Economic Principles of Two Boston Breweries

Sam Adams Brewery in South Boston and Harpoon Brewery in East Boston both offer daily tours of their production facilities. When I had just moved to Boston and four of my friends were coming to visit, I decided to take them to the Sam Adams Brewery because this tour is free. The opportunity cost of taking the tour of the brewery was simply the time spent getting to and from the brewery, waiting for the tour to begin, and the tour itself. This time could have been spent differently perhaps even doing a tour of Harpoon Brewery but that would add the cost of $5 per person.

Since the Sam Adams tour is free, many people view this as an opportunity to be exploited because they expect to be entertained, learn about brewing beer, sample 3 different brews, and take home a free souvenir tasting glass. My friends and I, and hundreds of other tourists and locals sought to optimize our time in Boston that day. Our choice to tour the brewery impacted others by making five spots on our tour unavailable to anyone else. Thinking about the opportunity cost of our plans for the day was helpful because we did not have any regrets and would have chosen the same activity again.

It was clear to us what we were going to gain from this “trade”—a memorable experience with friends, free beer, and a souvenir glass. What we had not yet realized was what the Sam Adams Company had to gain from us. The tour is essentially an advertisement that earns customer loyalty by offering their visitors so much for free. Several people on our tour had never tried Sam Adams’ beer and stated that they thought it was the best beer they had ever tasted. These same people might not have ever ordered or bought Sam Adams beer if the brewery did not offer the sampling of their beers as a free and entertaining experience.

At first, I thought that this system had not achieved equilibrium. Equilibrium exists when neither party has anything more to gain from the trade. Sam Adams brewery would gain profits if they charged a nominal entrance fee for the tour, say $5 or less. At $5, they would be equal in price to their competitor—Harpoon Brewery. Based on Harpoon’s success with sold out tours every day despite the fact that they charge five dollars per person, I would predict that Sam Adams would continue to be a popular destination if they decided to add a fee. This would not be an efficient move, however, because it would negatively impact the consumer who would now be charged for the tour. The fee would increase the opportunity cost for each consumer who decided if the tour was the best use of five dollars and their time in Boston.

Although it seems that Sam Adams may have more to gain if they charged for tours, their goal for providing tours may not be to directly increase profits. It is possible that the amount they spend on advertising elsewhere is less so that they can use the tour as a way to influence customers’ choices. If this is the case, why wouldn’t Harpoon Brewery also use their tour as just an advertisement? Harpoon’s total production in a given year is only about 6% that of Sam Adams (Dzen, 2013). Therefore, Harpoon has a greater need to make profits in ways other than selling their beer. The goals of the Harpoon tours are to make a profit and to advertise. This extra revenue helps Harpoon exploit the opportunity presented by Boston tourists. Both tours are comparable in the content, duration, and number of people on the tour.

These companies also use price discrimination techniques to exploit the opportunity that people of various income levels provide. They each have a gift shop so that customers who are interested in spending more money have something to purchase, but those who wish to spend minimally can still attend. Harpoon offers yet another option for product bundling by having a full bar in the crowded waiting area. Having the bar available to their customers is one more opportunity exploited by Harpoon Brewery.

Finally, Sam Adams Brewery has perfected its decisions at the margin by running a tour every twenty minutes. Running tours every thirty minutes would lead to longer wait times and less customers touring each day. Starting tours in less time would be logistically impossible since they are limited by the resource of space and have just one tasting room. Again, since Harpoon is a smaller brewery, they only have tours every hour. These get sold out every day of the week and Harpoon ends up turning people away. It seems as though they should make a marginal decision to add a few more tours because it would benefit them. Their facility is divided into different rooms which would allow for the staggering of tours, but then they must consider the cost of hiring more guides. At the margin, the cost of running more tours cannot exceed the anticipated benefit.

Thinking like an economist using logic and practicality is beneficial to companies and consumers. In this example on brewery tours, customers determine if the experience is worth the opportunity cost of their time and the breweries attempt to optimize the number of people they advertise to with their daily tours. Equilibrium is reached when each party would make the same decision in hindsight. In the case of the two Boston breweries, my friends and I would take the tour again, and the breweries remain open for tours because equilibrium has been achieved.

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