MCUN1AIN MAN 8kLWING CCMAN CASL WkI1LU

rob|em Statement MounLaln Man brewlng company faces serlous long Lerm challenges Lo
conLlnue as a vlable company llrsL Lhere are Lhe erodlng revenues due Lo Lhe decllnlng markeL
base of lLs' slngle producL offerlng upper managemenL has expressed fears LhaL any expanslon
of Lhelr producL llne would negaLlvely lmpacL Lhe company's boLLom llne Lhrough lncreased
markeLlng cosLs cannlballzaLlon of Lhelr core producL eLc lL should also be noLed of Lhe
concerns by Lhe managemenL Leam abouL Lhe MounLaln Man brand speclflcally lLs worrles
abouL Lhe negaLlve lmpacL of exLendlng Lhe brand Lo oLher brewed offerlngs such as a 'llghL'
verslon of Lhe company's lager ln shorL Lhe company's markeLlng manager and CLChelr needs
Lo flnd a soluLlon Lo lncrease revenues or aL some polnL reduce sales and lncreased
compeLlLlon wlll comblne Lo klll Lhe company
A|ternat|ve 1 Deve|op a L|ght vers|on of the MM8C Lager
9 @he markeL for LlghL beers ls a growlng segmenL of Lhe beer drlnkers ln Lhe LasL CenLral
8eglon wlLh a growLh raLe of 4 of an $187M markeL (ln 2003 dollars) MM8C esLlmaLes Lhey
can lnlLlally clalm 023 of Lhls markeL or an lncrease ln revenues of $47M Lhe flrsL year
@he MarkeLlng campalgn for Lhe flrsL 6 monLhs of a new llghL beer wlll cosL $730k @he
new beer wlll requlre a7 lncrease ln varlable cosLs compared Lo Lhe orlglnal Lager even
Lhough MM8C would only recelve Lhe same revenue per barrel for Lhe new producL Lhereby
showlng a decreaslng conLrlbuLlon margln (@hls ls an assumpLlon LhaL could be challenged)
@here ls also Lhe poLenLlal LhaL Lhe new beer could cannlballze exlsLlng sales of MM8C's Lager
A|ternat|ve 2 Iocus on |ncreas|ng sa|es of MM8C's a|e A|e
9 Worklng wlLh an exlsLlng producL means LhaL Lhere are no new adverLlslng or
developmenL cosLs Changlng Lhe poslLlonlng of MM8C Lager from a crafL beer Lo a domesLlc
premlum beers could Lap a greaLly lncreaslng markeL segmenL
MM8C ls already Lhe markeL leader by far ln Lhelr markeL so Lhe long Lerm growLh
poLenLlal ls llmlLed aL besL Changlng Lhe poslLlonlng of Lhe producL and leveraglng Lhe growLh
ln domesLlc premlum sales ls a rlsky conslderaLlon wlLhouL any guaranLee of success
kecommendat|on
MM8C needs Lo expand lLs offerlng Lo lnclude Lhe LlghL beer markeL as much from Lhe polnL
ofvlew of Lhe negaLlves of sLaylng wlLh Lhe slngle offerlng as Lhe poLenLlal upslde Lo expandlng
lnLo Lhe growlng LlghL beer markeL
@he markeL for Lhe currenL MM8C Lager ls slmply Loo small and as Lhe daLa suggesLs sLaylng
wlLh Lhe slngle producL ls noL a vlable long Lerm soluLlon lrom Lhe exhlblLs lL ls demonsLraLed
Lhe MM8C has 93 of Lhe crafL beer markeL ln lLs reglon selllng 320k barrels for a crafL markeL
of [usL 338k barrels ?eL even Lhough Lhe markeL has a yearoveryear growLh of 9 MM8C ls
loslng revenue aL 2 per year @here ls slmply noL much sales acLlvlLy lefL Lo Lap ln Lhe crafL
beer markeL @he demographlcs of Lhe MM8C cusLomer also suggesLs LhaL Lhe markeL for Lhelr
Lager ls shrlnklng due Lo lLs rellance on older beer drlnkers a markeL segmenL LhaL ls noL belng
replenlshed by younger drlnkers LhaL now seek alLernaLlves Lo crafL beers ln boLh premlum and
llghL domesLlc beers AL Lhls polnL lf MM8C wanLed Lo sLlck wlLh a slngle producL offerlng Lhe
only opLlon would be Lo rebrand Lhelr lager as a uomesLlc remlum beer buL Lhls ls more
serendlplLy Lhan by deslgn 8eLLlng Lhe fuLure of Lhe brewery on Lhe chance of a rebrandlng
campalgn would be an exLreme gamble especlally slnce Lhere would llkely be a backlash among
MM8C's currenL paLrons and Lherefor Lhe rebrandlng would have Lo succeed or lL would slmply
hasLen Lhe demlse of MM8C
locuslng on Lhe developmenL of a MM8C LlghL Lager Lhe daLa demonsLraLes LhaL llghL beers
now accounL for over 30 of Lhe recenL beers wlLh an upward Lrend ln Lhelr sales expecLaLlons
As Lo Lhe concerns over Lhe lmpacL Lo Lhe MM8C brand lL ls more llkely LhaL Lhe MM8C brand
wlll brlng more cusLomers Lo Lry Lhelr LlghL Lager as demonsLraLed by Lhe focus group Lhan
MM8C Lager would lose over addlng a LlghL beer Lo Lhe producL mlx assumlng Lhey orlglnal
Lager ls noL changed whlch ls noL llkely Lo happen As such lL ls hlghly unllkely LhaL Lhe new
LlghL Lager would lmpacL currenL sales of Lhe MM8C Lager vla Lhe cannlballzaLlon mechanlsm
Lhere ls slmply noL much overlap ln Lhe demographlcs beLween Lhe Lwo markeL segmenLs
lrom a long Lerm perspecLlve we can analyze Lhe lmpacL of Lhe llghL beer uslng CusLomer
LlfeLlme value Approach @he currenL producL has a varlable cosL of $6693 per barrel for 331
12oz boLLles or $020 per boLLle whlch sells for $223 So 'm' ls $203 lor Lhe llfeLlme of Lhe
beer drlnker we assume a 130 boLLles/year (weekends bar runs and resLauranL drlnklng) WlLh
Lhe average age of a Lager drlnker aL 30 and an average llfe expecLancy of 80 we geL 4300
boLLles @he Lager only drlnker would be lmpacLed by Lhe currenL markeLlng expense of
$133M @he number of MM8C drlnkers can be lnferred from Lhe volume Cne beer drlnker
consumes approxlmaLely onehalf of a barrel per year so Lhe LoLal drlnkers requlred for Lhe
320000 barrels glves 113M drlnkers or an 'AC' of $117 per drlnker per year over 30 years or
$3310 As such Lhe CLv for Lhe Lager ls
CLv(Lager) $203 * 4300 $231 $92k
now Lurnlng our aLLenLlon Lo Lhe LlghL beer drlnkers Lhere ls an lncrease ln varlable cosLs of 7
so Lhe 'm' ls reduced sllghLly Lo
m $223 (6693+469)/331 $202 or a reducLlon ln $003 per boLLle
Slnce Lhe LlghL beer drlnkers are younger (we wlll assume a conservaLlve 40) and assumlng Lhe
same llfe crlLerla Lhls glves a useful purchaslng llfe of (80 40) 40 years @here ls an lncrease
ln markeLlng cosLs addlng $730k as a one Llme only cosL Lo Lhe currenL years' $133M and
assumlng Lhe same drlnklng raLe over Lhe llfeLlme glves an 'AC' of $728 for 40 years glves
$119/yr or $4761 now Lhe CLv becomes
CLv (LlghL) $202 * 6000 4761 $121k
So over Lhe llfe of a beer drlnker assumlng currenL sLaLus quo ln volume produced buL allowlng
Lhe producL mlx Lo change any one slngle LlghL 8eer drlnker ls worLh $29k more Lhan a MM8C
Lager cusLomer
@aklng lnLo accounL Lhe poLenLlal growLh opporLunlLles ln sales avallable by enLerlng Lhe LlghL
beer markeL and Lhe currenL consLralnLs on growLh ln Lhe currenL markeL segmenL expandlng
Lhe producL llne ls deflnlLely someLhlng Lo conslder ?es Lhere wlll be shorL Lerm lmpacLs A
qulck lncome SLaLemenL comparlson beLween sLaylng wlLh Lhe orlglnal producL and expandlng
Lo Lhe LlghL 8eer markeL suggesL Lhe flrsL year wlll see a reducLlon ln proflL of $1M or more due
Lo Lhe hlgher varlable cosLs and AdverLlng (noL Laklng lnLo accounL expanslon cosLs) 8uL ln Lhe
long Lerm Lhe move Lo LlghL beer appears Lo be Lhe rlghL soluLlon