Coors Caselet Note: This case is loosely based on the competitive situation of Coors and other beer manufacturers

at the end of the 1970s. The strategy part of the case is a hat!if" scenario analysis. #y the late 1970s$ Coors en%oyed superior margins and the largest mar&et share of beer manufacturers for consumers located est of the 'ississippi (iver. )till$ there as considerable concern as to ho sustainable this position as. Than&s to the ac*uisition by +hilip 'orris of the 'iller #re ing Company$ there as an advertising ar occurring bet een 'iller and its closest rival ,nheuser!#usch for consumers in the east. The ar as costing both companies dearly ith little end in sight. -n contrast$ Coors mainly esche ed advertising in favor of a ord of mouth strategy. .hen they did advertise$ they emphasi/ed the (oc&y 'ountain 'ysti*ue" of their product. 0espite this$ Coors did not price its product as a super premium" beer. -ts price point as similar to$ but slightly lo er than ,nheuser!#usch1s flagship beverage #ud eiser and ell belo ,!#1s super premium brand 'ichelob. -nstead$ Coors margin advantage derived from its superior cost structure. 2 ing to returns to scale from its massive 3olden$ Colorado plant$ it as able to produce beer at considerably lo er average cost than its rivals. -ts dominance in the est also stemmed from a logistical advantage$ its location in 3olden as considerably closer to the large segment of consumers in California than the plant locations of its rivals$ hich ere mainly in the east and the 'id est. The orry$ of course$ as that at some point in the future$ these potential rivals ould build plant in the est and directly vie ith Coors for dominance. +lants too& appro4imately t o years to operate at full capacity from the time that they ere first built5 therefore$ Coors felt that there as a indo of opportunity for them to operate alone in the est in their present fashion. #ased on the results from the mar&eting ars being fought by ,!# and 'iller$ Coors observed that it as possible to create relatively stic&y customers at e4isting price points through aggressive advertising. -t as thought that$ o ing to their pre!e4isting customer base$ such a campaign ould enable Coors to retain significant mar&et share even in the face of an incursion and a determined mar&eting campaign by rivals. The do nside as that mounting a campaign on the scale of 'iller and ,!# as *uite e4pensive. -n considering hether to build plant in the est$ ,!# also needed to determine its potential mar&et share gains in the est. -t as thought that$ if Coors continued on its present path of ord!of!mouth advertising$ building a single large plant in the est ould allo ,!# to leverage its already considerable mar&eting to gain share at Coors e4pense. The bottom line as that$ under this scenario$ such a plant build had positive (2-. 2n the other hand$ a determined mar&eting campaign by Coors$ either before or during the building of the plant$ ould significantly reduce ,!#1s anticipated gain in mar&et share. This ould lead to a brea&even or possibly negative (2- situation for ,!#. 6o ever$ much of the e4pense in building a plant as spent up front$ therefore$ ,!# concluded that if it began construction of the plant$ it as only sensible to proceed to its completion.

The management team at Coors determined that there ere three main strategies it could follo . The first as a pre!emptive advertising campaign designed to deter entry by ,!#. The second as a press release indicating that if any of the big t o" firms 7,!# or 'iller8 ere to build plant$ then Coors ould underta&e a massive advertising campaign to reinforce in the minds of consumers the *uality and value offered by the Coors brand. The third strategy as to stay the course ith their previously successful ord!of!mouth advertising campaign. Your Task: Analy/e the three scenarios using game theory and then recommend an action to Coors management.