CASE STRATEGIC MARKETING

FRITOLAYS DIPS
GROUP 2

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-Lays, 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 Grandmas brand cookies and snack bars. Frito -Lays 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-Lays 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-Lays 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 companys executives, Ben Ball, marketing director, and Ann Mirabito, product manager, were faced with two alternatives concerning where and how Frito-Lays 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 Vegetable dips market growth 18% annually since
Percentage Of Growth

Growth in Dips Market

20% 15% 10% 5% 0% Vegetable Dips Chip Dips

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. Dips on Market and Flavor Popularity
Type Of Dips Product in Market

Type of Dips

Flavour Popularity Of Dips Consumer

10%

38%

32%

15% 50% 25%

30%
sour cream DIP BASES SHELF TABLE DIPS REFRIGERATED DIPS cream cheese based cheese based bean and picante

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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 its 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 Market Size Market Demand Growth Rate

Chips Dips $ 415,4 M dips down 9% in 1985

Vegetable Dips $ 206,4 M tend to growth ( dressing salad that ussualy to use as vegetables dips growth 18% annualy)

Number Companies Competitive Ease of Entry Intensity Substitutes Costumer Familiarity Market Access Chanel Access Company Fit

of so many big company and no major competitor there major competitor easy easy homemade dips homemade dips Frito Lays is Major costumer doesnt know vegetable company in shelf dip dips yet easy (350.000 outlets) easy (350.000 outlets) chips Dips are fit with the unfit with the core company bussines company core 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 dont need a lot of marketing expen se 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.
MARKET SHARE NUMBER OF COMPETITORS CHIP DIP $ 416 million (67% of total dips) - Many big competitors play on this market - Kraft, Borden - Well financed company starts playing on this market (Campbell Soup and Lipton) VEGETABLE DIP $ 205 million (33% of total dips) - 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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VEGETABLE DIP (VD) COST VARIABLE No variable cost advantage ADVANTAGE COST variable cost will high and need ADVANTAGE an investment to produce VD MARKETING - sour cream based suitable for COST vegetable ADVANTAGE - 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 PRODUCT new flavor More advantage : flavors/taste, ADVANTAGE ADVANTAGE concern or support to be more healthy, company innovation, leader on the dips market REPUTATION Reputation advantage just Vegetable dips with catch up: ADVANTAGE maintain the loyal customer 1. Loyal consumer of chip dip will and will give cannibalism buy both effect 2. New consumer who likes vegetable dips 3. New consumer from another brand MARKETING MARKET Market share will be Vegetable dips will be make FritoADVANTAGE SHARE stagnate Lays 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

CHIP DIP variable cost will be lower since the chip dip market is high - Frito-Lays market share in shelf table dips is 73% - Growth of product (Mexican & cheese dips) tendency stagnant - Creating in chip dip marketing didnt give cost advantage

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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 doesnt 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 Medium price ( equal to shelf table dips price that higher than refrigerated dips) Price benchmarking salad dressing Distributed in supermarket Product shelving in 2 place both in regular shelving and refrigerated shelving (closed to vegetables) 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.

Price Place

Promotion

From those analyses, we categories the market segmentation strategies to adjacent segmented that shown at the picture below.
D segment C2 segment C1 segment C segment B2 segment B1 segment B segment A2 segment A1 segment A segment all 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 Need Based Segmentation Segment Identification Segment Attractiveness Segment Profitability Segment Positioning Segment Strategy Acid Test Marketing Mix Strategy Chips Dip other experience during eat snacks, delicious, tasty, Customer, in america,usually snack less attractive need verry high marketing cost to get a market share from saturated market delicious easy to find, easy to use, easy to eat using story board using mix 4p vegetables Dip other experience during eat vegetables, delicious, tasty customer in america, usually eat salad or refrigerated vegetable, interest in health, more attractive need high marketing cost to educate the market delicious, easy to find, easy to use, easy to eat using story board using mix 4p

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