Boston Beer Company, Inc.

75 Arlington St.
Boston, Massachusetts 02216
USA
Telephone: (617) 368-5000
Fax: (617) 368-5500
Web site: www.bostonbeer.com

IT'S WHAT'S INSIDE CAMPAIGN

OVERVIEW

In August 1998, after a two-month review, the Boston Beer Company, Inc. replaced its longtime ad agency, Carmichael Lynch, with Interpublic Group's McCann-Erickson. The New York-based agency's first work for the Samuel Adams Boston Lager brand retained the aspirational thrust of the final campaign from Carmichael Lynch but adopted a more straightforward approach that defined both the beer and its consumers. The resulting campaign, "It's What's Inside," was introduced later in the year and included both television and radio spots. Cofounder and CEO James Koch expressed confidence in the new tag line, which appeared to be borne out by the brand's performance in 1998.

HISTORICAL CONTEXT

Koch, who owned 27 percent of the Boston Beer Company, emerged from a long family line of brewers. His great-great-grandfather Louis once owned a brewery in St. Louis that operated in the shadow of Anheuser-Busch. His father, Charles Joseph, Jr., worked as a brew-master at several breweries in Cincinnati. Koch himself gave up a promising career in business to pursue the family dream of owning and operating his own brewery. At the time, in the early 1980s, Americans' taste in mass-marketed beers had drifted toward light, pale brews like Budweiser. Koch proposed to buck the tide by marketing a more full-bodied lager made of choice ingredients, a connoisseur's beer brewed in the Old World tradition.

Koch founded the Boston Beer Company in 1984, raising $400,000 from friends and business associates and exhausting his personal savings of $100,000. For his recipe Koch retrieved his great-great-grandfather's old beer formula from his father's attic in Cincinnati. For the label of his flagship brand, Koch chose to honor Samuel Adams, the American Revolutionary hero who had once worked as a soaker and drier of barley (not a "brewer," as stated on the label).

The early days of the Boston Beer Company were difficult ones. Many Boston-area distributors doubted that consumers would pay $6 per six-pack for an American beer. And so Koch and his "sales staff" (consisting in its entirety of Koch's former secretary Rhonda Kallman), traveled from tavern to tavern hawking Samuel Adams in person. Koch also entered his beer in the Great American Beer Festival and won the consumer preference poll. He built his early advertising campaign around the award, saturating newspapers and radio waves with the tag line "The Best Beer in America." The ads stressed the idea that Samuel Adams beer was brewed in small batches by Yankee craftsmen. "I'd had no idea whether we'd find 100 customers or a million," Koch declared. "I hoped to sell 5,000 barrels in five years, but we got to that goal in four months."

Once the company had posted those kinds of numbers, larger distributors began to show an interest. Samuel Adams beer became one of the first American specialty brews in decades to become a nationally distributed product. Annual sales of the Boston Beer Company grew at a 57 percent clip a year in the early 1990s. In 1996, 12 years after its launch, the company made $8.3 million in profits on sales of $214 million.

It was thus that the Boston Beer Company rose from obscurity to become one of America's leading craft brewers. The company eventually produced about 20 seasonal and year-round varieties of craft-brewed beers at its Boston and Cincinnati breweries, as well as through contracts with five others breweries across the United States. Each year nationwide it sold nearly 1.2 million barrels of lager (such as its flagship Samuel Adams Boston Lager), ales (in Oregon Original and Samuel Adams brands), and cider (Hard Core brand), and its brews were also distributed internationally.

In the mid-1990s, however, the market for craft brews began to slacken. Some analysts credited the slide to aggressive line and product extensions by companies like Boston Beer. Increased competition from the mass-market brewers, who marketed their own "craft brew" brands under names like Red Dog and Icehouse, also helped slow the growth of the segment. By this time even the best-known of the craft brews, Samuel Adams, had become a victim of diminishing investor expectations. Boston Beer's stock fell from a high of $32.50 in November 1995 to less than $10 in April 1998. The Samuel Adams advertising tag line, "All in due time," which attempted to equate the consumers and the beer, was criticized for being confusing. "We swung for the fences, and we missed," said one executive who worked on the campaign.

Koch initially laughed off some of the company's advertising miscues, saying, "If you brew a bad batch, you can drink your mistakes. In advertising, you suck it up in another way." In June 1998, however, after sales had continued to decline, Boston Beer initiated a two-month review of its advertising with the aim of replacing its longtime ad agency, Minneapolis-based Carmichael Lynch. New York's McCann-Erickson and Boston's Hill, Holliday, Connors, and Cosmopulos emerged as finalists in the competition, with McCann-Erickson named the winner of the estimated $12-$15 million account in August. The ad shop's first campaign for Samuel Adams lager, using the tag line "It's What's Inside," was unveiled in the autumn of 1998.

TARGET MARKET

The principal target market for Samuel Adams lager was young males. Beer industry research showed that 20 percent of American beer drinkers consumed about 80 percent of the beer produced domestically. Most of this 20 percent was composed of males aged 21 to 40. Craft beers like Samuel Adams were specifically targeted at a particular segment of this market, identified as "premium packaged lager trial lists." These consumers tried different brands but were not loyal to any particular one. Studies indicated that they made up about 12 percent of premium-packaged lager drinkers and accounted for 20 percent of volume. They were consumers who liked to keep up with the latest fashions in beer drinking and who believed that what they drank said a lot about them.

Boston Beer Company marketers also enjoyed success in the late 1990s at marketing their beer to women. In 1999 Samuel Adams became one of the first major beers to advertise during the television coverage of the NCAA women's basketball tournament. An ad aired during the telecasts of the final-four games represented a "major breakthrough" in beer advertising, according to Bill Greer, director of media services at Mintz and Hoke advertising. And although Samuel Adams had a completely different profile than Budweiser or Miller, he said that the ad suggested that advertisers recognized that not only women watched women's basketball. "I think it's an evolutionary thing," Greer said. "And next year, it may be a revolution."

COMPETITION

In 1998 players in the tiny but influential craft beer market all drafted campaigns calling for new images, new promotions, and new market focuses. They did so in response to the overcrowding of the segment with an attendant sales slump. "The differentiation game has begun in earnest," declared Jerome Chicvara, marketing director for Full Sail Brewing Company.

According to the Institute for Beer Studies, as of 1998 there were about 1,250 small brewers in the United States, up 14 percent from 1996. Craft brewers, however, faced significant challenges in promoting their brands because they lacked the huge marketing budgets of the major brewers. Boston Beer Company, for example, spent a meager $6.1 million on advertising in 1996, according to Competitive Media Reporting.

The number two player in the craft brew segment, Pete's Brewing Company, embarked upon a major marketing makeover in 1998. Past ads had trumpeted Pete's brands as party beers without touting their quality. The brewer suffered an $8.9 million operating loss through the third quarter of 1997, however, prompting it to halt all consumer advertising and reevaluate its approach. In 1998 Pete's opted to escalate its use of public relations, introduce a golden ale, and eliminate weaker beers from its portfolio.

Full Sail Brewing Company opted for a different tack to set it apart from the competition. The West Coast specialty brewer used its 1998 ads to hammer home the message that Full Sail brews were full-bodied "big beers." The company spent an estimated $100,000 on print advertising for 1998, a fourfold increase over the previous year.

A third major Boston Beer competitor, Pyramid Ales, introduced its first concerted consumer ad effort in 1998, after years of focusing on trade publications. The brewer launched a $250,000 campaign in the San Francisco and other key West Coast markets. "We're reacting to the fact that the market is so overcrowded that [trade] marketing strategies are canceling each other out," said CEO George Hancock.

THE EMPIRE STRIKES BACK

The ability of craft brewers like the Boston Beer Company to put a dent in the sales of the major mass-market brewers did not go unnoticed in the halls of Anheuser-Busch. Over the years the giant St. Louis-based brewer had tried to persuade wholesalers, who were often dependent on Budweiser sales, to stop selling specialty brews. The company also challenged Boston Beer's trademark for its Winter Lager just before the statute of limitations had expired.

But perhaps Anheuser-Busch's most concerted assault came in the summer of 1996, when America's number one brewer filed a complaint with the government arguing that Samuel Adams's labels were misleading. Boston Beer was a contract brewer, which meant that it hired bigger companies to help make its beer, but its labels noted only that the beer was "Brewed by Boston Beer Company, Boston, MA, and Under Special Agreement, Pittsburgh, PA." (The second city was the location of the contract brewer.)

Undaunted, Boston Beer's CEO, Jim Koch, defended his policy of not mentioning the contract brewer by name, insisting that to do so would give consumers the impression that Samuel Adams beer made, for example, at a Stroh's brewery was a Stroh's product. To which Francine Katz, an Anheuser-Busch vice president, countered, "How can you logically argue against a labeling standard that simply requires honesty?" Perhaps recognizing the logic of Katz's argument, Lucy Shaum, a spokesman for Boston Beer, conceded to an interviewer for Beer and Beverage Monthly, "Sure, we're jerking people's chains, but that's what advertising is all about, isn't it?"

While most consumers remained oblivious to the labeling flap, the controversy did, nevertheless, cost Koch's company. After an NBC news program broadcast a segment in October 1996 criticizing Boston Beer's labeling, the company's stock price fell 20 percent, the start of a protracted slide. Even so, Koch, who had about 95 percent of his net worth wrapped up in the stock, remained unbowed. "You don't create a whole new national market in the beer business by being frightened," he said. "Anheuser-Busch's campaign just makes us the underdog again."

While Pyramid was expanding its advertising effort, the Maryland-based Frederick Brewing Company was pulling back and trying to use money more wisely after launching its first consumer campaign in 1997. During 1998 Frederick Brewing opted to focus its ad efforts on its brands' core markets in and around the District of Columbia. It earlier had run a far-flung campaign that reached into weaker markets such as Atlanta. "We're taking advertising to markets where we have the distribution to warrant it," said CEO Marjorie A. McGinnis.

MARKETING STRATEGY

The media budget for Samuel Adams's "It's What's Inside" campaign was split evenly between television and radio. Two 30-second ads were unveiled on national television, with three radio spots targeted to 23- to 35-year-old men. The ads fell into the category of so-called aspirational advertising, that is, ads depicting the consumers as they would like to be. In this case the ads were designed to appeal to young males' desire to live lives of danger, adventure, and intrigue. The product, Samuel Adams lager, was then associated with these qualities and, by extension, so was the consumer.

One of the best-known spots in the campaign, "Destiny," opened in black and white and was shot from the interior of a car traveling along a desolate country road. "As you get closer, your eyes get wider. Your heart beats faster," a male voice-over intoned over a musical backdrop. As the car rounded a curve, a big-city skyline came into view. "This is not gonna beat you. Oh, it's loud. And it's dirty. And it's big. But so are your plans. Hey John Boy. You ain't in Kansas anymore. From here on in, every day's gonna be a test." The spot then cut to a long "pour shot" of the amber beverage: "Those who pass deserve a great beer. Sam Adams. It's what's inside." The tag line, "It's what's inside," was created to refer to both the lager and the consumers who drank it, according to Koch. "The fundamental idea feels right to me. It's about the beer and the drinker and it evokes where we came from," he said. "In 1984, all we had was what was inside those bottles and we believed in our ourselves. These ads talk very much about that."

OUTCOME

Led in part by the "It's What's Inside" campaign, the Boston Beer Company enjoyed success in 1998. For the year barrels sold and net sales were 1,227,000 and $183.5 million, respectively, compared to 1,352,000 and $183.8 million in 1997. The company's gross profit margin for 1998 was 51.3 percent, up marginally from 51.0 percent in 1997. A confident Koch declared victory in his end-of-year statement to shareholders. "Despite the turmoil in the craft segment of the beer market and a modest erosion in volume, our leading market position and aggressive programs combined to produce very satisfactory operating results in 1998," he explained. "This performance continues to validate our strong business proposition."