Frito Lay Case

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Frito-Lay, Inc.
Sun Chips Multigrain Snacks
Ryan Brogan, John Campanioni, Patrick
Hildebrandt, Tracy Lai, Ashlea Morrell,
and Kate Piskorowski
Snack Chip Category
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$37 billion in snack food retail sales- 5% increase
from 1989
Snack chip retail sales of $9.8 billion (26.7% of snack
food sales)-also 5% increase
Growth in snack chip category comes from increased
per capita consumption
In 1990 consumption was 14 pounds per person
Three types of competitors
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National brand firms
Regional brand firms
Private Brands
Snack Chip Category
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Highly competitive on price
Chip manufacturers rely on technology to
react quickly to competitors new product
introductions
Rely on media advertising, consumer
promotions, and trade allowances
New product failure rate is high
Most products are new flavors for already
existing chips
Frito-Lay, Inc
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Division of PepsiCo, Inc
National brand firm manufacturer and marketer of
snack chips
Well-known brands- Lays, Ruffles, Fritos, Chee-tos,
Rold Gold,
13% of US snack food sales
Leading manufacturer of snack chips-half of retail
sales
U.S. sales of $3.5 billion in 1990
8 of the chips are among the top ten best-selling
chips
Every step in process-agriculture to stacking shelves
Risks and Challenges of
Marketing Sun Chips
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Requires a new manufacturing process
and introduces a new chip categoryhuge capital investment
Requires a huge marketing investmentnew brand name
Sun Chips name had a negative past
Past Problems
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In 1970s introduced Prontos- failure with low sales
and manufacturing problems
Unfocused copy, confusing name , and too small of
target market
Frito-Lay has to enter the market at the right time
and before the competition
When is the right time? Efforts to develop another
multigrain product didn’t occur until late 1980s.
Need committed and focused advertising, a catchy
and clear name, and a broader target market
Assumptions
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The test market is reflective of the
entire population
The cannibalization rate for the test
market will be used for the national
market
Pretest Results
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“Healthier product”
Prior to use not an “everyday snack”
After trying product, “everyday snack”
Positive attitudes and perceptions of
brand name
Pretest indicates first-year sales of $113
million
Focus on natural and wild onion flavors
Statement of Problem
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To continue with the test market of Sun
Chips or to introduce it nationally
Manufacturing/marketing costs
Manufacturing difficulties-still a new
manufacturing process
What new additions will be added to
the product line. I.E. flavor extension,
15 oz. Package size
Brand Comparison Nationally
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O’Grady’s had achieved 100 million in first
year sales
Sun chips sales for 10 months is $82,096,000
and after a year about $98,516,000 sales.
It is comparable to the bench mark of
O’Grady’s Chips.
Since we are creating a new segment of the
market we would want to be the first to enter
it to capture customers early.
Test Results
For The Test Market
Quantitative analysis
Possible Alternatives
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Continue the test market with 15-ounce
package
Continue the test market with a flavor
extension
Introduce product nationally with same
strategy as test market
Brand Extension National
Comparison
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Flavor extension achieved
$110,328,000 in sales and achieved a
gross profit after cannibalization of
aprox $14,144,000
15 oz Package achieved $101,469,000
in sales and achieved a gross profit
after cannibalization of aprox
$13,075,000
Test Results
Test Results for the Other
product extensions
Quantitative analysis
Recommendation
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Because of the $98,516,000 in first year sales it
is a good idea to launch the Natural and French
Onion Combination.
Initial analysis of the flavor extension states
that we may have sales of $110,328,044 by
launching the product nationally.
Therefore we feel that it would be best to test
market the mild cheddar extension since it may
prove to be lucrative.
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