountain Man was known for its authenticity, quality, and an image of West Virginia “toughness” (HBS 5). These images fit well into its core consumers as whom they want to be seen as: strong working men (HBS 5). Opportunity:

Firstly, for consistent Growth of Younger beer Drinkers, consumers in age range between 21-27 years old are 13% of the adult population in 2005, yet this segment has high total beer consumption rate with 27% and keep growing. Also, the consumption of alcoholic beverages of these young beer drinkers are forecasted as “four million by the year 2010” (4). Secondly, market share of “light” beer has been consistently crowing with “50% of volume sales in 2005” (5). Mountain Man’s brand awareness among younger drinkers is relatively high as well. In addition, younger segment group “prefer light beer to other categories” (5). In addition, since the light beer is a “newer and fast-growing product category” it cannot only attract younger drinkers but also women. Lastly, since product line extensions provides a benefits to brewers by getting “greater shelf space for products” (5) and develop “greater product focus among distributors and retailers” (5), Mountain Man can consider expending product line.

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Appendix I 5Ps Positioning: <The first option>

It is unfavorable for the company to reposition its Mountain Man Lager to another target market, since it already has a strong and high brand loyal customer base. It should try to retain its hard-core loyal customers. Reformulation of Mountain Man Lager would be unnecessary since its current brand loyal customers perceive high quality in it, and like its smoothness, percentage of water content, “drinkability”, its unique bitter flavor, and slightly higher-than-average alcohol content (Abelli, p2-3). Brand loyal consumers bring repeat buying because of their commitment to the brand (Assael, Ch 4). They have little consideration or minimal information processing due to past satisfaction and strong commitment to the brand. <The second option>

If the MMBC chooses the status quo strategy, it should continue to position itself as a smooth, authentic, “drinkable”, distinctively bitter flavor regional beer that guarantees high quality to its brand loyal, blue collar, middle-to-lower income men aged over 45. <Launching Mountain Man Light>

This strategy can also be referred to as the perceptual categorization. The company wants consumers to recognize the product, Mountain Man Light, as part of a high quality beer brand but want to avoid being perceived as a similar product to other brands, such as Miller Lite (Assael, p166). This product positioning helps to establish both product categorization and product uniqueness (p166). Product:

The company can disclose its content of alcohol % in a larger font or a more obvious font on the bottle, or have a shelf talker that shouts out a less alcohol % in this new Mountain Man Light beer to catch attention, increase awareness, and induce trial from younger drinkers. Certainly, it is wise to use the name “Mountain Man” on its light beer since it has one of the highest unaided brand awareness rates than other beers. As long as the company works hard on changing the perception to Mountain Man Light is a less strong beer but still keeping the same smoothness and quality like Mountain Man Lager, it can leverage from its strong brand equity. Brand leveraging allows MMBC to use its successful brand name (Mountain Man) on its product line extension (Mountain Man Light) to create stimulus generalization (Assael, p157). Stimulus generalization can only occur if both types of beer are seen as similar and their effects can be substituted for one another (p156). This means that Mountain Man Light must be as smooth and as good quality as Mountain Man Lager, and it would need to bring perception of toughness in lifestyles, like how Mountain Man Lager is perceived as being “tough”.

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Place: If the new product does well, the company can move to more intensive distribution by asking more off-

premise locations to carry its new product. Distributors favor those brands that are selling well. Therefore, if Mountain Man is already doing well in those certain locations, distributors will be more willing to help the company sell the new product. Also, those certain locations that are selling well with MMBC’s product will more likely to have wider shelf space available for the substitution of some of the Mountain Man Light.

The distribution ratio of the shelf space for the two types of beer can be a 70% shelf space for Mountain Man Lager and a 30% shelf space for Mountain Man Light.. The reason that the company would want to start small in terms of the occupancy percentages of shelf space is to reduce the risk of cannibalization from launching Mountain Man Light; since more shelf space for the new product means less shelf space for Mountain Man Lager. If the new product is going well, the increase of shelf space would also increase brand awareness in those locations since it would be easier for people to spot the new drink. Price:

Initially, Mountain Man Lager was priced similarly to premium domestic brands such as Miller and Budweiser and below specialty brands such as Sam Adams. Its price was typically $2.25 for a 12-ounce serving of draft beer in a bar and $4.99 for a six-pack in a local convenience store (HBS, p. 2). Furthermore, the reason for setting price on the same level to the competitors is that it targets younger drinkers who have more price sensitivity. Additionally, MMBC could also offer attractive discount to its light beer for a certain period of time to encourage sales from younger drinkers since they tend to buy mainstream brands (Abelli, p5). Decision The Elaboration Likelihood model (ELM) (by Petty and Cacioppo):

An information-processing model that postulates that the degree to which a consumer elaborates on a message depends on its relevance. The more relevant the message, the more elaborate the central processing that takes place; the less relevant the message, the more nonelaborate or peripheral the processing that takes place.