CASE

STRATEGIC MARKETING

FRITOLAYS DIPS

GROUP 2

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CHAPTER I

BACKGROUND

1.1 Situation Analysis

Dips are typically used as an appetizer, snack, or accompaniment to a meal. The market

dips highly fragmented. Upward of 80 percent of dip sales are accounted for by supermarket.

Picture 1. Dips Sales in 1985 at Supermarket

Industry research indicates that dollar sales growth by 10%, but this growth because of

the price (inflation). The usage of dips, 67% sales linked to salty usage that usually found at

regular shelving and 33% linked to vegetables usage that shelved in produce area close to

vegetable and salad dressing. Consumer`s favorite flavor 50% is sour cream based, 25% choose

cheese based, 15% is cream cheese based, and the rest is (10%) is bean and picante based.

Even though the market is large enough, actually 20% of dips consumed by households

and homemade by mixing the salad dressing that typically located in produce section

(refrigerated). Retail sales of refrigerated salad dressing have been growing 18% annually since

1978.

1.2 Company Profile Of Frito Lays

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

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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.

1.3 Dip Business

Frito Lays started dips business in 1950 by Jalapeno Dips and Enchilada Bean Dips. The

Dip popularity accelerated the dip product line by 1983 by introduces cheese dips. In 1986,

Frito Lays have 3 type of dips : Mexican Dips, Cheese Dips, and Sour Cream Dip. Frito-Lay’s dips

sales 48% by cheese dips, 44% by Mexican dips, and 10% by sour cream dips. From 1981 to

1984 the sales increased, but nevertheless total dollar of sales decline in 1985 and going

stagnate in 1986.

1.4 Dip Distribution and Sales Effort

Frito-Lay distribute the products through 350.000 outlets nationwide consist of 34.000

supermarket, 47.000 convenience store, and 20.000 nonfood outlets, and the rest is small

groceries. Frito- Lays use “front door distribution system” which one person performs sales and

delivery function. This sales system is suited to 270.000 non-chained outlets. But in

supermarket usually require participation by branch manager. Furthermore, the sales task and

account are more time consuming and complex.

1.5 Dip Marketing

In 1983, Frito Lays viewed as a nonpromoted profit producer which just do consumer

promotion and trade promotion as its strategy. In 1985 and 1986, Frito - Lays start promote the

products by consumer advertising and spend a lot of budget consumer promotion to do cross

selling with the chips products.

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CHAPTER II

KEY ISSUE

Frito-Lay’s Dips had become a very profitable product line and obtained exceptional

growth within the past five years after 1986. 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.

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

2. Actively pursue the “vegetable dip” category.

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CHAPTER III

ANALYSIS

In analyzing which opportunity that could be develop for Frito-Lays, we have to define

the market potential, market segmentation, and competitive advantage of the two products

(chip dips and vegetable dips).

3.1 Market Opportunity

Market opportunity in Frito-Lay could be seen from growth of market, flavor popularity

of dips consumer, type of products in market, and total dips usage behavior.

Growth in Dips Market

Dips on Market and Flavor Popularity

0%

5%

10%

15%

20%

Vegetable Dips Chip Dips

Pe

rce

nta

ge O

f G

row

th

Type of Dips

Growth in Dips Market

32%

30%

38%

Type Of Dips Product in Market

DIP BASES SHELF TABLE DIPS REFRIGERATED DIPS

50%

25%

15%

10%

Flavour Popularity Of Dips Consumer

sour cream cheese based

cream cheese based bean and picante

Vegetable dips market growth 18% annually since

1978 which majority homemade product by

mixing the salad dressing. Beside growth in chip

dip just 10%, the growth because of the dollar

(inflation). There is no special dip for vegetable,

even if the product exist is just a local brand. So,

vegetable market is an opportunity market for

company to extend the product line.

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The biggest dips market share is refrigerated dips which majority is sour cream based. It is

linked with the most favorite flavor in consumer. Some executive said that the sour cream dips

sometimes used for vegetable. Sour cream dips usually placed in refrigerator but in 1986, Frito

lays launched the first sour cream shelf table dips. So, the sour cream (the most favorite flavor

and the biggest market share) linked to the vegetable used and it’s an opportunity for the

company.

3.2 Market Segmentation

In analyzing dips market segmentation there are seven steps that must be done. Those

steps are :

1. Need based segmentation

We analyze that need based from each option are same. Both of segment needs are delicious,

tasty, and the other experience during eat salty snacks and vegetables depend on its option.

2. Segment identification

In segmentation identification there are different segment for those option:

a. Chip dips : American People, usually eat salty snacks

b. Vegetable dip : American people, usually eat salad or refrigerated vegetables, healthy

interest

3. Segment attractiveness

In segmentation attractiveness there are three indicators can be used consist market demand,

competitive intensity, and market access. Here is the table that showed each indicator by

comparing chip dip and vegetable dip:

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Segment Attractiveness Chips Dips Vegetable Dips

Market Demand

Market Size $ 415,4 M $ 206,4 M

Growth Rate dips down 9% in 1985 tend to growth ( dressing salad that ussualy to use as vegetables dips growth 18% annualy)

Competitive Intensity

Number of Companies

so many big company and major competitor

no major competitor there

Ease of Entry easy easy

Substitutes homemade dips homemade dips

Market Access

Costumer Familiarity

Frito Lays is Major company in shelf dip

costumer doesn’t know vegetable dips yet

Chanel Access easy (350.000 outlets) easy (350.000 outlets)

Company Fit chips Dips are fit with the company core bussines

unfit with the core company bussines

4. Segment Profitability

a. Chip dip

Chip dip segment has a stagnant phase during in 1985, and this segment has a lot of major

competitor. If Frito Lays chose this segmentation it will take very high marketing expense to

get a market share and it means we do face to face fight with many major competitor.

b. Vegetable dip

No major competitor in vegetable dip indicate we don’t need a lot of marketing expense as

big as chip dip, but we still have a big expense to educate the market because vegetable dip

segment is a sleeping market.

5. Segment positioning

Both segmentation wants communicate that their product are delicious, easy to find, easy

to use, easy to eat.

6. Segment strategy acid test

Both segmentation use the story board

7. Marketing mix strategy

Both segmentation use 4P marketing mix strategy

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3.3 Competitive Advantage

Competitive advantage grows fundamentally from the value a firm is able to create. The

value itself is what buyers are willing to pay, and superior value stems from offering lower

prices than competitors for equivalent benefits or providing unique benefits that more than

offset higher prices. Competitor review for dips category is different between chip dip and

vegetable dips. A chip dip has a lot of competitors and strong financial support so the

promotion and marketing stronger than Frito-Lay did.

CHIP DIP VEGETABLE DIP

MARKET SHARE $ 416 million (67% of total dips) $ 205 million (33% of total dips)

NUMBER OF COMPETITORS

- Many big competitors play on this market - Kraft, Borden - Well financed company starts playing on this market (Campbell Soup and Lipton)

- Not too many competitors - Libby Dip Mixes and Bennett Toping Dip, but just sold in local areas

Frito-Lay as a company has an extensive competitor knowledge but average customer

knowledge, so Frito-Lay`s position is competitor reactive strategy which means overreaction to

competitor moves due to limited customer knowledge.

Lack of customer knowledge in Frito Lays result sales decrease in company`s profit such:

Time when company delete one of Mexican dips (enchilada bean dips), the customer not

prefer the other flavor of Frito-Lay dips but directly switch the brand.

Late responds to realize the most favorite flavors

Lack knowledge that their sour cream dips product used as vegetable dips too.

Comparing the competitive advantage between chip dips and vegetable dips can used

based on cost advantage, differentiation advantage, and marketing advantage.

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CHIP DIP VEGETABLE DIP (VD)

COST ADVANTAGE

VARIABLE COST ADVANTAGE

variable cost will be lower since the chip dip market is high

No variable cost advantage - variable cost will high and need an investment to produce VD

MARKETING COST ADVANTAGE

- Frito-Lay’s market share in shelf table dips is 73%

- Growth of product (Mexican & cheese dips) tendency stagnant - Creating in chip dip marketing didn’t give cost advantage

- sour cream based suitable for vegetable - Launch vegetable dips as a line extension could reduce the marketing cost - VD will give more choices to customer - VD wouldn't give cannibal effects

DIFFERENTIATION ADVANTAGE

PRODUCT ADVANTAGE

new flavor More advantage : flavors/taste, concern or support to be more healthy, company innovation, leader on the dips market

REPUTATION ADVANTAGE

Reputation advantage just maintain the loyal customer and will give cannibalism effect

Vegetable dips with catch up: 1. Loyal consumer of chip dip will buy both 2. New consumer who likes vegetable dips 3. New consumer from another brand

MARKETING ADVANTAGE

MARKET SHARE

Market share will be stagnate

Vegetable dips will be make Frito-Lay’s market share on dips will be higher

FORMULATION Since a lot of competitors in a chips dip market and the market on shelf table dips are going to stagnate. So it will be better to

launch the vegetable dips. So Frito-Lay could be leader not only on chips but also in dips category. But better the product of

vegetable dips using other brand name

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CHAPTER IV

SOLUTION

The solution for Frito-Lay to develop market from the opportunity analysis, market

segmentation, and competitive advantage is company better to – enter the vegetable dip

category – since the attractiveness is compromising. This category is new in the market, so

company has to consider the good strategy to educate the customer about the product and the

budget strategy. This strategy doesn’t means the chip dips category left behind but also focus

in increase market share as second priority. The strategy for vegetable dips describe in table

below.

Product Vegetable Dips – shelf table dips category

New identity - FRITO GREEN DIPS

Flavor innovation – benchmark to salad dressing flavor

Price Medium price ( equal to shelf table dips price – that higher than refrigerated dips)

Price benchmarking – salad dressing

Place Distributed in supermarket

Product shelving in 2 place both in regular shelving and refrigerated shelving (closed to vegetables)

Promotion Consumer Promotion – give a consumer promotion to encourage customer to try the vegetable product. Example : “ banded strategy : buy 1 chip dips get 1 vegetable dips”

Promotion ADEX priority : consumer promotion, advertising promotion, and trade promotion

Ads strategy: join with chip dips to make the integrated dips promotion.

From those analyses, we categories the market segmentation strategies to adjacent

segmented that shown at the picture below.

D segmentC2 segmentC1 segmentC segmentB2 segmentB1 segmentB segmentA2 segmentA1 segmentA segmentall segment

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CHAPTER VI

RECOMMENDATION

1. Entered the vegetable dip using a new brand called frito green. The new brand used in

order to avoid the ambiguous effect between dip for chip and dip for vegetable.

2. Develop the marketing team to maximize the frito green. The marketing tim include to

educate the market (healty life style), set the advertising, the place of frito green in

supermarkets, and canvassing to the supermarket and explore the distribution channel.

3. Develop research to find line product for frito green. These line product goals is to help

increasing frito green sales

4. Make a clear border between frito lays and frito deep to avoid cannibalization form

their product

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APPENDIX

Appendix 1. Needs Process

Need Based Segmentation Process Chips Dip vegetables Dip

Need Based Segmentation other experience during eat snacks, delicious, tasty,

other experience during eat vegetables, delicious, tasty

Segment Identification Customer, in america,usually snack

customer in america, usually eat salad or refrigerated vegetable, interest in health,

Segment Attractiveness less attractive more attractive

Segment Profitability need verry high marketing cost to get a market share from saturated market

need high marketing cost to educate the market

Segment Positioning delicious easy to find, easy to use, easy to eat

delicious, easy to find, easy to use, easy to eat

Segment Strategy Acid Test using story board using story board

Marketing Mix Strategy using mix 4p using mix 4p