Frito-Lay

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Sun Chips-Multigrain
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The problem definition: a presentation on the
future action of the brand related to test
market of 10 months.
Frito-Lay, Inc. is a division of PepsiCo Inc. it
is a worldwide leader in snack ships with
different brands and products.
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•Competition The snack chip category is
highly competitive and the new-product
failure rates high. Very few new products can
generate more than $25 million in first-year
sales.
It leads to the competitive pricing problem
and the importance of using other tools to
stimulate the sales.
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Manufacturing Since Sun Chips® is a
multigrain product, large-scale
manufacturing requires different process and
technology; in other words, a new investment
in new production line is necessary.
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Creating brand awareness As we know, this
category is highly competitive, in order to
expand the market, the brand awareness is a
key issue. As long as the product is launched,
more money should be spent on advertising
to increase the brand awareness.
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Product cannibalization The research in the
test-market shows a 30% cannibalization rate
of Sun Chips®. And one-third of the
cannibalized volume are from Doritos® brand
tortilla chips, which is also a product from
Frito-Lay.
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Timing and competitive reaction The
competitors were monitoring Frito-Lay’s test
market; they might launch the same product
and upstage
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Choose a right name The failed multigrain
product called Prontos®, which is hard
for people to link to the healthy, nutritious
snacks. However, Sun Chips has a very
positive image and this name is the result
from the brand name testing.
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A broader target market Prontos® was first
introduced in 1974, when the wholesome
snacks market was not yet fully formed. But
later this concept was perceived as a
“healthier product”, the market was mature.
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Manufacturing technology available The other
reason led to the failure of Prontos® is the
difficulties of manufacturing. But now this is
no longer an obstacle for Sun Chips
multigrain snacks.
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Strong selling potential.
A prediction of first-year sales volume of
$133 million was given from the research.
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•$22 million of A&M would be a proper
amount. In order to achieve the $100 million
first-year sales goal, Frito-lay has to adapt
the larger amount of advertising
and merchandising expenditure.
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Natural and French onion Vs. Natural and
Cheddar
Frito-Lay was going to combine two different
flavours together. From the results,(a) Natural
and French onion combination produced
the lowest cannibalization, and (b) it had a
better selling potential, the sales volume was
supposed to grow by 58%. (c) In the other hand,
the combination of Natural and Cheddar were
better accepted according to the first-year trial
rate and first-year repeat rate.
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• Trial and Repeat Rate The first-year trial
and repeat rate from the simulated testmarket was 25%and 57%, however, the trial
and repeat rate of the first month reached
almost20% and 42%. These data showed that
the market accepted the product very well,
and the Sun Chips® was ready to be launched
nationally.
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•Depth of repeat rate The depth of repeat
rate of Sun Chips® was 2.9 times, however
the recently most successful O’Grady’s®
depth of repeat rate was only 1.9 times.
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•Product Cannibalization The cannibalization
rate of Sun Chips® was only 30%, which was
much lower than the forecast in the premarketing test, 42%. That cannibalism rate
was common, and the gross margin of Sun
Chips® was higher than that for Frito-Lay’s
other snacks. Frito-Lay can afford that
cannibalization and Sun Chips® was a
profitable product.
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Most of the strategies applied in the test market
would still be used in the national launch, some
of adjustments would be considered:
•A&M Strategy
In order to reach the goal of high brand
awareness, Frito-Lay should consider invest more
money on marketing and advertising. A budget
of $30 million would be a proper amount.
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•Product Strategy
At the beginning of the introduction, the Sun
Chips® will provide customer with two
flavours (Natural & French onion), in three
sizes (2 ¼, 7, 11 ounce). A new flavour of
mild cheddar and a larger size of 15 ounce
are under consideration. However the
decisions would be made according to the
performance of the initial flavours and
packages, more marketing research would be
required.
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