Overview The Boston Beer Company has had astonishing success in its passage from a little graduated table microbrewer to a big scale national brewery. Almost all of the company’s success is due to the Samuel Adams Lager merchandise line. which has barely changed from the initiation of the company in 1984. to the IPO in 1995. to the present twenty-four hours. In fact. much of the entreaty of Samuel Adams comes from its microbrew image and the laminitis. Jim Koch’s. committedness to the brewing procedure and a premium beer.

In recent old ages. nevertheless. the company has implemented a new scheme for growing which has included presenting a light beer that will hold more mainstream entreaty. While this has increased net incomes for the company. it has besides left the company vulnerable to entry by thining its trade name name. For this ground. the company’s scheme for the immediate hereafter has to do a important displacement. from a scheme of growing to a scheme of protection.

It must concentrate on keeping its current net incomes by forestalling entry both from little breweries looking to copy the BBC’s scheme and from big breweries looking to utilize their expansive resources to steal some of BBC’s market portion. History of Boston Beer The Boston Beer Company began as a microbrewery in Boston. Massachusetts in 1984. Its first instances of beer were merely sold to Boston bars. but the company rapidly branched out geographically. Fueled by awards and acknowledgment from esteemed beer festivals. Samuel Adams Boston Lager was available on much of the East Coast by the late 1980’s and nationally by 1992.

The company went public on the New York Stock Exchange in 1995. The Boston Beer Company’s scheme for growing was one of distinction. The company created a higher quality beer than the bulk of American beers by utilizing more expensive ingredients and less H2O. and it used its packaging and its commercials to publicize this committedness to quality. In fact. because of its usage of lone barley. hops. barm. and H2O as its ingredients. Samuel Adams won the award of being the first American beer to be sold in Germany. a differentiation that helped its image in America even more.

One concern scheme that the company employed as it started to turn was utilizing excess brewing infinite in other company’s breweries to brew their beer. Since the company was turning at a dual figure rate. it didn’t have a batch of excess capital to construct its ain breweries. so this was a good scheme for them during their period of growing. And. since these breweries were distributed throughout the state. this scheme allowed the Boston Beer Company to maximise the freshness of the beer it sold.

In fact. the now celebrated pattern of publishing a freshness label on bottled beer was started by the Boston Beer Company on its Samuel Adams Boston Lager. The company ensured quality production in these disperse breweries by engaging experient brewmasters to supervise the contract brewing. The company besides brewed some beer on its ain belongings. both in Boston and subsequently in a works they purchased in Cincinnati. Ohio. In 2002. the company took a hazard by presenting Sam Adams Light. a light beer version of their Samuel Adams Lager.

They had ne’er produced a light beer before. and it was Koch’s stance that the company couldn’t brew a light beer that would be up to their criterions of spirit. The expanded client base that the company would aim with the sale of a light beer was excessively moneymaking a market to disregard. nevertheless. and the light beer market was about barren of any Better Beers. so after three old ages of development Sam Adams Light was born. The advertisement expenditures for 2002 increased by 25. 7 % or $ 20. 6 million over 2001 due to the publicity of Sam Adams Light2. which magnified the fiscal hazard of bring forthing and selling it.

The new beer had the short term consequence of pulling new consumers to the Samuel Adams trade name. although the long term consequence has yet to be seen. The growing of the Boston Beer Company was really impressive. and can be attributed to a superior merchandise. good concern scheme. and an unsaturated market for high-quality beer. But now there are new challenges confronting the company. There are ever new crazes in the beer industry ; current tendencies are low-carb beers and fruityflavored malt drinks. The Boston Beer Company needs to make up one’s mind which of these tendencies to react to. and how to

respond to each. Above all the company needs to go on its scheme of distinction that allowed it to accomplish its current profitableness. It is its image for quality above major American beers like Budweiser. Coors. and Miller that allows it to maintain its monetary values. and its net incomes. high. Current Industry Analysis The Boston Beer Company’s merchandise is a “better” beer. A better beer is defined as either a trade beer or an import. and is characterized by higher monetary values and quality. A trade beer is defined as one which is brewed with 100 % malted barley as its grain.

The major American beer companies typically use a mixture of malted barley along with other grains such as rice or maize. since these are less expensive and have less racy spirits. Rivals in the better beer industry include such foreign companies as Corona. Heineken. and Guinness. every bit good as domestic companies such as Sierra Nevada. Pete’s. and a figure of microbreweries around the state. While the beer industry overall is really emulous. the better beer industry is non so. as evidenced by high net income borders ( the Boston Beer Company routinely posts net income borders of over 50 % ) .

The competition that does be tends to go around around quality competition instead than monetary value competition. There are legion replacements for better beer. All alcoholic drinks are replacements for the Boston Beer Company’s merchandise. although the two closest replacements are major American beers and flavored malt drinks ; vino and liquors are less relevant replacements for the intents of this analysis. Budweiser. Coors. and Miller are all big trade name name beers which have low monetary values and low quality compared to better beers.

Price sensitive consumers typically buy these beers. Smirnoff Ice. Skyy Blue. and Bacardi Silver are all likewise priced to the better beers. but they have fruitier spirits and hence entreaty to consumers with a different gustatory sensation penchant. The providers for the Boston Beer Company are similar to the providers for any brewery. Supplies that must be purchased include the ingredients like H2O. barley and hops. the equipment for brewing. and the transit for administering beer around the state.

The ingredients are really really cheap compared to the other two costs. and providers of barley and H2O don’t have a batch of dickering power since these industries are fragmented. The hops industry. nevertheless. is more centralised. In order to guarantee equal hops supplies at monetary values known in progress the company on a regular basis purchases hops hereafters. The company besides employs an aggressive contract brewing scheme. Under this policy about 60 % of the company’s merchandises are brewed at noncompany owned breweries. By using the extra capacity of geographically distributed breweries. the company can maintain equipment and transit costs low while supplying a freshman and therefore higher quality merchandise.

This brewing attack carries built-in hazards by giving possible challengers some control over the company’s production capacity. Indeed the company is presently involved in a case with Miller after Miller’s effort to endorse out of a brewing contract early. To protect itself from these hazards the company enters into contracts with a diverse set of beer makers for a much larger sum of beer than they really produce.

This excess capacity is meant to screen the company from any figure of contract beer makers defaulting on their contracts. Buyer dickering power doesn’t have important influence on the Boston Beer Company since their purchasers are grocery shops and bars. The food market industry and the saloon industry are both disconnected. so each shop or saloon that buys from the Boston Beer Company comprises a really little sum of entire company gross revenues. and the loss of any one purchaser won’t significantly hurt the company.

Complements in the better beer industry include the popularity of bars. nosh nutrients like pretzels and nachos. and featuring events like football games. While the Boston Beer Company doesn’t provide any of these complements. they do supply some sum of client instruction. Customer instruction includes advertisement awards the company has won. publicizing their brewing procedures. and naming attending to their premium ingredients. This serves to convert people of the superior quality of Samuel Adams. thereby converting them to pay a premium monetary value.

Customer instruction is a reasonably clever and successful scheme for a figure of beer companies. but it benefits better beers more than lower quality beers. so the Boston Beer Company could likely take advantage of this by concentrating more on client instruction. The BBC besides has an advantage over little high-quality breweries because its economic system of scale allows more clients to be reached per dollar spent on client instruction. Any company in the drink industry has the possible to come in Samuel Adams’ market. and it is ever important for a company to be cognizant of possible entry from all sides.

Companies that make vino. liquors. or malt drinks could all come in the market. and we have really seen in recent old ages that liquor companies have been spread outing into new markets by bring forthing malt drinks under the name of the parent liquors company. However. the most unsafe possible entrants would be other beer companies. Other trade breweries that sell their beer on a little graduated table might try to copy the BBC’s scheme to turn into a national trade name and steal some of BBC’s market portion. Besides. major American breweries could utilize their expansive resources to brew high quality beers that could vie with Samuel Adams on a national degree.

A 3rd. and even more baleful possibility. would be the combination of these two forces ; a major brewery could purchase a high quality microbrewery and utilize their national advertisement and distribution substructure to market the microbrew to the populace on a big graduated table. Given the Boston Beer Company’s high net income borders and the comparatively low degree of competition within their market. it is really likely that entry will happen and gnaw off at BBC’s net incomes if BBC is unprepared. We believe that reacting to this possibility should be at the head of the company’s concern scheme for the immediate hereafter.

The Boston Beer Company’s Strategy: Using Reputation as an Entry Barrier The BBC’s initial scheme was one of growing. This was suiting for it when it was a microbrewery looking to derive national and international gross revenues. During its enlargement in the early 1990’s. the company took advantage of the fact that consumer demand for trade beers was increasing. while there were few other companies making the same. Since the new market was unsaturated. the Boston Beer Company was able to gain an cheap repute for its Samuel Adams trade name name by being the first big graduated table mover into the national trade beer market.

By the late 1990’s. the BBC’s growing rate had begun to worsen. In an attempt to maintain up growing. the company switched to a scheme of seeking to increase the demand for craft beer. It did this through big scale advertisement. and most significantly through the debut of a light beer that brought light beer drinkers over to the better beer market. The Boston Beer Company’s scheme was an effectual 1 for many old ages. and enabled it to go the profitable national company that it is today.

However. if the BBC wants to keep its profitableness. it will necessitate to happen a manner to protect its market portion from entrants. and this will necessitate a displacement in the company’s scheme back to increasing its portion of the Better Beer market instead than of the mainstream market. The biggest menaces to the BBC are the major American beer companies. which have monolithic resources that would let them to vie with the BBC. The BBC’s two advantages over these major companies are experience and repute. and the major companies could easy derive experience by purchasing an bing trade beer company and using its brewing processs.

Therefore. the BBC must protect its repute at all costs. since its repute is the lone formidable entry barrier forestalling Budweiser. Coors. and Miller from successfully occupying Samuel Adams’ market. The company’s best scheme would be to decelerate their growing in order to work on beef uping their Samuel Adams Boston Lager trade name name. Additionally. if the BBC diminishes its focal point on growing. it could really good hold the consequence of cut downing the inducement for these three major companies to come in the trade beer market. since the BBC will non be seen as so important a menace.

While there is a hazard that decelerating growing will go forth the company vulnerable to entry by smaller companies. it is the big companies that have the most resources to vie with the BBC. so cut downing the inducement for big companies to come in is worth the possible hazard that more little companies will come in. The uniqueness and unity that allowed the Samuel Adams trade name to derive popularity are get downing to be overshadowed by the company’s efforts to garner more mainstream consumers. and this is aching the company’s trade name name.

The scheme for the hereafter needs to concentrate on edifice back client trueness for the company’s nucleus merchandise line. i. e. Samuel Adams Boston Lager. First and first. the Boston Beer Company needs to go on cut downing its outgos on Sam Adams Light. During the debut of Sam Adams Light in 2001-02. grosss and gross net income increased. but expenditures on advertisement Sam Light were highly high. and much of the gross revenues of Sam Light were thought to be due to cannibalism of Samuel Adams Boston Lager.

In 2003 when advertisement of Sam Adams Light was decreased. gross revenues of the light beer dropped significantly. Although Samuel Adams Boston Lager gross revenues increased during the period between the 4th quarters of 2002 and 2003. overall cargos dropped 6 % during this period3 because of the lowered demand for Sam Light after the diminution of the Sam Light marketing run. However. even though gross revenues were lower. net income was higher after the terminal of the selling campaign4. The company should therefore continue to maintain its advertisement degrees for Sam Adams Light low.

In add-on to the high fiscal cost of advertisement Sam Adams Light. it is likely that the large-scale selling of Sam Adams Light could ache the company in the long tally by thining the Samuel Adams trade name name. The intent of Sam Light is to appeal to mainstream beer drinkers. but the company’s consumer base is comprised of persons who pride themselves on imbibing a beer that is non mainstream. With possible entrants looming from above and below. the Boston Beer Company can non afford to lose its repute for singularity.

Still. Sam Light is a good gross watercourse as a addendum to Samuel Adams Boston Lager. but it should discontinue to be the company’s chief focal point. The “Twisted Tea” and “Hard Core” merchandises are malt drinks that the company produces on a little graduated table. These trade names are unneeded for the company’s success. and if the company adopts a scheme to concentrate on Samuel Adams Boston Lager so it would be advantageous to extinguish these merchandises. While the merchandises dilute the company’s trade name name in a similar manner to Sam Adams Light. they don’t provide about the gross that Sam Light does.

By either merchandising or shuting down these trade name names. the Boston Beer Company can distance itself farther from the malt drink industry and better its placement as a Better Beer company. Dumping these merchandises would assist the BBC’s image of unity in the eyes of their consumers. and this image will be important if the company is to protect its market portion from entrants. There have been a figure of attempted entries into the Sam Adams market which demonstrate the demand for quality and repute.

Coors owns Killian’s Irish Red and Anheuser-Busch owns Michelob and has a interest in Red Hook. all trade names that have had hapless success in the Better Beer Market. Most consumers are good cognizant of the fact that Michelob is merely another domestic beer sold at a high monetary value. and so it’s a trade name without much of a quality image. On the other manus. it’s non good known that Coors owns Killian’s since it’s brewed in Canada and has an import label. While this label might signal some quality in many consumers’ eyes. Killian’s has no repute and no client base.

Finally. Red Hook was a quality microbrew ale with a good repute and client base that was bought by AB. Since this purchase in 1994 the stock monetary value of Red Hook has plummeted from ~30 to 2 and gross revenues have been hapless. While the ground for this is non precisely clear. it’s possible that this failure is due to a loss of unity that occurred when the microbrew became owned by a major domestic beer maker. or that AB merely wasn’t able to run that type of brewery. AB’s failure in this effort doesn’t indicate that they will give up on come ining the trade beer industry. nevertheless. particularly if craft beers grow to be more of the national market.

With such high net income borders and a strong market place. the BBC might be tempted to increase gross revenues by diminishing monetary values. but this scheme should decidedly be avoided. The high monetary values for Samuel Adams Boston Lager and Sam Adams Light signal to consumers and other companies that these beers are of higher quality. and since demand in the Better Beer market is comparatively inelastic. there would probably be no addition in net income if monetary values were reduced. Reducing monetary values would do the BBC to look more of a menace to the three major American beer companies. and could therefore hasten the entry of one of these companies into the market.

Due to the nature of the Better Beer industry. the company needs to endeavor for quality competition over monetary value competition. With the debut of Sam Light in 2002 the per centum of BBC’s gross revenues comprised of bottles vs. kegs increased since most Sam Light is sold in bottles. and since Boston Lager gross revenues declined somewhat. While grosss are lower per barrel of bill of exchange beer. net income borders are higher due to take down costs per barrel. Additionally. beer served on pat is normally able to retain a higher quality than beer served from a bottle.

For these grounds and others. it would be a good scheme for the Boston Beer Company to increase its accent on selling its beer in kegs to bars. While most grocery shops already carry Samuel Adams Boston Lager. there are still a big figure of bars that don’t have Boston Lager on bill of exchange. and this deprives many consumers of being able to imbibe the beer in its highest quality signifier while besides striping the company of the added gross that saloon gross revenues bring in. Since the company’s new focal point demands to be on stressing the quality of its beers. increasing the handiness of its bill of exchange beer is in line with its scheme.

An added benefit of increasing prevalence in bars is the chance for barman instruction and attendant consumer instruction. The company should earnestly see supplying literature about their beer along with the kegs that they sell to bars. since educating saloon proprietors and barmans about the premium ingredients and freshness criterions that the company holds will hold a trickle-down consequence to the beer drinkers. Continuing with this scheme of inching off from the mainstream. the Samuel Adams line should exchange back to its original label.

The current label is simple with few colourss. similar to the major company labels. while microbrew labels typically have a more complex image that distinguishes the trade name. Switch overing back to the “BrewerPatriot” label would signal to both new and old clients that the BBC is committed their roots and to quality. Puting Excess Capital to Use If the BBC continues to be successful in fending off possible entrants and if it maintains its high net income borders while remaining off from a growing scheme. so it needs a program for puting its net incomes.

In the yesteryear. net incomes have been invested in growing or in stock of other companies. but in line with the new scheme of slow growing. there might be countries in which their money could be better invested. Some of the money could be used to fund the client instruction plans mentioned earlier. but it might besides be wise to get down having more breweries. Contract brewing proved to be efficient and successful during their growing stage. Up until the late 1890ss they were increasing gross revenues by dual figures each twelvemonth.

At this clip it would hold been hard to impossible for production capacity to maintain up with gross revenues. non to advert for the company to procure the necessary capital. However. in the past 5 old ages growing has slowed. and systematically high net incomes have led to big sums of extra capital. BBC has been maintaining some capital liquid in short term bonds and common financess and utilizing the remainder of the capital to purchase back company stock4. There are several grounds why contract brewing makes less sense now. First. the BBC has run into state of affairss in which being a contract beer maker has hurt the company’s repute.

Anheuser-Busch used a dateline interview and ran a series of onslaught ads claiming Samuel Adams Boston Lager was no different from other domestic beers since much of it was made in the same breweries as these domestic beers5. The ads were finally dropped when an advertisement watchdog group found the ads to be factually wrong. but the harm had been done6. Brewing all of their ain beer would insulate them from such claims. reenforcing their repute. Additionally Miller tried to endorse out of a big brewing contract7.

BBC won in arbitration. but 1000000s were lost in legal disbursals and backup contracts which were ne’er realized. The difference besides brought more attending to the fact that some Samuel Adams is made by the big leagues. thining their trade name name more. BBC already produces half of their ain merchandise. and sells extra capacity to other beer makers. This indicates that the company already has the experience and know-how that it needs to run their ain breweries on some graduated table. With so much capital available and gross revenues growing slow. BBC should buy a few local breweries around the state to bring forth all of its merchandise.

Excess capacity in these breweries can be contracted out as is presently done in the company’s Cincinnati works. By having and runing their ain breweries. the BBC can avoid the harm to its repute every bit good as the contract disputes that it has to incur by operating as a contract beer maker. Conclusions The Boston Beer Company has shown that it has a successful concern scheme for growing. The company’s direction now needs to demo that it can keep its profitableness at its current degree by following a scheme that creates barriers for entry into the national trade beer market.

Many conventional entry barriers can be overcome by either regional microbreweries. which have the experience necessary to brew quality beers. or by major American breweries. which have the resources to market a new beer nation-wide. The one important entry barrier that the Boston Beer Company still holds on to is its good repute. which it gained both by being an early mover into the national trade beer market and by keeping rigorous quality controls. As the company has matured it has drifted off from its repute of singularity.

In order for the company to keep its clasp on the American trade beer market. it will necessitate to resuscitate its repute at all costs. Because the company’s growing has slowed. it has an chance to utilize its extra capital to fund plans that help bolster its image as a high quality. high unity beer maker. If it continues to distinguish itself from major American breweries like Budweiser. Coors. and Miller. so despite the Boston Beer Company’s smaller resources. it should still be able to keep its consumer base and protect its net incomes from entry into its market. References 1. “Samuel Adams – Company Background.

” 2. The Boston Beer Company. Inc. 2002 Annual Report 3. “Boston Suffers Tough Fourth Quarter. ” Modern Brewery Age. hypertext transfer protocol: //articles. findarticles. com/p/articles/mi_m3469/is_8_55/ai_114921347 4. The Boston Beer Company. Inc. 2003 Annual Report 5. Contract Brewing. Lew Bryson. Copyright 2000. hypertext transfer protocol: //www. beveragebusiness. com/art-arch/mmbryson0201. hypertext markup language 6. “A-B to modify ads assailing Boston Beer. ” Copyright 1997. Chautauqua Inc. hypertext transfer protocol: //www. allaboutbeer. com/news/industry /ab_ads. hypertext markup language 7. “Brewery add-on may be on pat. ” Copyright 2003. Cincinnati Post. hypertext transfer protocol: //www. cincypost. com/2003/04/02/brew04-02-2003. hypertext markup language.