Frito-Lay's Dips

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Frito-Lay’s Dips
SWOT Analysis
Lauren Peretti

Research elements
Background

        Frito-Lay’s, Inc., a division of PepsiCo, Inc., manufactures, markets and sells a variety of
salty snack foods. Products include potato chips, corn chips, tortilla chips, cheese puffs, and
pretzels, as well as dips to complement them. They also produce a line of nuts, peanut butter
crackers, processed beef sticks, and Grandma’s brand cookies and snack bars. Frito-Lay’s
primarily competes in the salty snack food segment of the snack food market, and in 1985, the
company captured 33 percent of their segment sold in the United States, and reached net sales
of $3 billion (Kerin).

Situation analysis

         Soon after in 1986, Frito-Lay’s Dips had become a very profitable product line and
obtained exceptional growth within the past five years. Recently, Frito-Lay had introduced the
first shelf-stable, sour cream-based French onion dip that was packaged in a metal can and
required no refrigeration. Some executives thought the dip could be used to reach a new
vegetable audience, while others felt an advertising campaign in the chip dip market would
better suit the product. The company’s executives, Ben Ball, marketing director, and Ann
Mirabito, product manager, were faced with two alternatives concerning where and how Frito-
Lay’s Dips could be further developed (Kerin).

       1. Promote the dip line more aggressively in the present “chip dip” market segment.

       2. Actively pursue the “vegetable dip” category.

Dip market

       In recent years, the popularity of dip as an appetizer, snack and complement to a meal
had risen due to its convenience, various uses, and “grazing” trends in the United States. It
could be served with chips, crackers or vegetables, but most frequently with salty snacks. Eighty
percent of dip sales came from supermarkets, where two-thirds represented prepared dips, and
the remaining third represented dip mixes for at-home preparation. Nearly 55 percent of
prepared dips sold required refrigeration, but 45 percent of prepared dips were “shelf-stable”
and could be displayed anywhere, though were typically located adjacent to snack foods. Of the
$620 million in sales made from dips in supermarkets, there was no evidence of growth in the
dip market due to an increase in inflation; however, it was suggested that cheese-based dips
captured overall market share growth from other flavors from 1984 to 1985.

       Sour cream-based dips, whether prepared or in mix form, were the most popular flavor
and accounted for 50 percent of dip sales. Although dips were most frequently used with salty
snacks, 33 percent of sales was linked to vegetable usage and were located in produce, soup
mix, salad dressing and snack sections of the supermarket (Kerin, 2007).
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SWOT defined
Strengths

      Dip business

              In the 1950s, the company introduced Mexican-style dips called Frito-Lay’s
      Jalapeno Bean Dip and Enchilada Bean Dip to complement Fritos corn chips, and soon
      after added Picante sauce dip to go with Tostitos tortilla chips in 1978. In 1983, Frito-
      Lay’s extended their dip product line to include several cheese-based dips, such as Mild
      Cheddar, Cheddar and Herb, Cheddar and Jalapeno, and Cheddar and Bacon. Much
      success developed from the products being packaged in shelf-stable, nine-ounce cans,
      sold under the Frito-Lay’s brand name, and strategically displayed in the salty snack
      section. Ball said, “We chose to stay with the Frito-Lay’s brand name to trade off the
      company’s equity in salty snacks and capitalize on the company’s strengths in marketing
      and distribution” (Kerin, 2007).

      Shelf-stable innovation

             In 1986, Frito-Lay introduced the first sour cream-based, shelf-stable dip to be
      displayed with the rest of the product line in the salty snack section of supermarkets. The
      introduction of the French onion flavor was a positive addition to the company’s line of
      potato chips, and could also be used as a vegetable dip (Kerin, 2007).

      Distribution and sales effort

              Frito-Lay’s, Inc., distributes its product lines to 350,000 outlets nationwide
      consisting of supermarkets, convenience stores, non-food outlets, small grocery stores,
      liquor stores, service stations, and institutional customers; however, the majority of its
      products are sold through supermarkets. The company uses a “front-door store delivery
      system,” where one employee performs both the sales and delivery functions taking
      orders, unloading the product, stocking and arranging shelves and handling in-store
      merchandising. This system is well-suited for 270,000 of the company’s non-chained
      outlets serviced by Frito-Lay (Kerin, 2007).

      Dip Marketing

              In 1985, the company shifted promotion emphasis from retail-store buyers to
      consumer promotions through sampling, couponing and television and radio advertising
      to generate trial of new products. Mirabito said, “Our consumer household penetration
      increased from 12 percent in 1983 to 20 percent in 1984, driven largely by placing
      cheese dips near salty snacks. In 1985, penetration flattened, indicating need for
      consumer-pull marketing.” It was then that dips were promoted jointly with Frito-Lay salty
      snacks as a complementary product, and an “association was made in promotion and in
      shelf placement” (Kerin, 2007).
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       Halo-effect

               Frito-Lay’s Dips had success being promoted jointly with the company’s chip line
       in the past. Potential for the new sour cream-based dip to carry the same recognition as
       the cheese-based dip was likely to extend to various salty snacks, especially chips.

Weaknesses

       Lost consumers

                In mid-1985, Frito-Lay dropped the Enchilada Bean dip from the Mexican dip line
       after falling sales, and it was attributed to the novelty of shelf-stable cheese dips having
       passed, and the competitive activity increasing slowed Frito-Lay’s Dip volume growth.
       Discontinuance of Enchilada Bean Dip had an unexpected effect and instead of
       customers switching to another Mexican dip, they left the product line all together (Kerin,
       2007).

       Supermarket produce distribution

                In light of produce, Frito-Lay’s distribution system was not accepted by super
       markets who preferred vegetable suitable dips be handled by their warehouse
       managers. Frito-Lay’s front-door delivery system would put the company in uncharted
       territory, and it was estimated that selling expenses would rise due to increased training
       of how drivers and salespeople conduct practices in the produce sections.

Opportunities

       Chip dip growth

               Frito-Lay’s could continue to develop the chip dip market with an aggressive
       advertising and marketing campaign.

                1. “Research indicated that 20 percent of chips were currently eaten with dips
                   and only 45 percent of all U.S. households used dips in 1985, whereas 97
                   percent used salty snacks” (Kerin, 2007). This provided an opportunity to re-
                   build penetration with an aggressive advertising campaign.

                2. The average number of households purchasing shelf-stable dips was four,
                   and on-pack coupon offers would encourage repeat sales.

                3. Increased competitive activity since 1983 had introduced 40 new Mexican-
                   style cheese dips taking space from the salty snack section.

                4. Frito-Lay’s had not previously promoted chip dips. “In 1985, Frito-Lay’s
                   advertising and merchandising spending to sales ratio for its dip product line
                   was 2.7 percent. Therefore, the 1986 advertising and merchandising budget
                   had been more than double 1985 expenditures” (Kerin, 2007). The budget
                   was available.
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      Vegetable dip penetration

             Frito-Lay could pursue the vegetable dip market, using the new sour cream-
      based, shelf-stable dip.

             1. The vegetable dip category was more fragmented and less difficult to enter
                as there were no major competitors in the market.

             2. Thirty-three percent of dip sales were linked to vegetables, and the majority
                came from dip mixes, as opposed to refrigerated dips.

             3. Sour cream-based dips were more popular than cheese dips in the vegetable
                market.

             4. Nutritional value and salt content of snack was becoming more of a concern
                for consumers.

             5. No major competitor had promoted a sour cream-based, shelf-stable dip in
                the vegetable market. Frito-Lay’s could be a pioneer for the produce market
                similar to how they were in the chip dip market.

             6. A cost analysis showed that Frito-Lay’s sour cream dip’s gross margin was
                45 percent and would be unaffected.

Threats

      Dip substitutes

           Nearly 20 percent of all dip consumed by households in the United States is
      homemade and many consumers use refrigerated dips, specifically for vegetables.

      Competitive activity

              During 1984 and 1985, the dip market accelerated with new products and
      increased advertising expenditures. Additionally, well-established companies, like
      Campbell Soup and Lipton, began to pursue the dip market with cheese and vegetable
      dip, as well as dip mixes. Mirabito said, “These companies, coupled with Borden, Kraft,
      and regional chip manufacturers, have dramatically altered the competitive environment
      for chip dips in the past two years” (Kerin, 2007). Competitive activity was currently so
      aggressive that Frito-Lay’s might have to hope to hold its position in the dip category and
      the expense to re-penetrate the market could be costly.

      Cannibalization

            Recent sales growth in cheese-based dips showed the product line extensions
      may not produce continued growth and there was potential for cannibalization of existing
      cheese dips. If this was to occur, the entire line of chips dips would no longer be
      successful and addition profits from it would not exist.
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       Missed market

               If Frito-Lay was to only promote the sour cream-based, shelf-stable French onion
       dip primarily as a chip dip, it could mean a missed opportunity in the produce market,
       since most sour cream dips complemented vegetables.

       Vegetable dip differentiation

               1. The new sour cream-based, shelf-stable vegetable dip would be displayed
                  along-side the refrigerated dips and have little to no differentiation.

               2. Vegetable dips would have to “go-it-alone.” Unlike the previous jointly
                  promoted chips and dip campaign, the Frito-Lay’s halo effect would not carry
                  to vegetable dips.

               3. More than one, single flavor dip would need to be manufactured for it to take
                  a place in the market, and product line extensions are costly, especially in
                  unfamiliar territory due to research, development and promotion expenses.

Recommendation
        After carefully reviewing the Frito-Lay Dips case and weighing the advantages and
disadvantages of both suggestions, I feel that the company’s most beneficial option is to more
aggressively pursue the current “chip dip” market with the new, innovative sour cream-based,
shelf stable dip using an advertising and marketing campaign that specifically targets an
audience most profitable to Frito-Lay’s, as opposed to pursing the “vegetable dip” market.

        Over the years, Frito-Lay’s, Inc., has developed a brand that is first and foremost
recognized by its salty snack products. I think that neglecting that market to pursue vegetables
would not only be more costly, but develop insufficient benefits in the long run. Frito-Lay’s has
no ties to produce, but does to the loyal chip, pretzel, cheese puff, and tortilla eating consumers
who would be happy to know there was a sour cream-based dip that did not need to be
refrigerated. My advice to the company is to stick with what they know and re-evaluate their
target audience.

Market segmentation
        The most profitable customer of Frito-Lay’s is the head of household who purchases
salty snack products; however, this includes various profiles. For example, a college student
doing his own grocery shopping may purchase tortilla chips and salsa for the big game, while
the single mother of three children buys potato chips and French onion dip for her child’s friends
who are sleeping over tonight. Additionally, more and more health conscious consumers are
paying closer attention to nutrition facts and may choose pretzels with cheese dip because they
are not willing to sacrifice flavor. I believe that a large portion of these snack foods have been
and will continue to be eaten primarily by children and teens, but perhaps more refined flavors
could be directed toward adults in the future. In any case, there must be a convenience and
quality that is acceptable to all segments. Furthermore, it may be wise to purse an ethnic
audience attracted to the Mexican-style dips, as they make up a large amount of the product
line.
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Target market
Behavior segment

         Repeat buyers, as well as new buyers, should be targeted who are light users and have
low-involvement. Repeat consumers are interested in trying the new sour cream-based, shelf
stable French onion dip. They enjoy other Frito-Lay’s products and trust the company would
produce another snack worthy of their purchase. There is a convenience factor visible because
the product does not need to be refrigerated. Light users should be targeted because the
majority of snack foods purchased with dips are for special occasions, such as birthdays,
holidays, sporting events, etc. Lastly, the innovative product has no competitor in its segment
that is shelf-stable making it an easy purchasing decision for a low-involvement consumer. New
consumers should be pulled in first by the convenient packaging, but will stay with the product
for the quality flavor.

Demographic segment

        The Frito-Lay’s Dip demographic includes primarily females, who are suggested to do
most of the grocery shopping for the household, but does not exclude the purchasing power of
males. Although children and teens are the consumers, it is their parents who pay for the
product so I would suggest targeting ages 20 to 45. These individuals live on a middle to high
class income and live with at least one other person, as I’ve stated before these snacks are
often shared. Special attention should be paid to ethnic consumers, especially of Mexican
heritage, who could take interest in being re-introduce to the Mexican-style dips.

Psychographic segment

         The psychographics of the consumer illustrate a buyer who enjoys not only a salty
snack, but a complementing dip to go along with it satisfies their demand for a little extra at the
table. They enjoy sharing good times with friends and throwing parties for family. They are not
so much interested in nutrition, as a healthy alternative to chips with dip would be vegetables or
fruit with dip, which leads me to believe that they may not lead an actively, healthy lifestyle
either.

Relationship segment

        The longevity of the Frito-Lay’s company lets me conclude that customers not only like
the products they produce, but also have a supportive relationship with their consumers.
Furthermore, the Frito-Lay’s Web site illustrates that the company is committed to serving the
environment and most people today are concerned with creating a better place to live (Frito,
2008). The fact that the company continues to expand their dip line also suggest happy
relationships with its consumers.

Adopter segment

       The adopter is a large potential audience that would attract consumers interested in the
innovation of the new sour cream-based, shelf-stable French onion dip that is not manufactured
by any other company. It may take some time to catch on with some who are skeptical of its
contents, but thorough advertising of the dips benefits and a focus on quality without
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refrigeration will capture the interests many who have been purchasing refrigerated dips for
years.


References

Frito-Lay. (2008). Retrieved September 7, 2008, from http://www.fritolay.com/

Kerin, R.A., &Peterson, R.A. (2007). Opportunity analysis, market segmentation, and market
targeting. Strategic marketing problems. (pp. 118-128). Upper Saddle River, NJ: Pearson
Education, Inc.

				
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