Frito Lay Sun Chips Case Study Essay

1. How would you characterize the snack chip category and Frito-Lays competitive position in this category? The snack chip category is growing, mainly because of the increased per capita consumption, which rose from about 12 pounds in 1986 to nearly 14 pounds in 1990. The snack chip category consists of three types of competitors topic, regional and private brand firms. The food market is very competitive and difficult as many as 650 youthful ingatherings are introduced every social class, but less than 1% of them generate more than $25 million in first-year gross r eventideue. Frito-Lay is a national brand and a worldwide leader in the manufacturing and market of snack chips. Frito-Lay accounts for 13 percent of gross revenue in the US snack food industry. Frito-Lays market contribution is 50% of the snack chips category, and and eight of its snack chips are among the top-10 best-selling chip items in US supermarkets. Furthermore, Doritos and Ruffles are the only snack chip s with $1 billion in retail sales in the world.2. What specific challenges and risks does Frito-Lay face in marketing SunChips and what are the implications of each? The following are many of the specific challenges and risks that Frito-Lay faces in marketing SunChips and the implications of each * There are a relatively large number of rivals a lot of competition. * There is a large number of substitute brands/chips a lot of competition. * Consumers are very price sensitive so brands are competing on price detrimental. * There are a few barriers to entry, and existing entrants hurt better access to distribution channels than new ones.* Tried healthy snacks and failed risky strategy.* New brand name is a departure from known name.* Cannibalization is a concern.* Frito Lay strategy differentiator, line extensions, new products to address needs.3. What insights can be emaciated from Frito-Lays prior experience with multigrain snacks? As mentioned before, the snack chip market is incredibly competitive. With as many as 650 new products entering the product every year and less than 1% reaching a sustainable sales mark of $25 million, it is rare to find a successful one. Frito-Lay first toyed with multigrain snack chips in the 1970s, when research indicated a need for a snack in this category. Prontos, waived in 1974 and distributed for four years, werent incredibly well received. While a lack of success is attributed to a confusing name, poor manufacturing and too narrow a market, Dwight Riskey, VP of food marketing Research and New Business, admits that he is not sure there were dramatic things wrong with the product design . It may have been invented and introduced before its time.This notion was reflected in the Harvest Project in the early 1980s, when Frito-Lay developed several multigrain products to attempt and have a possible healthy alternative to saltier snack foods for the baby-boomer generation. lacklustre response caused the project to stall into the mid 80s as focus was put on developing new flavors and healthier alternatives in other brands. Development for the product now under the Sun Chips brand picked up in 1988. Consumer probeing found a few variations of the Sun Chip that were perceived by test markets as both healthy and as everyday snacks a factor necessary to the long term success of the snack. Ultimately, they had to wait until the right time to release the product. The market was slowly gaining health consciousness as baby-boomers matured and desired healthier alternatives to their snack foods. Early attempts were just that too early.4. What conclusions can be drawn from research on SunChips consumer acceptance and sales potential prior to the Minneapolis-St. Paul test market? The results from the premarket test were not at all what Frito-Lays executives had initially expected. Consumers preferred the SunChip name, duration the most popular flavors were Natural and French Onion. After the trial, Sunchips had the potential to be an everyday snack. The results from the premarket test indicated that the Sun Chips Multigrain Snacks would sell a total sales volume of $113 million during its first year on the market. Included in this sales volume is a $22 million advertising and merchandise expenditure. That being said, $113 million far exceeds the $100 million sales performance goal for which Frito-Lay initially planned.There is also less potential for product cannibalism at 42%. The Minneapolis-St Paul, Minnesota metropolitan area was chosen because executives believed it to be a strong social and economic representation of the US as a whole. in the main speaking, this area also represented a standard environment in which consumer acceptance of products and competitive behavior both could be measured accurately. Ultimately, 2.2% of American households that tucker these types of chips reside within this metropolitan area. Thus, according to the research on SunChips consumer acceptance and sales potential prior to the test market, it would be highly advised for Frito-Lay to outride exploration with this product, and proceed to more advanced stages of product testing.5. What is your assessment of the SunChips test market results? Promotion/Advertising As a result of the Premarket Test, Frito-Lay is allocating a $22 million advertising budget for Sun Chips. 70% of this budget$15.4 millionis to be used within the first 6 months of the test market. The advertising pith will convey subtle positive messages, including wholesomeness, fun and simplicity. Television commercials emphasizing smarter because theyre multigrain will be shown in order to appeal to the health-oriented consumer segment while depicting the product as unique.In-store displays and free-standing inserts in newspapers will support the advertising campaign, while coupons placed in newspaper free-standing inserts will stimulate trial and recap sales during the test market Price and Sales Projected an nual sales in the snack chip category amount to half of the market share or about $5 billion. Sales are projected to grow at a 4-5% rate annually due to an increase in per capita consumption. Sun Chips carries a selling price to retailers of $0.385 for the 2.25 ounce package, $1.240 for the 7 ounce package, and $1.732 for the 11 ounce package. The weighted-average price amounts to $0.16 per ounce sold, with 15% of purchases in the Test grocery store going towards the 2.25-ounce package, 47% to the 7-ounce package, and 38% to the 11-ounce package. With this average price-per-ounce of $0.16, first-year sales on a national level as represented by the Test Market will amount to $82,866,894 for Sun Chips. Decisions/Alternatives1. Decide not to launch Sun Chips2. Continue to test the product and risk having a competitor launch a similar product nationally or regionally 3. Expand and launch a national introduction, requiring adequate manufacturing capacity Strategies1. Increase advertisin g and merchandising outlay to either test further or launch nationally 2. Introduce a larger package size 3. Build the household usurp and prudence of repeat business by introducing a flavor extension (mild cheddar)6. Given your assessment of the test market results, what actions should Dwight Riskey recommend to Frito-Lays top executives? We believe that Riskey should devour the flavor extension strategy while continuing to test the product for another 6 months. The extension would increase the repeats per repeater to an average of 3.5 times per year instead of 3 times per year due to greater variety for consumers. This will increase expected national sales from $82,866,894 to $90,984,446, or $8,117,552 closer to the familiaritys $100 million goal.The introduction of another flavor could increase the cannibalization rate from 30% to 35%. This, however, actually amounts to only 23% cannibalization because 1/3 of this cannibalized volume stems from Doritos which have the same su ggested retail price as Sun Chips. Adding another flavor will also increase brand awareness (33%) even further past the successful OGradys brand awareness of 28% before the product can be released on a national scale. In taking more time to test the product and by adding another flavor, Frito-Lay can increase first-year sales by building repeat business, as well as increase brand awareness to assure they reach their goal of $100 million in first-year sales.