Case Analysis：Frito-Lay, Inc.

Problem Definition

In mid-1990, Frito-Lay, Inc. makes a new chips brand called Sun Chips Multigrain Snacks. The product had been in test market for 10 months in the Mineapolis-St. Paul, Minnesota, and metropolitan area. The senior Frito-Lay executives need to decide it they would launch this new product to market officially after the test period.

Objectives:
(1) Extend its product to attract the customers who always look for new and variety product.
(2) Update healthier recipe to meet the current trend of healthy eating.
(3) Pioneer a new snack chip category to maximize profit in the new market.

Concerns:
(1) Whether the premarket test results can correctly reflect the market performance when it introduced to nationwide market.
(2) There are many competitors in national market or local market. It's easy for them to make similar products.
(3) The advertising and merchandising budget will rise.
(4) The new product will cannibalize volume from its previous products.

The Situation of the Company

Frito-Lay, Inc. is a division of PepsiCo, Inc. It is a worldwide leader in the manufacturing and marketing of snack chips. It is capturing nearly one-half of the retail sales in the United States snack chips market. Well-known brands include Lay's brand Lay's brand and Ruffles brand potato chips, Fritos brand corn chips, diorites brand, Tostitos brand, and Santitas brand tortilla chips, Cheetos brand cheese-flavored snacks, and Rold Gold brand pretzels. Eight of them chips are among the top ten best-selling snack chip items in U.S. supermarkets.
Frito-Lay's snack-food business spans every aspect of snack-food production. It has 39 Manufacturing plants, more than 1,600 distribution facilities, and a 10,000-person route-sales team that calls on more than 400,000 retail store customers each week in the United States.

Strength:
(1) Frito-Lay, Inc.'s distribution network is very wide. It's able to promote the Sun Chips in a short time.
(2) Frito-Lay, Inc. has much experience about how to launch a new brand to market and make it successful.
(3) Frito-Lay, Inc. owns lots of loyal customers. Eight of its products have been in top-selling snack chip list. Most customers prefer to choose product from the familiar companies they trust.
(4) The product had been in test market for 10 months. It means Frito-Lay, Inc. get more information than its competitors. It is easily for it to make the decisions than others.

Weakness:
(1) Production line capacity is limited, so the new production line is required to meet the nationwide market demand.
(2) Premarket test budget is limited, so Sun Chips is tested in only one area.

Threats:
(1) Frito-Lay, Inc.'s competitors might also launch similar products nationally or regionally.
(2) The Sun Chips’ launching will influence its pervious products' profit.
(3) The consumers’ preference and taste is different from one area to another area.

Opportunity:
(1) The popular trend of healthy eating. More and more customers pay attention to nutrition when they make their food list.
(2) There are no this category of product from its competitors in the market yet.

In summary, Frito-Lay, Inc. has strengths in its production expertise, wide distribution network, loyal customers, but it is weak in its limited production line capacity and its limited test result. It has the opportunity to meet people's demand of healthy food and make substantial profit from it, meanwhile, it faces the threats from its competitors and uncertainty of consumers' preference and taste. It also need to worry about the new product impair its pervious products' performance. Alternative Solutions

1. Giving up the new product.
2. Putting the new product on the national market following the same strategies of premarket test.
3. Putting the new product on the market after strategies adjustment.
4. Continuing the market test.

Evaluation of Alternatives

Give up the new product. Giving up the new product is a safe strategy. Frito-Lay, Inc. is the leader manufacturing in the snack chips market. Its' products have held large market share. Even if it gives up the new product, it's still the leader. But if it gives up the new product, the spending in the premarket test becomes meaningless. The market test result appeared consumer response was favorable which means it likely gain profit from the new brand. Its quit just leaves the opportunity to its competitors.

Putting the new product on the market following the same strategies of premarket test. This solution gives the company a simple way when it expands its product sales from a single area to nationwide. In the premarket test, its pricing strategy, advertising and merchandising strategy, distribution and sales strategy were all determined. When Frito-Lay, Inc. puts the new product on the national market, the things they need to do is raising the advertising and distribution expending and adding more production line to meet the higher quantities requirement. But applying the experience that comes from a single area into whole national market is very dangerous. People's eating habit and lifestyle is different in various states that determine their demand of snack chips will be different. Simply coping the strategies from the test may lead to a terrible result.

Putting the new product on the market after strategies adjustment. This solution is adjusted from the former solution. This alternative will increase its operation cost, but it will bring a better result. The reason why Minnesota metropolitan area was chosen as the test site is because Frito-Lay executive were confident it had a social and economic profile representative of the United States. It is more convinced that these strategies can achieve success in another metropolitan areas. How about non- metro areas? So Frito-Lay, Inc. needs to use adjust its market strategies when it comes to different places.

Continuing the test. This is not a good solution. This new product had been tested for 10 months, if Frito-Lay, Inc. still continued testing the product, its competitors might have enough time to launch their own products. Frito-Lay, Inc. would lose the best time to enter the new market.

Selected Solution

Putting the new product on the market after strategies adjustment. Its premarket test was made in a metropolitan area and got a satisfied result. Its manufacturing capacity was limited which means the product quantities were hard to meet the requirement of nationwide market in a short time. Base on these two factors, Frito-Lay, Inc. had better focus its market promotion on the metropolitan areas at first. In this period, the market test information is more useful because the marketplaces are similar. After its new production line completed, it can gradually expand its market to other areas. In this period, it had better to hire research firm to get the consumers' response. Based on these responses, Frito-Lay, Inc. can make a better adjustment when launching Sun Chips on non-metro areas. For instance, because population distribution is different from metropolitan areas, Frito-Lay, Inc. needs to find another efficient and economical advertising scheme to achieve its marketing purpose.

Conclusions

Frito-Lay, Inc. is a cautious company. It would do a premarket test before it wants to launch a new product. The results of the test influence company executives’ decision about the new product. Although the test result is very exact and detailed, it can only reflect one-sided market situation because the market test is taken in only one area. To make a business plan for national market, it still do more effort. In this process, maximum using the test information is important and meaningful.