Term Paper on "Frito Case Frito Lay's Inc.: Chip Dip"

Term Paper 6 pages (1645 words) Sources: 1 Style: APA

[EXCERPT] . . . .

Frito Case

Frito Lay's Inc.:

Chip Dip vs. Vegetable Dip

Frito Lay's Inc. is an integrating part of the PepsiCo Inc. And it is specialized on producing and selling salty snacks. Frito Lay's places onto the market a wide variety of salty snacks, from crackers and pretzels to potato or corn chips. A current feature of the salty snack market is revealed by an increasing interest in dips.

Dips are generally sold in supermarkets and present the consumer with numerous options, suiting every taste, from cheese and sour-cream to beans and piquant flavours. The great popularity of the dips is generally due to their diversity in usage. Dips can be consumed with snacks or appetisers, but also with a primary meal.

The market share and revenues adherent to selling dips has increased at an annual rate of 10%, but specialists point out that this increase is generally due to inflation and price increases. In this order of ideas, no relevant increase of the dip sales can be observed.

Dips are extremely popular around the world as well as within the United States and they are generally divided into four major categories. Here are the categories and their according market shares: sour-cream and mixed dips - 50%; cheese-based dips - 25%; cream cheese dips - 15%; bean and piquant dips - 10%. Most dips are shelf stable, meaning that they are packed in metal cans that preserve their quality and the dips only need refrigeration after being opened.

Frito Lay Inc.'s major competitors are: Kraft, Libby's Dip Mixes, Bennett's Toppings/Dips, Marie's, Bob's Big Boy, Marzettl's and Walden Farms.

2. Problem definition

Frito Lay's is on the verge of launching a new expansion campaign that is aimed to increase the company's notoriety, enlarge their market share, and increase the sales revenues and the overall company's profits. With this goal in mind, the company is faced with the task of choosing a product line on which to emphasise.

The management team at the Frito Lay is presented with two opportunities. For starters, they have the possibility to further expand their already existent and stable chip dip area. The main inconvenience of this alternative is that the chip dip market is close to reaching maturation and is prone to head towards decline. As such, by following this path, the producer would have to invest large sums of money into a campaign that is not sure to have a positive outcome.

On the other hand, the leaders at Frito Lay have the possibility of diversifying and placing onto the market a rather new product: the vegetable dip. This alternative has the advantage of a relatively fresh market, one with substantial growth possibilities. Currently, there are a reduced number of competitors that produce vegetable dips and a large target audience that the product would apply to. In addition, the estimated demand for vegetable dip is quite large as dip consumers frequently use the chip dip as a vegetable dip. Also, for vegetable consumption, 20% of the population make their own dips at home. As such, presenting the customers with a wide array of vegetable dips would be the recipe for the Frito Lay's success.

Board members at Frito Lay Inc. have contradictory opinions in regard to the presented problem. Whereas some state the undoubted chances of chip dip success, others feel the need for change and diversity and they emphasise on the potential of the vegetable dips. All in all, to choose one or the other product lines, one has to analyse both alternatives and make an informed decision.

3. Analysis

In order to resolve the posed problem, the board members at Frito Lay's Inc. have to deeply analyse the advantages and disadvantages of both proposed alternatives. As stated by advocates and disclaimers of chip dip and vegetable dip, the two solutions are both sustained by 5 arguments in favour and 3 arguments against. The arguments in favour and against the two available alternatives are presented next:

Pros for Chip Dips:

Major opportunity to build penetration through more aggressive advertising." This argument is based on the still reduced number of dip consumers that could be convinced to try the Frito chip dips. At that time, only 20% of the chips were consumed with dip and only 45% of the salty snacks consumers used dips;

Possibility to increase the number of purchased dips throughout promotions that encouraged consumers to buy larger quantities of dip;

Increased competition on the dip market. As some competitors have already introduced new products and others are preparing to do so, Frito Lay Inc. has to keep up with the changes in demand. If they were to neglect the chip dip segment and focus on the vegetable dips, they would easily be outrun by their competitors;

Possibility to implement an aggressive advertising and promotion campaign;

Possibility to expand their sour-cream-based dips. The initial product was well received by the consumers and the board members felt that a continual of this product line would generate success.

Cons for Chip Dips:

Fierce competition on the chip dip market segment that would force Frito Lay to spend and insurmountable sum of money into a dead-end project;

The new cheese-based chip dips have generated increases in sales, but only due to the element of novelty. Such growth is not sustainable in the future;

The latest dip, the one based on sour-cream, was more suitable with vegetables than chips.

Pros for Vegetable Dips:

The possibility of a great demand, as "33% of dip sales were linked to vegetables "and also the possibility for a leading position in the vegetable dip market segment, as there were no major competitors;

The researches that revealed that the new product, the sour-cream dip, was more suitable for vegetables than potato chips;

The population has increased its awareness of the negative effects of salty products and is expected to turn to vegetable consumption;

The new product, the sour-cream-based dip has only been sold as a chip dip, but it presents significant chances of success if it were to be sold as a vegetable dip;

The possibility to sell the vegetable dips as stable shelf products; feature lacking with other dip producers.

Cons for Vegetable Dips:

Frito Dips would have to modify their delivery system to meet the demands of supermarket executives who "prefer that dips suitable for vegetable dipping be handled by their produce warehouse"

Increased costs of advertising and promoting of a new product;

Increased costs of production, resource and development, as the new line of vegetable dips would have to be diversified and expanded.

All in all, both alternatives have the same number of arguments in favour and against; they both imply a certain level of risk and they both promise a certain level of success. In the case of the chip dip product line, the producer has to invest large sums of money into an already established and recognized market sector, without the guarantee of success. On the other hand, Frito Lay Inc. could focus their efforts towards developing a new line of vegetable dips and launching them onto a young and unexplored market.

4. Recommendations

Given all the previous information, one could easily identify the most suitable course of action: developing and diversifying the vegetable dips product line. Since the market for vegetable dips is still relatively new and the producer has limited competition, the chances for success are considerably increased. Furthermore, another reason why Frito Lay's Inc. ought to go with the vegetable dips is the increased demand and consumption of such products.

The first step the company needs to take in this direction is to form a qualified, skilled and trained marketing team and charge them with developing the advertising and promotional campaign of the new product line.

The company should promote their vegetable dips throughout television… READ MORE

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