Product Launch: Mountain Man Light

DEPARTMENT OF ACCOUNTANCY

UNIVERSITY OF ILLINOIS

MEMORANDUM

TO:                 Mr. Chris Prangel

FROM:        Merik Ducker - Section AE1 - Group 8

DATE:                September 22, 2015

SUBJECT:         Product Launch: Mountain Man Light

INTRODUCTION

        The memorandum will analyze the proposed new product launch of Mountain Man Light (MMLight) for Mr. Chris Prangel, the future owner of the Mountain Man Beer Company (MMBC). More specifically, the memorandum will consider the advantages and disadvantages of launching MMLight, as well as a cost-volume-profit analysis of the proposed new product launch. The memorandum will conclude with recommendations for Mr. Prangel’s consideration.

MMBC’S GOALS AND BRAND IMAGE

        MMBC has retained leadership among premium lagers in West Virginia for nearly 50 years by serving brand loyal, middle-aged, blue-collar males at off-premise locations (such as liquor stores and supermarkets). Though respected for its independence and superior quality, MMBC now faces an aging demographic, a shrinking market segment, and changing consumer preferences. Without alienating existing customers, eroding core brand equity, or succumbing to industry titans, MMBC must find a way to remain competitive and restore falling revenues.

ADVANANTAGES OF LAUNCHING MMLIGHT

Changing Market Segments

        The launch of MMLight represents an opportunity to capture shifts in market segments and improve MMBC's recent 2% decline in revenues. Light beer consumption is growing at a 6-year compound annual growth rate (CAGR) of 4% and accounts for 50.4% of the east central region's consumer expenditures on beer. Contrastingly, premium beer customer purchases include just 19.7% of the regional market and are decreasing by a 6-year CAGR of (4%).

New Customer Demographics

        A light beer launch provides access to the “first-time drinker demographic” (ages 21-27 years) that has yet to develop loyalty to a beer brand. The young demographic spends two times per capita on alcohol than consumers over the age of 35, with further growth of nearly four million expected by 2010. Women state a preference for light beer, too.  Women and young drinkers frequent on-premise locations (bars and restaurants), a yet untapped market for MMBC.

DISADVANTAGES OF LAUNCHING MMLIGHT

Brand Equity Erosion

        An impetuous launch of MMLight could permanently erode MMBC's brand equity and alienate existing customers. A market research firm for MMBC determined that a particular West Virginia "toughness" is an important feature of the MMBC brand. Offering MMLight alongside MMBC's existing Mountain Man Lager (MMLager) may hurt MMBC's overall brand image.

Product Cannibalization

        Introducing MMLight into off-premise locations (e.g., liquor stores and supermarkets), where MMBC sells 70% of its MMLager, could cannibalize sales of MMLager. Retailers may refuse to grant MMBC incremental shelf space, so MMLight may take facings from MMLager. Introducing MMLight may expand MMBC's costs without generating any additional revenue.