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Frito Lay Case Study

Essay by   •  October 25, 2012  •  Case Study  •  924 Words (4 Pages)  •  1,736 Views

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Factual Summary:

Frito-Lay, Inc has been developing multigrain chips since the early 1970s. It is a worldwide leader in the manufacturing and marketing of snack chips. It is capturing nearly one-half of the retail sales in the United States snack chips market. Frito-Lay knew that a healthier option was appealing to consumers and that this healthier option had proper time to be introduced, but the market was not ready for it yet. Product research and development is carried out in 1980s and it was found that consumers are expecting multi grain rectangular chips with ridges. So, sun chip is introduced in late 1990. It is a crispy textured snack chips with a mixture of wheat, corn, rice and oat flours. (Sun chips.n.d.). Frito lay has invested a huge capital in sun chip products and so they did pre market test before introducing the product into market. This test has shown positive result as more consumers got attracted. (Frito lay corporation.n.d.).

Case problem:

Sun chips had been in test market for 10 months in the Minneapolis-St. Paul, Minnesota, and metropolitan area. The senior Frito-Lay executives need to decide it they would launch this new product to market officially after the test period. The snack chip category is highly competitive and the new-product failure rate is high. This is the main cause of the problem. Very few new products can generate more than $25 million in first-year sales. In order to expand the market, the brand awareness is a key issue. So, the budget of advertising and merchandising will increase. The new product will cannibalize volume from its previous products.

Alternative solutions:

Give up the new product: Giving up the new product is a safe strategy. Frito-Lay, Inc. is the leader manufacturing in the snack chips market. Its' products have held large market share. Even if it gives up the new product, it's still the leader. But if it gives up the new product, the spending in the premarket test becomes meaningless. The market test result appeared consumer response was favorable which means it likely gain profit from the new brand. Its quit just leaves the opportunity to its competitors.

Putting the new product on the market following the same strategies of premarket test:

This solution gives the company a simple way when it expands its product sales from a single area to nationwide. In the premarket test, its pricing strategy, advertising and merchandising strategy, distribution and sales strategy were all determined. When Frito-Lay, Inc. puts the new product on the national market, the things they need to do is raising the advertising and distribution expending and adding more production line to meet the higher quantities requirement. But applying the experience that comes from a single area into whole national market is very dangerous. People's eating habit and lifestyle is different in various states that determine their demand of snack chips will be different. Simply coping



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