Mountain Man Brewing Company

...

= 0.75%

C2.

Assuming 5% cannibalization

48,735 +101,369 = 150,104

158,136/12 = 13,178

150,104+13,178 = 163,282 vs 160,246 = 24-25 months to breakeven with 5% cannibalization Assuming 20% Cannibalization

48,735+101,369+158,136=308,240

219,282/12= 18,273.5+308,240 = 326,513.5 vs 339,546

37-38 months to break even with 20% cannibalization

D1. No, broadcast spending for beer ads topped $627.8 million annually. The budget is insufficient since a new national beer brand launch costs $10 million dollars, and $20 million for TV advertising, when MMBC has $750,000 one term six-month advertising campaign. There is no possibility to avoid cannibalization or position the beer properly.

D2. To help mitigate the risk of cannibalization MMBC can position the beer with a new price. With the same price cannibalism is unavoidable. They can continue targeting the new key customer/ audience. They can “create a new shelf” for the product with different/ cheaper packaging. However this will allow to avoid cannibalization.

E. Yes, MMBC should launch MM Light because its budget is appropriate. Even if we assume 20% cannibalization rate in the worst case scenario MMBC is able to meet the budget objectives in the next two years. In addition, market share of 0.5% by 2007 is achievable taking into consideration current market position and the reputation.

In addition, product life cycle of Lager beer is in its at least mature stage, which indicates that the company has to either modify the old product or introduce a new one. Further, in the FMCG industry time is money, the company has to make fast decisions.

Appendix 1

Year 2005 2006 2007 2008 2009

MM Light assumed consumption in C-E region $18,744,303 $19,494,075 $20,273,838 21084792 21928184

Compound annual growth rate - 4% 4% 4% 4%

MM Light estimated growth year on year (.25% of base market share) - 0.25% 0.5% 0.75% 1.0%

MM Light estimated sales [barrels] - 48,735 101,369 158,136 219,282

MM Light estimated revenue (if $97 / barrel) - $4,727,295 $9,832,793 #15,339,192 21,270,338

Net Change in Contribution (costs - contribution) ($1,179,285) $921,890

Revenues MM lager $50,440,000 $49,431,200 $48,442,576

Contribution from MM Lager $15,636,400 $15,323,672 $15,017,199

Contribution of MM Light (barrels sold * contribution per barrel ) $1,236,899 $2,572,750

Lager light

Variable cost per barrel Lager: $66.93 Variable cost per barrel Light: $66.93 + $4.69 = $71.62

Appendix 2

2005 2006 2007

Contribution from MM Lager $15,636,400 $15,323,672 $15,017,199

Revenues from MM lager $49,431,200 $48,442,576

Loss of Contribution (depends on cannibalization assumption $766,183.6 $750,859.93

SG&A Non Adv 8,221,720 8,221,720 8,221,720

SG&A Adv $1,361,880 1,334,642 1,307,950

one-time six-month Launch advertising campaign of MM Light $750,000 $0

Incremental SG&A $900,000 $900,000

Total Incremental Costs associated with MM Light $2,416,184 $1,650,860

Appendix 3

2006 2007

Initial advertising costs $750,000 $0

SG&A $900,000 $900,000