Mendocino Brewing Company

This 1994 DPO presented a new marketing challenge to the DPO process. Unlike the banks and catalog retailers, this 11-year old brewer of ales, stout and porter did not have a database of the people who were its' customers, except for those who had signed the brewpub guest book. In other words, Mendocino Brewing did not pass one element of the "Screen Test for a Direct Public Offering," the one that calls for a database of the affinity groups to whom the shares are to be offered. The company's products are marketed primarily through distributors and then retailers. There was no way to get the names, addresses or any other information about the ultimate customers. (Actually, there are ways, but they take years to be effective. See the story about Annie's Homegrown.)

The lack of a data base did not change the assumption that only those who bought the product would buy the shares. Our marketing was entirely directed to people who drank the Company's Red Tail Ale and other ales, so we needed ways to let them know they could become shareowners in their favorite brewery.

We projected (conservatively, as it turned out) that 20% of those who received a prospectus would buy shares. We also projected (also conservatively) that the average purchase would be $1,000. That meant we needed 3,600 investors to sell out the offering and five times as many (18,000) people requesting the prospectus. An answer to the question, "what media did you use to announce the offering?" would be, "every one we could think of, if it looked to be cost-effective."

To keep tabs on how well each medium was drawing, callers requesting prospectuses were asked how they had learned of the offering. Responses from half fit the "word of mouth" category. Second highest responses were from a "tombstone" announcement card placed in six-pack containers of ale. Several other media were used and the combination helped to get the "word of mouth" started. Total costs of the offering were $260,000, or about eight percent of the $3.6 million raised. The shares have been trading ever since, on the Pacific Stock Exchange.