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Peretti 1 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). Peretti 2 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). Peretti 3 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. Peretti 4 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. Peretti 5 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. Peretti 6 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 Peretti 7 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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