Frito Lay Sun Chips Case Study

1385 words 6 pages
1. How would you characterize the snack chip category and Frito-Lay’s competitive position in this category?
The snack chip category is growing, mainly because of the increased per capita consumption, which rose from about 12 pounds in 1986 to nearly 14 pounds in 1990. The snack chip category consists of three types of competitors: national, regional and private brand firms. The market is very competitive and difficult; as many as 650 new products are introduced every year, but less than 1% of them generate more than $25 million in first-year sales.
Frito-Lay is a national brand and a worldwide leader in the manufacturing and marketing of snack chips. Frito-Lay accounts for 13 percent of sales in the US snack food industry. Frito-Lay’s
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Paul test market?
The results from the premarket test were not at all what Frito-Lay’s executives had initially expected. Consumers preferred the SunChip name,while the most popular flavors were Natural and French Onion. After the trial, Sunchips had the potential to be an “everyday snack.” The results from the premarket test indicated that the Sun Chips Multigrain Snacks would sell a total sales volume of $113 million during it’s first year on the market. Included in this sales volume is a $22 million advertising and merchandising expenditure. That being said, $113 million far exceeds the $100 million sales performance goal for which Frito-Lay initially planned. There is also less potential for product cannibalism at 42%.
The Minneapolis-St Paul, Minnesota metropolitan area was chosen because executives believed it to be a strong social and economic representation of the US as a whole. Generally speaking, this area also represented a standard environment in which consumer acceptance of products and competitive behavior both could be measured accurately. Ultimately, 2.2% of American households that eat these types of chips reside within this metropolitan area. Thus, according to the research on SunChips’ consumer acceptance and sales potential prior to the test market, it would be highly advised for Frito-Lay to continue exploration with this product, and proceed to more advanced stages of product