Problem Statement

Sun Chips Case Erin Godbey Daniel Pierce Seth Weaver Problem Statement • Frito Lay has had Sun Chips in a 10 month long test market in Minneapolis St. Paul. The product appears to be successful. The company must now decide what product launching path it will take or decide to extend their test market another six months.

Market Analysis • Frito-Lay, Inc. • A leading snack manufacturer • Recorded U.S. sales of $3.5 billion in 1990 • Total US Snack Industry recorded $37 billion in 1990. • There are 650 new products introduced per year in the snack industry • PMT was setup to take place in Minneapolis-St. Paul. • Minneapolis-St. Paul Test Market contains: • 1.98 million households that were identified as users of snack chips • 2.2% of the 90 million snack chip user households in the US

Porter’s Five Forces Model • Barriers to Entry: • Established distribution network • Retail outlet agreements and an established sales force. • Potential Entrants: • 650 new snack products launched yearly • Private brands block sales on a local level • Threats of Substitutes: • Readily available substitutes. • Technology is flexible • Bargaining Power of Suppliers: • Purchased 1.6 billion lbs of potatoes from multiple farmers • 600 million lbs of corn from multiple farmers. • Bargaining Power of Customers: • Customers hold a lot of power due to price pressure.

Customer Analysis • Primary audience 18-34 years of age • Secondary audience expanded to 49 yrs • Age range 34-49 more receptive of a healthier snack. • Baby boomers target market? • Americans like to snack

Competitor Analysis • Three types of competitors: • National Brands: Established networks and strong advertising presence • Regional Brands: Smaller distribution networks; only supply regions of the US. • Private Brands: Regional or local manufacturers who contract with supermarket chains. • Competitor Dynamics: • The snack chip category is very competitive. • Competitors with extensive product lines. • Pricing is very competitive in this market • This industry has a historic reliance on electronic and print media, advertising promotions, and trade allowances. • Technology used in this industry is flexible and allows competitors to react quickly to one brand’s success.

Environmental Analysis • Highly competitive pricing • Production reaction times • Improvements in manufacturing technologies • Large demographic demands lead to market trends for “healthier options” in the 90’s • Snack Industry is dynamic and fast growing.

Performance Analysis • Sun Chips Premarket Test results • Most likely produce first year sales volume of $113 million • Brand Image: • The Sun Chips name evokes a positive consumer image and attributes • Test Market – Minneapolis-St. Paul • Tested: types of purchases, repeat users, and product cannibalization.

Determinants of Strategic Options • History: • Prontos introduced in 1974 • O’Grady’s introduced in 1983 • Mid 1980s - flavor line extensions • In 1988 - different product formulations. • Strategy: • Strategy and pricing was modeled after the company’s Doritos product. • The advertizing messages would be fun, wholesome and simple. • Distribution - Frito Lay’s “store-door delivery system.” • Variety of products with high quality. • Packaging of Sun Chips. • Approval for new production line.

Alternative Analysis • Continue testing in the Minneapolis St. Paul market for 6 months. • National launch with a $22 million marketing campaign. • National launch with a $30 million marketing campaign.

Recommendation • The product should be Nationally launched. • A Marketing Investment of 22 million is preferred. • 1st year projections show better Net Sales after cannibalization and Marketing Expenses are subtracted.

References • http://www.sunchips.com/ • Kerin, Roger, “Strategic Marketing Problems,” 12th ed., Pearson Publishing • Walker, Orville, “Marketing Strategy,” 7th ed., McGraw-Hill Pub., 2011. • http://www.fritolay.com/your-health/from-farm-to-store.html

Problem Statement