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This document was downloaded from Coursework.Info - The UK's Coursework Database - http://www.coursework.

info/ Frito-Lay, Inc – Sun Chips™ Multigrain Snacks

Graduate Diploma in Marketing Management: Strategic Marketing Management

Frito-Lay: SunChips Multigrain Snacks Case Study

Group Members :

Chelest Lim Fadly Yahaya Pradeep Kelvin Lee

Page 1 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database - http://www.coursework.info/

Minnesota.coursework. Riskey. This report presents many of the findings that were gathering during the premarket test and well as the test market for Sun Chips™ Multigrain Snacks. the team’s analysis of the information given as well as the final recommendations.The UK's Coursework Database . Inc had to decide if it was feasible to introduce the product.This document was downloaded from Coursework.Info .http://www. The next few chapters will describe the very competitive snack chip market. Page 2 of 14This document was downloaded from Coursework. and pioneered a new snack category.coursework.The UK's Coursework Database .info/ . His decision would be based on the results of the test market launch of SunChips in Minneapolis-St Paul. Sun Chips Multigrain Snacks. Vice President of Marketing Research and New Business at Frito-Lay. The objective of the report will be to answer these salient questions: (a) How is the snack chip market characterized and how would Frito-Lay’s position in the market be described? (b) What specific challenges and risks does Frito-lay face in marketing SunChips? What insights can be drawn from Frito-Lay’s prior experience with multi-grain snacks? (c) What conclusions can be drawn from research on SunChips’s consumer acceptance and sales potential prior to the Minneapolis-St Paul’s test market? What is the assessment of the SunChips test market results? (d) What future actions should be recommended to Frito-Lay’s top executive? The reasons for recommending this course of action should also be explained.S markets. 2004 1. Dr Dwight R.Info . into the US market. the competition. Sun Chips™ Multigrain Snacks. There would be a huge capital investment and a huge marketing investment that could be financially justified only if it could be sustained for an extended time period. to the U. Sun Chips™ Multigrain Snacks required a new manufacturing process.http://www. carried a new brand name. Inc – Sun Chips™ Multigrain Snacks 11 September.info/ Frito-Lay. Mission The purpose of this report is to evaluate the feasibility of Frito-Lay Inc launching a new product.

PepsiCola Company. a New-York-based diversified consumer goods and services firm.http://www. snack chips.This document was downloaded from Coursework. The snack chips industry accounts for approximately 26% of the snack food industry. Categories in the snack food industry include candy.The UK's Coursework Database . Inc accounts for 13 per cent of sales in the United States snack-food industry. Inc is a division of PepsiCo.Info . which is approximately worth 37 billion per annum. Inc recorded U. PepsiCo.info/ Frito-Lay.077 billion on net sales of $17.info/ . Inc recorded net income of $1. It houses wellknown brands such as Lay’s brand and Ruffles brand potato chips. Inc. capturing nearly 50% of all retail sales in this area. nuts. crackers.The UK's Coursework Database . Frito-Lay.Info .S sales of $3. cookies.http://www. Fritos brand corn chips. Besides PepsiCo. Inc is known as a worldwide leader in the manufacturing and marketing of snack chips.coursework. divisions include Pizza Hut. Doritos brand. Taco Bell Corporation. Frito-Lay – A Short Summary Frito-Lay. Doritos brand tortilla chips and Ruffles brand potato chips have the distinction of being the only snack chips worth $1 billion in retail sales in the world. Kentucky Fried Chicken and PepsiCo Foods International. Page 3 of 14This document was downloaded from Coursework. Tostitos brand and Sanitas brand tortilla chips. and Rold Gold brand pretzels. Frito-Lay.coursework. Frito-Lay. Cheetos brand cheese-flavored snacks. Inc – Sun Chips™ Multigrain Snacks 2.5 billion in 1990. Inc.8 billion in 1990. Inc. and assorted other items.

Info . RJR Nabisco and Eagle snacks. National brands are those that distribute products nationwide. Inc – Sun Chips™ Multigrain Snacks 3.The UK's Coursework Database . the national brands. Procter and Gamble. It is reported that the new-product failure for snack chips is very high. Borden.Info .The UK's Coursework Database .This document was downloaded from Coursework.coursework. Page 4 of 14This document was downloaded from Coursework. As many as 650 different types of snack chip products are introduced into the market each year by both national and regional brand companies.coursework. The competition in the snack food industry is very intense.http://www.info/ . Competition The snack chip industry contains mainly 3 types of competitors namely. Pricing is often very competitive and snack chip manufacturers often resort to price deals to attract customers.info/ Frito-Lay. Most of the products are new flavors for existing snack chips. include Frito-Lay. Private brands are produced by regional or local manufacturers on a contractual basis for major supermarkets chains. Regional competitors consists of regional brand firm which distribute products in certain parties of the United States.http://www. regional brands and private brands.

According to a Frito-lay. Page 5 of 14This document was downloaded from Coursework.” Interestingly.coursework. Inc – Sun Chips™ Multigrain Snacks 4.http://www. Inc executive.The UK's Coursework Database .coursework.http://www. An introduction to Sun Chips Multigrain Snacks Sun Chips Micrograin Snacks is a crispy.info/ .info/ Frito-Lay. Both product lines were not successful and were eventually terminated. The chip is approximately 50 percent lower in saturated fats than chips made with other cooking oils and is cholesterol-free. in the 1970s. it is a “thoughtful. corn. Frito-lay has had previous experience in marketing (i) a multi-grain snack under the ‘Pronto’ brand name and (ii) a separate corn chip snack under the “SunChips” brand name. textured snack chip consisting of a specific blend of whole wheat.This document was downloaded from Coursework.Info . upscale classy chip.Info . The product contains less sodium than most snack chips and is made with canola or sunflower oil. rice and oat flours with a lightly salty multigrain taste and a slightly sweet aftertaste.The UK's Coursework Database .

This document was downloaded from Coursework. the United States bought 3.coursework.5 billion pounds of snack chips.info/ .http://www. back up this conclusion: (a) The snack chip industry has grown 5% since 1989 to 1990. Our numbers below. Inc – Sun Chips™ Multigrain Snacks 5 Case Analysis (I) The Snack Chip Market and Frito-Lay’s Market Position The snack chip industry is clearly a matured industry.8billion in 1990. (b) Since 1986 to 1990.Info . Page 6 of 14This document was downloaded from Coursework. It accounted for 50% of all snack chips retail sales in 1990.The UK's Coursework Database . showing signs of growth. if not the monopolistic leader in this category.The UK's Coursework Database . in terms of retail sales. The snack chips retail market was worth US$9. 8 of them are Frito Lay brands and the top 5 selling chips are all Frito-Lay brands. We can consider Frito-Lay to be major player. snack chips per capita consumption was slightly less than 12 pounds.http://www. Frito-Lay is a major power-house in the snack chips industry. Of the top ten best selling snack chips in the United States. This is evidenced by the steady growth in both dollar sales as well as volume of snack-chip pounds sold.Info .info/ Frito-Lay. In 1986.coursework. or nearly 14 pounds per person.

Frito-Lay’s experience with multigrain snacks and the SunChips brand in the 1970s were not successful.http://www. The Prontos brand of multigrain snack chips was not well received and eventually terminated.http://www.Info . It did not possess product attributes that appealed to a sufficient majority even though it was marketed towards to mainstream of snack chip consumers. oats and whole grain wheat all rolled into one special recipe”. Our team affirms that Prontos lack of success was due to: (a) A product type that was ahead of its time.The UK's Coursework Database .info/ . Frito-Lay developed a multi-grain snack chip under the brand “Prontos” and it was first introduced in 1974. (b) Poor branding – Frito-Lay executives agreed that the product had a confusing name. The snack was sold on the premise that it was “a different. The possibility of a multi-grain product was explored in the early 1970s when corporate marketing research studies indicated that consumers were looking for nutritious snacks. a poor advertising copy and appealed to too small a market.The UK's Coursework Database . Page 7 of 14This document was downloaded from Coursework.coursework.info/ Frito-Lay.This document was downloaded from Coursework.coursework. and FritoLay’s Experience with Multigrain Snacks. delicious new snack made from nature’s own corn. Inc – Sun Chips™ Multigrain Snacks 6 Case Analysis (ii) The Challenges and Risks Faced by Frito-Lay in Marketing SunChips.Info .

The estimated first-year sales volume exceeded the $100 million Frito-Lay sales goal for new products.This document was downloaded from Coursework. Results from the premarket test were extremely unexpected. 7 Case Analysis (iii) SunChips’s Consumer Acceptance Levels and its Sales Potential A premarket test was carried in April 1989 and conducted by an independent marketing research firm. including a $22 million advertising and merchandising expenditure. It indicated that Sun Chips™ Multigrain Snacks would produce a likely first-year sale of $113 million at manufacturer’s prices given the marketing plan set for the product. Purpose of the test was to find out about consumers attitudes and usage behavior of Sun Chips. This would give Frito-Lay an idea of the product’s potential without extensive risks or costs.Info .Info . The Premarket test gave clear indication that there was potential for SunChips that needed further exploration. Manufacturing problems contributed to the demise of the product.http://www.http://www. With the product development of SunChips. are therefore plain for Frito-Lay to see. Inc – Sun Chips™ Multigrain Snacks (c) Manufacturing problems – Production for multigrain snacks did not run as smoothly as other more established product types.The UK's Coursework Database . as it would give the product a more rigorous test.coursework.coursework. The latest SunChips line of multigrain snacks would involve very large risks to Frito-Lay because of a huge capital investment (the product required a new manufacturing process) and an equally huge marketing investment (it was also a new brand) that could be financially justified only with a product that could be sustainable for an extended period. The natural and French flavor combination produced the lowest cannibalization of other Frito-Lay brands.The UK's Coursework Database .info/ Frito-Lay. The challenges. Two flavors were introduced and three advertising and merchandising expenditure levels were tested. Page 8 of 14This document was downloaded from Coursework. The next logical step would be a test market. Frito-Lay took the correct decision to undertake proper market testing with a test market exercise in the state of Minnesota-St Paul.info/ .

The secondary audience expanded the age bracket to 49 years of age since 34-49 years olds appeared to be more receptive to healthier snacks. The plan was carried according to 5 different strategies. an investment in one new production line would be necessary.coursework. Advertising and Merchandising strategy The primary audience chosen was adults between the ages of 18 and 34 as they are the principal purchasers and heavy users of snack chips. freestanding inserts in newspapers and coupons were part of the marketing strategy. different and fun image. It also represented a typical competitive environment in which to test consumer acceptance and competitive behavior. convenience stores and other retail accounts that already stocked Frito-Lay’s snack products. A trial size of 2½ ounce was used as well. Design was heavily emphasized as they wanted it to communicate a new. Sizes in terms of 7-ounce and 11 ounce were packaged accordingly. grocery stores.The UK's Coursework Database .http://www. Manufacturing considerations Since a multi-grain product required different product and process technology than corn or potato products. Pricing strategy Sun Chips™ Multigrain Snacks would have the same retail prices as Doritos brand tortilla chips. Page 9 of 14This document was downloaded from Coursework.info/ Frito-Lay. The advertising message was meant to convey subtle messages including wholesomeness. fun and simplicity.Info .The UK's Coursework Database .coursework.Info .98 million out of the 90 households or 2. 1. Distribution and sales strategy Sun Chips™ Multigrain Snacks would be sold at supermarkets. Inc – Sun Chips™ Multigrain Snacks Results of the Minneapolis-St Paul Test Market Test Market Frito-Lay executives had chosen Minneapolis-St Paul.2% were identified as users of snack chips. Product strategy Frito-Lay executives chose both the natural and French onion flavors. in-store display.http://www.This document was downloaded from Coursework. Minnesota metropolitan area as the test site because it had a social and economic profile representative of the United States.info/ . TV advertising.

http://www. From the cannibalization results.65 Page 10 of 14This document was downloaded from Coursework. we calculated that the average dollar per pound is S$2. Product Cannibalization The incidence of product cannibalization revealed that 30 per cent of Sun Chips™ Multigrain Snack pound volume resulted from consumers switching from Frito-Lay’s potato. the 7 ounce accounted for 47 per cent of purchases.The UK's Coursework Database . Repeated purchasers purchased Sun Chips™ Multigrain Snacks an average of 2.coursework.Info . and corn snack chips.info/ . The 2½ ounce package accounted for 15 per cent of purchases.info/ Frito-Lay.The UK's Coursework Database . rather than dollar value purchased. and 41. (b) Looking at the manufacturer’s prices of the 3 different sizes of SunChips (2¼.8 per cent of these tier households had repurchased the product at least once over the 10 month trial. Fifty-five percent of purchases were for the French onion and forty five percent were for the natural flavor.Info .9 times. tortilla. Test-Market Results The following results were obtained from the test-market. Frito-Lay executives noted that the gross profit for Sun Chips™ Multigrain Snacks was higher than that for its other snack chips.http://www. Approximately 70 per cent of the budget would be spent during the first six months of the test market. 7 and 11 ounce packets). and the 11 ounce package accounted for 38 per cent of purchases.This document was downloaded from Coursework. Trial and repeat rate Almost one in five households in the test market had tried the product. our team took the initiative to translate the numbers as follows. Inc – Sun Chips™ Multigrain Snacks The test-market budget was set at $22 million on a nationwide distribution basis. About one third of the cannibalization volume from Frito-Lay’s products came from Doritos brand tortilla chips. (a) Consumption of SunChips was measured in terms of pounds consumed.coursework.: Type of purchase It was revealed that approximately 90% of purchases were made in supermarkets and convenience stores. Test Market Results Analysis In the test market analysis.

Revenues at manufacturer’s prices indicate that Sunchips will exceed the US$100million mark considerably if launched nationwide.info/ Frito-Lay.Info . Please refer to the appendix for the spreadsheet detailing our full analysis of the test market.Paul is immensely successful. timing and competitive reaction were the key elements of the results.The UK's Coursework Database . 8.coursework. Page 11 of 14This document was downloaded from Coursework. Planning considerations After the test-market on Sun Chips™ Multigrain Snacks was conducted.info/ . a review of the findings was being presented to the management. There was also a high probability that these competitors were examining the chip with the intention of developing their own version. Riskey felt that national and regional competitors were monitoring Frito-lay’s test market.The UK's Coursework Database . Inc – Sun Chips™ Multigrain Snacks (c) A nationwide scaling factor of 45. This factor was calculated based on Minnesota-St/Paul’s population as factor of the United States population. Firstly.This document was downloaded from Coursework.coursework.45 was used to predict the response rates of the United States’s market as a whole. Our results indicate that the test market for Minnesota-St.Info .http://www.http://www.

if an expanded test-market or a national introduction was considered.http://www. 9. the chance to be first-to-market would be lost.This document was downloaded from Coursework. Secondly.Info . Besides.info/ Frito-Lay. He felt that if he were to continue testing Sun Chips™ Multigrain Snacks. An increase in advertising and merchandising expenditure was advocated if the brand was test further or launched nationally.coursework.info/ . They believed that brand awareness would increase with additional spending and Page 12 of 14This document was downloaded from Coursework. a competitor might launch a similar product nationally or regionally and upstage Frito-Lay. Inc – Sun Chips™ Multigrain Snacks Riskey was concerned especially with the timing factor.http://www. Strategy considerations Riskey presented a few strategy options for Sun Chips™ Multigrain Snacks to the management of Frito-Lay.coursework.Info . a decision would be needed quickly to ensure adequate manufacturing capacity was in place and operating efficiently.The UK's Coursework Database . manufacturing capacity expansion would require a significant capital investment. Thus.The UK's Coursework Database .

Using a flavor extension.Info . Inc – Sun Chips™ Multigrain Snacks felt that spending the national introduction equivalent of $30 million could stimulate brand trial as well. larger package could add about one-half ounce to the average annual purchase per repeat purchase occasion.coursework. 10.http://www. A larger package size was also recommended. Some felt that another package size would only be more applicable after the brand is established in the market. The option of building household repeat and dept of repeat business was also recommended.coursework.info/ .info/ Frito-Lay.The UK's Coursework Database .The UK's Coursework Database . This would result in additional volume as a larger package size is being purchased. Conclusions/ Our recommendations Page 13 of 14This document was downloaded from Coursework.Info . it could increase the repeats per repeater to an average of 3½ times per year given greater variety for consumers.http://www. They believed that a forth.This document was downloaded from Coursework.

Paul. the team recommends that Frito-Lay adopt the second option and begin a partial launch of SunChips.coursework.Info . Inc – Sun Chips™ Multigrain Snacks The test market for Minnesota-St. hence minimizing all possible risks of failure. Any delay in launching the product proper would result in a likely loss of the first mover advantage. This will give a higher rate of success as well as minimize the costs of failure.Paul was an immense success.This document was downloaded from Coursework. In the light of these results. There are 2 possibilities that Frito-Lay has in order to capitalize on the strong test market results: (a) Move with a nation wide launch.info/ Frito-Lay. Page 14 of 14This document was downloaded from Coursework. using the tactics and strategies of the Minnesota-St. There was no need to extend the test market exercise as with such results.info/ .http://www. it was only a matter of time before competitors would get wind of these test results and proceed to launch a similar product.The UK's Coursework Database . We recommend the launch to be held at another 5 states.Paul test market as a template. whose demography is most similar to that of Minnesota-St.The UK's Coursework Database .Info . (b) Move with a partial launch in selected states.coursework.http://www.

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