Frito Lay Case Study

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Frito-Lay is a division of PepsiCo, a New York-based diversified consumer goods and services firm. Frito-Lay is a nationally recognized leader in the manufacture and marketing of snack foods. The company’s leaders in the snack industry include potato chips, tortilla chips, cheese puffs and pretzels. Frito-Lay not only had net sales in 1985 of three billion but also captured about thirty three percent of the snack foods sold in the United States. When Frito-Lay first got into the dip industry they introduced two dips, the Jalapeno Bean Dip and Enchilada Bean Dip. These two dips were generally viewed as a complement to the companies Fritos corn chip. In 1978 a Picante Sauce Dip was introduced to complement the newly introduced Tostitos chips. These three dips were the only Frito-Lay dips sold until 1983. The growing dip popularity accelerated the extension of the dip product line in 1983. In the early 1984 Frito-Lay introduced a number of cheese-based dips all of which were produced in the same nine ounce cans as the Mexican dips were sold. According to the marketing director Ben Ball “Cheese dips were a extension of Frito-Lay’s tortilla chip business and were a response to the Mexican food phenomenon sweeping the country.” From 1983 to 1985 the Jalapeno Bean Dip and Picante Sauce Dip showed steady although slow growth, despite this they were dropped from the Mexican Dip line in mid-1985 as a result of falling sales. When the line was dropped Frito-Lay anticipated that consumers would switch to the other types of Mexican dips that were sold, but the consumers did not and Frito-Lay ended up losing customers. Nevertheless, dips were a highly profitable product line. Prior to line until the introduction of the cheese dips in late 1983. After the introduction of the cheese dip line, Frito-lay began promoting all of their dips, but almost all of their marketing efforts were steered toward retail-store snack food buyers in the form of trade-oriented promotions. In 1985 the emphases of marketing shifted from Trade Promotions to Consumer promotions. Such consumer promotions included product sampling and couponing to try and promote the trial of new products. Due to Frito-Lay’s new product effort, along with increased competitive activity caused Frito-Lay to further increase consumer activity and promotions in 1986. Dips are typically used as an appetizer or accompaniment to a meal. Over the past dip popularity has risen as a result of the convenience of use, multiple uses, and snack trends in the United States. Since the dip trends began to rise large, well financed companies began to aggressively pursue the dip market. Companies that expanded into the dip industry include Campbell Soup and Lipton. The other major competitors in the dip industry are Kraft, Borden, and a large number of regional diaries. Competitive activity in the dip market accelerated in 1984 and 1985. Other problems in the dip industry include that about 55 percent of prepared dips sold in supermarkets require refrigeration. In these years the numbers of new products were introduced along with rising advertising expenditures. Industry sources estimated that dip competitors combined (Not including Frito-Lay) spent $58 million for advertising alone in 1985.

Problem Definition-

The problem first arose in 1986 when Ben Ball, Marketing Director and Ann Mirabito, Product Manager had just completed the planning review line of dips sold by Frito-Lay Inc. Frito-Lay’s dips were a highly profitable product that had shown incredible sales growth during the past five years. Sales forecast in 1985 were $87 million, compared to $30 million 19981. The major issue that arose during the meeting was where and how Frito-Lays Dips can be developed further within the dip industry. One of the main views is that the dip line should be more aggressively promoted in its present market segment. This market segment was broadly defined as the “chip dip” category....
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