MKTG 620Strategic Marketing Management

Case DiscussionFrito Lay Dips

Frito Lay must make a decision. Should the new sour cream-based French Onion dip be promoted solely as a line extension to support their “chip dip” category or should it also be used as a brand extension to develop a foothold in the “vegetable dip” category? Regardless of the decision, the dip will use the Frito Lay brand name. Please read each question carefully.

For your 1-2 page summary, please focus on question #2.

1. SWOT Analysis . Conduct a SWOT analysis of Frito Lay in the context of the decision at hand. There are both objective (e.g., resources and capabilities) and subjective (e.g., consumer perception) issues to consider here. Use the SWOT to inform your list of pros and cons below.

2. Decision . All things considered would you keep the French Onion dip as a line extension only or also introduce it as a brand extension? Commit! An answer such as “I will experiment with the brand extension” will lead to significantly lower points than a well-reasoned commitment in either direction. List the pros and cons for the choice that you made. Then, summarize why you made this choice.

Facts: Late 1986 Marketing & Product Manager conducted planning review for dips.Recently introduced a ‘shelf-stable’ sour cream based French onion dip. Expected sales in 1986 were forecasted to be $10mThere should be a balance between higher marketing costs and profit contribution.Total market $775m, and 80% goes through retail supermarket in 1985.Two-third of $620, i.e $420 through prepared dips ,and $200 dip base/mix. 55%(235m) prepared need refrigeration, 45% (185m) shelf stable Price range $.07 to $0.1545% self-stable (185m), price range $0.13 to $0.20Prepared sour cream and mix dips account for 54% market of total market $775Cheese base market $193.75 (25%)25% (all bean and picante), i.e. $193, and remaining $325.5 shares linked to salty snack.25% (55m) of cream cheese base and 85% of (165) cheese base is linked with chip usages.33% (207m) dips are linked to vegetableLeader in salty food market and has 33% shareCheese based introduced in 1984 Decision in hand-

- Dip line should be aggressively promoted in the present ‘Chip Dip’ market?- Should also actively pursue in ‘Vegetable dip’

Strength:Shelf-stable requires no refrigeration costs, and get space near salty snack (97% of US prefer salty snacks).Major Player in self stable market with 73% market share ($135m)Highly disciplined and nationwide distribution networkUnique front door delivery reduces ‘Order to delivery lead time’, and also have Customize service model for Supermarket that can be utilized for Brand extension.

Weakness:Vegetable dip would not get the advantage of Halo Effect of marketing, and opportunity cost would be higher.No experience in shelf-stable vegetable productOnly one product ‘vegetable dip’ would make the penetration weak.Dips are mostly complementary to chips and tough to market as separate brandExisting distribution doesn’t support vegetable dip marketing Opportunity:Dips popularity is increasing in USAVegetable dips displays throughout super market, and often viewed as complementaryAlmost a niche market, no national competitors in vegetable dipsAbout 97% US household use salty snack and dips is a perfect complementary to salty snackVegetable dip market is $207m (33% of all dips) and growing

Threat:Market is almost stagnant if we adjust inflation, only cheese base market is growingRefrigerated salad dressing (24m) is a substitute for vegetable dips, and growing at 18%p.a., which is faster than dips market growth.Advertising costs increased (25% over 1984, and 10% of all dip sales) and numerous new products were introducedEntry of large and financially strong groups in the market

Product line New Brand VegetablePros Cons Pros ConsCapitalize on existing brand equity

Opportunity to explore $207M vegetable

Resources constraint to promote new brand

market with distinct brand identity

Capitalize on company’s marketing and distribution

Wouldn’t have to fight for stable-shelf near salty snack

Volume, and prospect is not too big to fit brand extension

Ideal pair of potato chips, which has a 50% US salty snack market

Novelty of Shelf stable is passed

One of the Major competitor Kraft is anticipating to expand business in shelf stable dips, so brand extension to vegetable dip is a good anticipation

Refrigerated salad dressing (24m) is a substitute for vegetable dips, and growing at 18%p.a., which is faster than dips market growth.

Dips are highly profitable line (Net profit margin was 10.27%)

Stagnant core customers

High competition in chip dip market and stagnancy

Significant departure from current distribution practice and also increase distribution costs.

190% sales growths over last five years (from $30 in 1981 to $87 in 1985)

Increase competition in dips slow down growth

It’s a niche market, Market size is 155m (excluding salad dressing). No formidable player, and fragmented competition

Restricts the scope of displays. Shelf location near produce/refrigerated salad dressing is not as attractive to customer as near salty snack.

Good dips A/S ratio (2.7%), and more allocation of fund for advertising to ensure strong footing in chip dip.

Research shows that Sour cream dip is a more fit for vegetable dipping

There is a chance of redundancy within product-line and customer may get confused.

Advertising and merchandising cost would go further and reduce profit margin

Consumers are becoming more concern about nutrition relating to salty snack

Would not get the advantage of ‘Halo Effect’, and effective opportunity cost would be high.

Sour Cream dip fits more to Vegetable dipping

Customer’s health consciousness would increase the demand of vegetable dips.

Strategically, penetration in vegetable dip market with more than one product is necessary, which is also a costly exercise.

It would be one of a kind product in the market, as no other company have shelf-

stable vegetable dipGross margin is 45%, economics of scale would cannibalize fixed cost and increase net profit contribution