MGMC01H3 Chapter Notes -Niche Market, Beverage Testing Institute, Psychographic

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Published on 26 Nov 2014
School
UTSC
Department
Management (MGM)
Course
MGMC01H3
Professor
Case 5:
Boston Beer
Abstract
Market research plays a critical role in many decisional objectives of a company. With new
product innovations and launches it is vital to conduct and gather as much relevant and useful
information regarding consumer needs and preferences in order to make the best possible
judgment. As a business considers product introductions or line expansions, many issues are
reviewed; company strategy, competitive analysis, market opportunity, consumer demand, and
numerous promotional factors such as positioning, branding, and customer segmentation are a
prominent few.
Problem Analysis
The following is a decisional case to which the Boston Beer Company (BBC) must determine
whether there is an attractive opportunity in the light beer market while recognizing the problems
its original Boston Lightship light beer product have had. As previous financial records show,
Lightship sales have dramatically eroded. It is important to understand the underlying reasons
why via market research in order to access whether BBC should terminate the light beer
segment and focus solely on craft beer, continue investing in the Lightship product in hopes to
turn it around, or introduce a new brew to represent the company.
Industry Evaluation
The dynamics within the beer industry has favored BBC for decades. BBC’s ability to capitalize
on its first mover’s advantage through the craft beer segment was a testament to its success,
penetrating a near transparent 0.1% beer market to 3% of beers sold in the US in one year. In
time, BBC was renowned the “Best Beer in America,” exponentially growing 10 times in revenue
from $21 MM and 121,000 barrels to $210 MM and 1,352,000 barrels in only 7 years. In
considering whether to pursue the light beer market with Lightship or a new brew, it is
imperative to understand the beer market:
1. The craft brew segment has changed competitively since BBC’s first introduction of the
Samuel Adams brand. From its peak of $32 per share, it has not found much success
having a drop to $7.63 per share by 1997 year end. With the industry increasing in
competitors, businesses strive to optimize sales to obtain distribution and are pressured
to fill capacity or initiate discounts solely to survive. The largest threats being imports,
distributors and retailers have become highly selective of which brands to supply; this is
unfortunate for the craft market, having excess product. As suppliers require exceptional
turnover, margin, and bottom line, it is difficult for smaller brands to compete without the
necessary resources, especially against leading names such as Miller and Anheuser-
Busch who focus on exclusivity. Entering along with other craft brewers (Red Hook,
Pete’s Wicked and Pyramid), results have shown that each company have all have
declined in profits; this demonstrates that the market for craft brew is ultimately dwindling
rather than the company itself. Thus, although the craft market had once boomed
economically for BBC, the market was non-existent at the time which was a prevalent
influence; however, the craft brew market is now becoming stagnant and decisions need
to be made accordingly. BBC’s current company stock averages to $10-11 per share. To
improve its value, reach its goal in becoming the best in the “better beer” category, BBC
needs to look towards expanding their target market away from its craft brew niche.
2. The light beer segment is dominated by Miller Lite, Bud Light, and Coors Light. Unlike
the craft crew market, light beer shipments have grown steadily from 13% in 1980 to
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40% in 1997, approximating 10% every 5 years. Currently outperforming beer for several
years, the light beer market is flourishing, representing 5/10 of the top selling beers in
supermarkets and more shelf space dedication from retailers. The light beer segment is
predicted to be the fastest growing segment with steady amount of volumes. Also, as
seasonal brews were less profitable with high ingredient costs, light beer is the more
promising option. To fulfill its “better beer” objective, expand its target consumer base
and remain relevant in the beer industry, BBC should continue to pursue marketing a
product specialized in light beer to optimize potential profits from the positive trends
demonstrated in this market. The light beer market is an opportunity for BBC to develop
both financially and reputably as well as to prevent suffocation in the declining craft brew
segment. BBC is poised for over a $24 MM business with Amstel Light as a
representation and projection model of the success high end light beer can offer.
Product Line Evaluation
BBC achieved its growth through product line expansions and increasing its distribution
channels. With a total of 22 beers (Samuel Adams representing 14, LongShot 3, Oregon
Original 3, and Hardcore 2); to continue its expansion, BBC will have to restructure its resources
to fulfill promotional and development demands. The purpose of the market researching tools
are to understand the elements revolved around new innovations through identifying consumer
tastes, sampling competitors and the re-evaluation of BBC’s own product line. In deciding
through which method BBC should penetrate the light beer market with, it is vital to recognize
the problems of consumers, what they demand of light beers, and how best BBC can satisfy
their needs in the most profitable way.
1. The Lightship product is BBC’s newest offering in the light beer segment. With initial
success generating sales volume of 12,000 cases per month to a significant decline of
3,000 cases per month, BBC is currently not acquiring its expected return on Lightship’s
investment. Koch’s theory for Lightship’s failure was that their original niche market
being core craft drinkers who are willing to pay premiums are simply not light beer
drinkers. Therefore, for BBC to penetrate the light beer market successfully, the product
should target light beer drinkers and address their tastes and demands. With reference
to exhibit 8, utilizing the ZMET strategy that induces inner revelations of what
individuals do not know themselves, the tool elicits users’ deepest feelings and emotions
about a product. With positive thoughts and feelings associated with light beer drinking,
it is a guiding reason towards growth in this market and people’s enjoyment of these
products; therefore, the reason for Lightship’s failure is not due a problem in the market
but the product itself. The decline of the Lightship line was largely due to its positioning
uncertainty. To strengthen Lightship BBC had already dropped 5 beers from the Samuel
Adams line, discontinued LongShot line, paired down Oregon line, and merged the
Oregon and Samuel Adams Salesforce. After all these accommodations and sacrifices, it
would be inefficient to not pursue a light beer product line. Also according to exhibit 8,
both regular and occasional drinkers connect light beer in an associative mode with
terms including “active” and “healthy environment.” The target market for light beer
requires a drink for its refreshing qualities. Contrastingly, Lightship fails to satisfy the
needs of light beer drinkers and instead offers the characteristics these individuals strive
to avoid. As Lightship fails as a light beer product, possessing many heavy taste
attributes of the Samuel Adams representation such as its full-bodied flavor and
heartiness, a new product should be launched to effectively address the needs of these
specific consumers. Throughout 1988 to 1992 the company devoted substantial
resources through promotional activities which was a fundamental reason for Lightship’s
success. Lightship does not satisfy what light beer drinkers want and does not have the
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