Sunchips

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Table of Contents

Problem Statement3
Situational Analysis3
External Analysis - Market Analysis3
External Analysis - Customer Analysis4
External Analysis - Competitor Analysis4
External Analysis - Environment Analysis4
Internal Analysis - Performance Analysis5
Internal Analysis - Determinants of Strategic Options7
Alternative Analysis8
Recommendation9
Citations10

Problem Statement

Frito-Lay, Inc. executives are contemplating the launch of Sun Chips Multigrain Snacks. Though there are currently few, if any, other nationally- marketed multigrain snack chips, the snack chip industry is known to be highly competitive and it is likely that competitors will be quick to introduce a competing product. Frito-Lay, Inc. executives are hesitant to move too quickly in introducing Sun Chips because of conflicting data that has come from initial market research. The pre-market testing estimated that first-year sales volume would be $113 million, exceeding the $100 million goal. O’Grady’s chips were the most recent Frito-Lay new product to achieve $100 million in first-year sales. Test market research revealed that Sun Chip’s estimated trial and repeat rates were lower than the rates of O’Grady’s which may indicate that Sun Chip’s first year sales won’t meet the goal. The reluctance of decision makers to move forward and take the position of pioneer without compelling evidence from market research is justified as most new snack products fail. Executives must decide if they will continue researching in the Minneapolis-St. Paul test market for another six months, launch the product with $22 million in marketing expenditures, or launch the product with $30 million in marketing expenditures. This decision is critical because a huge capital and marketing investment is required to launch Sun Chips Multigrain Snacks. The brand requires a new manufacturing process, carries a new brand name, and pioneers a new snack chip category.

Situational Analysis

External Analysis - Market Analysis

A total of 3.5 billion pounds of snack chips were sold in 1990, with a per capita consumption of approximately 14 pounds. Per capita consumption increased from 12 pounds per person in 1986, indicating growth in the snack chip market. The snack chip market is mature; however, growth opportunity exists in international markets and in areas of unmet customer needs, such as the category of healthier snacks as an extension in the snack chips market. Rivalry is high amongst current competitors and though the potential to move into these new markets is appealing, there are entry barriers. Frito-Lay was able to modify existing production equipment to manufacture the small volume of chips needed for market testing, but a costly new production line would be necessary to manufacture adequate volume for national distribution. Since multigrain chips require different technology than corn or potato chips, it is likely that competitors would face this entry barrier as well. Even if competitors choose not to introduce a competing multigrain chip, Frito-Lay faces the threat of substitutes because there are other similar healthy snack products such as popcorn on the market. Buyer power will increase if competitors choose to introduce their own multigrain snack chips. Sun Chips are currently in the introductory stage and the road ahead is subject to change if, or when, competitors introduce their own products.

Sales of Frito-Lay, Inc. products make up 13% of all snack food sales in the United States and they are the leading manufacturer of snack chips. Their sales make up nearly half of all sales in this market segment. In 1990, Frito-Lay, Inc. grew 5% from the previous year to have US sales of $3.5 billion. Total US snack food industry sales for this year were $37 billion and snack chip, pretzel, and popcorn sales made up $9.8 billion of this total.

External Analysis - Customer Analysis

Sun Chips are...
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