(FORTUNE Magazine) – Imagine this scenario: You're a brand manager attending a brainstorming session with your staff when your company president suddenly announces that he has an idea. You're expecting him to suggest a snappy slogan or maybe a new advertising angle. But whatever you're expecting him to say, it isn't this: "We ought to think about renaming a city after our product."

That's precisely what happened to Rebecca Green one day in 1996. Green is a brand manager for Dr. McGillicuddy's Schnapps, which is distributed by a New Orleans firm called the Sazerac Co. She was at a product-development meeting when Sazerac president Peter Bordeaux "just sort of blurted out" the city-renaming idea. "The more we thought about it," she says, "the more we realized it could be an interesting promotion."

Bordeaux, unfortunately, died soon thereafter, but Green and her Sazerac cohorts moved ahead with his unconventional plan. By late 1996 the company had ironed out the details: Municipalities willing to change their name to McGillicuddy City for four years would be invited to submit entries explaining why they were worthy of the title, with the lucky winner receiving $100,000. Since Dr. McGillicuddy's has always sold best in northern states like Wisconsin and Minnesota, Sazerac specified that only towns with at least six months of snow per year would be eligible. Then, after announcing the contest, they sat back and waited for entries.

"We weren't sure what to expect, because this had never been done before," says Green. "But we thought we'd get 50 to 100 proposals." In the end, though, only six entries trickled in, one of which was a suspicious-sounding offer to purchase a plot of land in California. But the other five entries were legit, including one from a tiny North Dakota town called Granville (pop. 270).

As it happens, Dr. McGillicuddy's Schnapps wasn't being sold at Granville's two saloons at this point. In fact, according to LaDona Malachowski of the Granville Economic Development Board, virtually nobody in Granville had even heard of Dr. McGillicuddy's until a town resident saw the contest on the Internet. But the Sazerac crew didn't know that when they reviewed Granville's proposal, and they liked the town's plan to put the prize money toward a badly needed community center. So after visiting and being impressed by the residents' small-town hospitality ("We really, y' know, sucked up to them," says Malachowski), the Sazerac officials named Granville the winner last February.

A year later, Green thinks the promotion has been money well spent. Aside from the $100,000 prize, the initiative's only overhead is expected to be about $20,000 in administrative and publicity costs. In return, Sazerac has gotten a mountain of press coverage. "Over a four-year period," says Green, "this is more effective than any traditional advertising we might do. The bang for the buck is definitely up there." While declining to cite specific figures, she adds that sales of the brand are up since the renaming.

At least a bit of that sales bump is no doubt coming from Granvi--er, from McGillicuddy City, which is now awash in schnapps. In addition, the town has reaped an unexpected tourism windfall. "A lot of people stop by just so they can say they were here," says Malachowski. The visitors typically buy McGillicuddy City T-shirts or shot glasses, along with--of course--plenty of schnapps.

As for the renaming, it's not as big a deal as it might seem--the school, post office, and sign on the highway all still say GRANVILLE (although the latter has now been joined by a new sign that says MCGILLICUDDY CITY), and the town's official letterhead lists both names. Still, it's all a bit weird when you consider that Dr. McGillicuddy is a fictitious character while Granville was named after Granville Dodge, a civil engineer on the Great Northern Railroad in the late 1800s. What would he think if he knew his name was being sold out for $100,000? "Oh, it's for a good cause," says Malachowski, "so I don't think he'd care."

Besides, the name will revert to Granville after three more years, although Malachowski, perhaps having learned a bit about big-city business from the experience, has her own ideas about that. "We might just keep the name," she says, "for another hundred thou."

PAUL LUKAS, author of Inconspicuous Consumption, obsesses over the details of consumer culture so you don't have to.