MKF3131 Presentation Script

Becky: (1 min 30 secs)

INTRODUCTION

Founded in 1923 by the Prangel family, Mountain man Lager used an old family recipe
with rare ingredients of Bavarian hops and unusual strains of barley resulting in a
flavorful, bitter-tasting beer. MMB has held a top position among lagers for almost 50
years in West Virginia and had a strong reputation amongst working class men with a
loyalty rate of 53%. By 2005 MMBC produced $50M in revenues and had sold over
520,000 barrels of the dark beer. - The success of the company all fell back onto Brand
awareness of the loyalty blue-collar consumers. These consumers preferred the quality
of Mountain Man lager and the smoothness and drinkability. A large portion of these
sales came from the small segment of their customers.The Typical mountain brewing
customer is male, between the age of 45 and 54 and have a household income that
ranges from $25,000 to $49,900 per year.
Decline of the Brand
Due to the competition from wine and spirits-based drinks, an increase in the federal
excise tax, initiatives encouraging moderation and personal responsibility, and
increasing health concerns led to a 2.3% decline in U.S. per capita beer consumption.
As a result of this overall decline, MMBCs 2005 revenues declined 2% relative to the
previous year. Another contributing factor was the pressure placed on the smaller,
regional breweries such as Mountain Man by the larger, national breweries who
maintained economies of scales in brewing, transportation, and marketing. Due to this
pressure, as well as a glut of product many independent breweries throughout the East
Central region had closed. Light beer growth had been steadily increasing in market
share and 50.4% of volume sales in 2005
Mountain Man Lagar had been showing signs of Maturity in the product life cycle
stages. This is our chosen theory which Tanja is going to speak about now.
Tanya: Product life cycle

Slide 1:
The product life cycle is an analytical tool companies can use that attempts to identify a
set of common stages in the life of products. It proposes four stages that products pass
through in their existence: introduction, growth, maturity and decline. The product life
cycle theory can be applied at either a product or market level, so in this case it can be
used to map the life of the Mountain Man Lager or the beer market. When we explain
the theory, we will be mainly focusing on the product level life cycle. Marketing and
strategic teams can use the PLC to predict sales growth and associated customer and
competitive behaviour and in turn make appropriate marketing decisions.
Lets take a closer look at the four stages of the life cycle.
Slide 2:
The Introduction Phase is when the product is first introduced in the market after
development and testing has occurred. There are few customers, sales are low, the
risks are high and profits are low or negative due to the high developmental costs. It is
important to understand that for each stage of the life cycle, there are relevant
marketing strategies that organisations should consider when their product reaches the
phase. In the introduction, advertising and distribution expenditure is intense and
products are priced high to cover these expenses.
The Growth Phase is where the product sales rise as well as profits, with advertising
being increased at this level. Advertising is kept high and the company has to
continually monitor the market as more competitors enter the scene.
The Maturity Phase is where the product becomes widely accepted and sales and
profits start to peak, however, towards the end of this stage, sales start to decline and
competitors are prominent and attacking market share. After a brief drop in advertising
expenditure, companies have to lift their marketing activities to remain relevant and fight
off competition, and line extensions are often a good strategy at this stage.

The Decline Phase is where the product faces decreasing sales and profits. There is a
decline in the number of competitors in the product market phase due to new choices
being available. The new choices can be because of technological developments or
changing demographics and buyer preferences. Once again, a brand or product
extension may be relevant at this stage.
The framework assumes all products and product categories move through a predictive
growth pattern as time passes, but it is important to note that this pattern is not always
the same. Some products move immediately to growth and begin to decline almost as
quickly. Examples of this are fad products. The length of each stage also varies, with
some products taking a long time to reach growth and others almost skipping the
introduction phase.
Slide 3:
Even though for the purpose of this presentation we dont need to go into detail about
the PLC and the case, we just want to mention that MM Lager is in the maturity phase
of the product life cycle. They are in the maturity phase because they are struggling to
maintain a steady share of its market segment against the large domestic brewers and
MMBC are not undertaking any specific marketing campaigns for Mountain Man Lager .
The company is facing a decline in revenue by nearly 2% and in spite of MMBC still
remaining profitable, the prospect of downward pressure on revenue would challenge
the companys ability to remain profitable. This is why the question has been put forward
of whether to introduce a new product line, which leads us to the next theory.

Beck:

Product

Line

Extensions

just

Slide

under

3.5

mins)
1:

Product line extension was the main focus of this case and is also our second theory we
will

be

discussing

today.

A product line extension is where a brand launches a new product in the same product

category it already operates in. For example, Cadbury introducing top deck and fruit and
nut in the chocolate bar category. I just want to quickly clarify that this is different to a
brand extension, which is where a firm uses the same brand name in a completely
different category. An example of this is Mars who have recently expanded into the ice
cream

category.

Line extensions are used by companies who want to utilise their existing brand equity to
introduce new products. It gives current customers more options and may attract new
customers who prefer the differentiated product. However, there are a few risks involved
that

need

to

be

Slide

seriously

considered.

2:

One risk of extensions is that brands can lose sight of their roots. In this case, Chris has
to consider whether extending would alienate existing Mountain Man customers and
erode their core brand equity. If the new product is negatively perceived, it is likely this
will

transfer

onto

the

overall

MM

brand.

Another risk that brands need to be aware of is cannibalisation. This refers to a

reduction in sales or market share of one product as a result of the introduction of
another. In this case, it means introducing Mountain Man Light could reduce the
success of Mountain Man Lager, with existing customers switching and substituting to
buy

the

new

product.

Chris has considered this in the case and even mentioned issues such the retailers not
giving any extra shelf space for the new light beer, but instead minimising the shelf
space of the Larger. This could lead to cannibalisation at the retail and consumer level.
Slide

3:

As a marketing manager, Its hard to predict whether your brand will fall victim to these
risks. Before undertaking a line extension, it is important to analyse multiple factors that

will

determine

the

success

of

an

extension.

Companies need to take into account brand characteristics such as their brand strength
and the symbolic value of their brand. A weak brand is unlikely to succeed in such a
strategy. The MM brand had been described as being authentic, tough and of quality
and this needs to be transferred into the light beer product rather than see these values
diminish.
They also need to look into their firm characteristics - are they big enough to cope with
this financially, how will their market share be affected and do they have the marketing
capabilities needed to launch a new product line? This will all be looked at when doing
some

calculations.

Lastly, the characteristics of the extension will ultimately determine whether it is

successful or not. Do customers want the product, how will it taste and look and when
will it be introduced? Chris already knows that there has been an increase in light beer
sales, so figures suggest it is a popular category. But if the product is created, Mountain
Man need to get everything right, from the advertising and taste, right down to the logo.
So while marketing managers have to consider all of these factors, they also need to
estimate figures to determine how profitable the product will be. Is it feasible financially
or

not?

For

this,

will

hand

over

to

John.

John: (2 mins)
Now, as we have explored the possibility of a product line extension, we calculated the
costs and profits expected from the launch of Mountain Man light, so that the company
has some idea of how the new investment would go, and whether it would generate
healthy profits in the coming years.
Firstly, we calculated the expected market share, and the breakeven points in the three
years after 2005. As mentioned in the case, the cost of advertising for Mountain Man

light would be $750,000 and incremental annual increase in SG&A will be $900,000.
Selling price per barrel of light beer would be the same as the lager which is $97.
However, the variable cost per barrel would increase from $66.93 to $71.62. This would
leave the revenue per barrel at $25.38. In 2006, to analyse breakeven units, we divided
the fixed costs by the revenue per barrel, we got 65,012 barrels that need to be sold to
cover costs. The estimated market for light beer in 2006 in the East Central Region is
18,744,303 as per the case, and the estimated market share that Mountain Man light is
going after is 0.25%, which is 48,735 barrels in the first year. This shows that the
number of barrels sold in 2006 would not meet the breakeven point and therefore a
financial loss is likely to occur. However, in 2007, as the market share of Mountain Man
light increases by another 0.25% and the total market increases by 4%, we can see the
number of barrels sold rise to 101,369 while the breakeven is 35,461 barrels. This
means the company will start seeing a profit in just the second year of starting the
Mountain Man light. The increase in profits will be steady after that, however ignoring
the facts that the company will need to new equipment or larger locations to cope with
the demand. The total profit the company will see after 2 years of introducing Mountain
Man light is estimated as just above $1.25 million. This profit however does not take into
account losses of the original lager sales which itll suffer due to cannibalisation.
James: (2 mins - not including activity)
For and Against Light Beer product extension
Slide 1
Several reasons exist for and against going ahead with the product line extension, each
bearing significant influence on whether or not the campaign will be viable.
Existing customers are hugely loyal to the existing product, with the possible alteration
of the brand by implementing light beer negatively impacting the loyal behaviour of
customers (e.g VB).

In the same regard, brand image may see a huge fall as a result of the stereotypical
American blue-collar beer being tainted with, and altering the brand image to a much
more conservative one.
While research and development costs play a huge role in whether this is a viable
venture, it is stated that it will not be required to expand their facilities in order to
accommodate demand in the short term, however in the long run it will no doubt affect
the business.
For
The significant growth in the light beer market illustrates a huge potential opportunity
for the brand to expand its operations like other larger competitors.
While conversely, full strength lager sales are starting to see a significant decline, with
customers not only changing to light beer, but also the wine and spirit market.
Changing demographics also create a much larger potential market for the brand than
accessible with full strength lager, being seen to appeal to a much younger market.
While Mountain Man brewing would be able to capitalise on its significantly positive
brand image and awareness within the local beer market.

Slide 2
Conclusion
Ultimately, we deduct that it is recommended to go ahead with the product line
extension into the light beer market due to several imperative factors facing the brand.
Drawing from the current stage of maturity in the product life cycle, it is seen that one of
the most probable options to revive the brand is to undergo a product extension.

While resultant of the differing target markets for the products, there is seen to be little
chance of product cannibalization between offerings.
With the current light beer market growing exponentially and reaching the most viable
point of entry for Mountain Man Brewing, it is seen this would be a very suitable strategy
to capitalise on.
Slide 3
Activity
The product lifecycle is a hugely important determinant of where a product currently
stands, giving guidance to potential marketing strategies and feedback into what the
brand should undertake to strengthen their brand. With the following products we will
split the class into teams and get them to come up with the current product lifecycle
stage they are in, and the most relevant promotional activity for the brand.