Boston Beer Co.: Light Beer Decision
Boston Beer Company (BBC) was founded by Jim Koch in 1984. Koch’s vision for BBC was to lead the craft-brewed beer market by creating and offering a wide selection of high-quality, full-flavored beers. Over the past twenty-five years, this vision has become a reality because of BBC’s strategic focus on high quality standards, contract brewing, sales and marketing, and product innovation. BBC’s flagship product was the Samuel Adams Boston Lager, which amounted to 60% of the company’s production volume and the majority of its revenue. In 1987, BBC introduced its second product, a light beer called Boston Lightship. Although the sales of Boston Lightship reached 12,000 cases a month, it contributed minimal revenues to BBC. Unfortunately, this tremendous growth did not last, despite a rising light beer market; by 1998, Boston Lightship was selling fewer than 3,000 cases a month. In addition, growth rates in the craft segment had slowed from above 40% per year to single digit percentages for the first time ever. BBC’s current strategy has proven ineffective in a market with shifting consumer demand and an increasing number of competitors. In order to increase its market share and profitability, BBC must reposition Boston Lightship, cut back on beer varieties, and revamp its reputation among distributors.
Strategic Issue #1
The new global, social trend emphasizing physical health has shifted consumer demand from premium beer to light beer. Boston Beer Company’s light beer, Boston Lightship, is poorly positioned within the light beer market, which is hurting sales.
“The technology for light beers had been around since the 1960s, but it was not until Miller took Miller Lite national in 1975 that a brewer had introduced a light beer with broad success in the marketplace” (7). In the late 1970s and early 1980s, changes in consumer demand began to occur. Consumers were looking for an alternative to premium beers; this alternative turned out to be light beer. The light beer market was growing at a rate of 13% in 1980. By 1997, the light beer market was growing at a whopping rate of 40%. The following year, the light beer segment became the largest beer segment in the entire industry. At the same time, growth in the craft-beer segment was slowing down. Between 1996 and 1997, the craft beer segment grew only 0.1%.
The main cause of these rapid changes in beer preference seemed to be the result of a new world-wide, social trend that stressed the importance of staying healthy. Another possible cause was the fact that light beer was beginning to be more commonly associated with having a good time. Many people live active life styles, and want to drink beer for its refreshing qualities. People also like the social aspect of drinking light beer; light beer has a lower alcohol content, which allows people to drink some and still remain in control. The higher alcohol content and full-bodied flavor of craft and premium beers causes consumers to avoid it, choosing to drink light beer instead.
When Boston Lightship was first introduced in 1987, the light beer market was growing rapidly. In order to gain exposure for Boston Lightship and promote the newly-added brand, Jim Koch, founder and Chief Executive Officer of Boston Beer Company, invited one hundred members of the media to join in a taste testing that included Heineken, Miller Lite, Amstel Light, Becks, and other successful brands from BBC’s main competitors. The event was a tremendous success, with ninety people out of one hundred voting Boston Lightship as their favorite. It was very clear to Jim Koch that he had the right recipe to compete against other companies that offered light beer. Although Boston Lightship’s taste was voted the best, consumers continued to purchase other brands instead; in April of 1998, Boston Lightship was selling less than 3,000 cases per month. These facts are evidence of a disconnect between Boston Lightship and the consumers of light beer.
Jim Koch believed that Boston Lightship was struggling because light beer drinkers were not willing to pay a craft-beer price for a light beer. This statement has some merit because Boston Lightship is sold at a higher price than competing light beers, but price is not the key problem. The marketing and promotion for Boston Lightship describes the beer as being thick and full-bodied; this is the exact opposite of what light beer consumers are looking for. Also, Boston Lightship is not associated with the Sam Adams brand which potentially harms its appeal to consumers. Someone who wants a high-quality light beer may not purchase Boston Lightship if he or she cannot affiliate the name with Samuel Adams, which is known for that high quality. Countless potential sales are lost because there is no connection between the two brand names. As history has proven, products without proper brand recognition do not succeed in the marketplace. Overall, Boston Lightship is a great product; it just has poor brand awareness.
On all of the blind taste tests performed by the HBS students, the majority of woman preferred Boston Lightship over the competing light beers. It should also be noted that Boston Lightship has only 98 calories, which seems to appeal to women more than men (as explained later). Also, Boston Lightship was voted World Championship Reduced Calorie Lager at the World Beer Championships in 1994, 1995, 1996, and 1998. This information reveals a pattern among the comments made about Boston Lightship. Both men and woman say that Boston Lightship needs better brand recognition (Exhibit 7).