SOUTHERN NEW HAMPSHIRE UNIVERSITY
Graduate School of Business
Program:
SNHU School of Business Graduate Program
Course Title : Marketing Strategies – MKT 500
Instructor: Jeannemarie Thorpe
Due Date: Monday, January 19, 2004
Submission Date: Monday, January 19, 2004
Type of Assignment: Case Analysis
Title of Assignment: Frito-Lay’s Dips – 3rd Case Study
Student Name: Cevdet KIZIL
Student Phone #s: (603) 626 9302
Student E-mail: cevdetkizil@yahoo.com
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assistance I received in its preparation is fully acknowledged and disclosed within this document. For
Mid-Term and/or Final Exams, I certify that I have not received any help from others.
I have cited any and all sources, both print and electronic, from which I have used data, ideas, or words,
either quoted or paraphrased. My cited sources are indicated within this document. I also certify that
this assignment was prepared by me specifically for the course as listed above.
Student Signature
Assignment Grade: ______
Instructor Comments:
Monday, January 19, 2004
Date:
Frito-Lay’s® Dips
The problem for the Frito-Lay company is that they are not sure whether they
should grow their share on chip dips or should focus on vegetable dips to reach the best
future growth.
There are many constraints for Frito-Lay company to give an exact decision. First
of all, if we start with the chip dip category, in the case that Frito-Lay decides to gain a
greater share in this category that it’s already the leader, aggressive promotion will be
needed which means a serious marketing investment. Here, the firm is not sure about the
return of investment. Will it be worth that investment? Will the company have expected
profits after such an investment? Also, Frito-Lay has concerns about the potential of new
products (dips) to create a greater share in the chip dip market. Then, some executives
think, promoting the new sour cream dip as a chip dip can be a missed opportunity. After
that, latest studies conducted by Frito-Lay shows that consumers do now worry about the
nutrition facts and salt contents of prepared foods. So, because chips and salty snacks are
not considered as healthy products anymore and are not rich in terms of nutrition, the
company thinks this can easily affect chip dip sales negatively because they are
complementary goods. Another important limitation is the increasing competition at the
chip dip market in the recent years. Many strong and well-financed firms like Borden,
Kraft, Lipton and Campbell Soup are now competing in the chip dip market. So
increasing the market share will be really hard. These are all of the limitations for chip
dips. On the other hand, for the vegetable dip category also exists many constraints. At
first, according to some executives, having success at vegetable dip market will not be
very easy too. Because, the vegetable dip business is handled by the production
warehouses of supermarkets. So, Frito-Lay’s front-door delivery system will not be
sensible here. Additionally, distribution concept is another limitation. The reason is that
distribution through supermarket production warehouses will require to meet with
supermarket produce buyers and managers. This is another problem, because Frito-Lay is
unfamiliar to these persons and lacks experience. Plus; a completely different sales
approach (plan) will have to be implemented. Following this, selling expenses have the
probability to increase 25% of sales. Next, another constraint is that focusing on
vegetable dips can also affect the advertising, sales and the image of Frito-Lay
negatively. Because, Frito-Lay had always promoted it’s dips with it’s chips in the past.
Thus, consumers consider Frito-Lay dips as chip dips and for some executives, the new
image of Frito Lays with vegetable dips can confuse the customers. As a result, sales and
revenues can fall. Then, to gain a significant share at the vegetable dip market, French
sour cream dip will not be enough. The company will need to produce additional dips for
that specific market. Of course, this means additional research and development
expenses. Naturally, advertising costs will also increase. Because, additional products
will have to be advertised. These were the constraints for vegetable dip market.
Finally, from my point of view, I think the best alternative for Frito-Lay will be
reserving it’s leadership at the chip dip market while at the same time focusing more on
vegetable dip market. Because, Frito Lay doesn’t seem to have any real threats in the chip
dip market despite the competitive environment, so can easily protect it’s advantage here.
On the opposite side, in my opinion, many opportunities exist for vegetable dip market.
First of all, we can call the vegetable dip market as a new-just developing market, so wise
innovations can lead to great profits. Also, it may be true that at the first attempt, costs
might be high and Frito-Lay can have problems with delivery and distribution. But what I
think is that the company can really have high profits in the long-run. Vegetable dips
business can easily be successful, but needs time. If we analyze the Japanese companies
doing business abroad, we can observe that their start-up costs are usually high, but they
are patient and their strategy is based on dominating the market in the long-run, even if
that means keeping their retail sales prices low at the beginning (You can check these
websites from my outside research for reference - info. about Japanese firms :
http://www.freeresearchpapers.com/dbs/a5/bmu193.shtml,http://www.realestatechampion
s.com/resFText.asp). Besides, Frito-Lay must be braver at taking risks. Because,
sometimes the best way to find out is taking the necessary risk and trying out. Also, if we
remember the fact that they are a division of Pepsi Co, Inc. , even if the taking the risk
was the wrong decision, this will not end their business. The worst scene can be giving up
the vegetable dip project in the case company starts to make continual lose. Again,
another important factor which makes me think that vegetable dip market is a good
choice is that the new sour cream dip hasn’t been advertised yet. This must be noted,
because advertising this new dip successfully for the vegetables in an effective way can
change many things. Also, if really creative new dips would be produced and well
advertised, success and high profits will be certain. Consumer promotion for the sour
cream dip is also not high at the moment. Then, I also did an outside research for the
consumers` concerns on nutrition facts and healthy products. The research obviously
shows that consumers nowadays are now much more careful about their health (You can
check
these
websites
from
my
outside
research
for
reference:
http://www.talksoy.com/Media/rRelease030818.htm,http://www.infozine.com/news/stori
es/op/storiesView/sid/209/,http://www.thesoydailyclub.com/thesoydailybackissues/tsd52
72002.asp). By the way, I think the image of Frito-Lay will not be affected in a bad way
as a result of new vegetable dip advertisements. But since first perception is very
important, the first vegetable dip advertisements must be really successful and of course
the firm should continue to advertise the chip dips at the same time. In addition to this,
contrary to some executives claiming that still a good opportunity exists on chip dip
market because only 20% of chips are eaten with dips, 45% of population were using dips
according to a 1985 research while 97% of the nation consumes salty snacks; I think
these are habits going on for a long time and can only be changed in the long-run, so
totally different from the Frito-Lay’s short-term success plans. After that, I think a more
detailed marketing research will be very beneficial. As an example, why do some
consumers prefer home made dips? Why do some like Kraft and Borden? Which is the
runner-up firm (Frito-Lay’s strongest competitor) in the dip market? Finally, also a good
research on supermarket warehouse and business relations can bring many advantages.
For instance, Frito-Lay can contact ally firms who sell, deliver and distribute their
products through supermarket warehouses to learn the process completely from them.
According to this information, they can implement the best sales-delivery-distribution
approach through supermarket warehouses. If possible, Frito-Lay employees can even
have a prior training on this issue. At last, producing new fat-free chips and telling (via
advertisements) that Frito-Lay’s highly values health is another good idea. Because
nutrition concerns will lower, chip dip sales will go up and new image will bring
advantage over competitors.