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Frito-Lay Dips Case Study Analysis

Frito-Lay Dips

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Frito Lay's Dips

Step One: SWOT Analysis for Frito Lay's Dips
Internal Factor Strengths Weaknesses

Management Have very good arguments for both opportunities in the marketplace. Doesn't utilize advertising to their potential. Can not agree on what avenue to take in the dip market.
Offerings Carries a wide range of products in the dip category. Introduction of cheese dips boosted sales. Products mostly shelf stable which constitute 45% of prepared dips sold in supermarkets. Recent offer of their first product that required refrigeration and 55% of prepared dips sold in supermarkets required refrigeration. Has only introduced one sour cream dip. Still hasn't penetrated all of the areas in the dip market.
Marketing Uses a variety of techniques such as product sampling, coupons, and TV and radio. Placement of dips in the store (near the salty snacks). TV and radio advertising or consumer-pull marketing is limited. Advertising/Sales ratio is 2.7% while the typical ratio is 10%.
Personnel Sales and delivery personnel have a unique system and they work well together. Large sales force of over 10,000 individuals. The unique system is particularly suited to the nonchain outlets. Chain-store outlets, most supermarkets, require a Regional or Divisional manager make decisions which makes sales and account servicing in these stores time-consuming and complex.
Finance Excellent growth up until the most recent year. Sales dropped from 1984 to1985. A new product introduced in 1986 is forecasted to boost sales. Large companies are entering the dip market and financing more advertising and marketing than Frito Lay's currently uses. More marketing and new products are needed to keep sales growth.
Research and Development Excellent when the cheese dips were introduced in late 1983 to early 1984. More new products need to be introduced and research needs to be done to find out which products will be most popular and profitable.

External Factors Opportunities Threats

Consumer/Social Brand name is very recognizable. Dips are always used in social situations and the types of dips produced are always expanding. New competition by large companies will require more unique products and more marketing efforts.
Consumer household penetration flattened leaving opportunities for competitors to take business.
Competitive As said above, Frito-Lay is a well-known brand of salty snacks. New dips products to differentiate Frito-Lay from the competition. Frito-Lay has a large variety of dips but there are still opportunities in the dip market that they haven't penetrated. A large variety of dip products have already been introduced into the marketplace.

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Other companies may attempt to duplicate new products. Home prepared dips popularity may increase due to families wanting to watch their spending. Homemade dip recipes are very unique and it constitutes 20% of all dip volume consumed by households. Refrigerated salad dressings constitute 35% of dip volume consumed.
Technological New technology is always being introduced. Frito-Lay is large enough and has enough financing to stay on top of technological growth. Other large companies have entered the dip industry in the past year and they also have the financing and ability to keep up with technological advances.
Economic Product is not a large expense. Consumers making their own products at home to save money.
Legal/Regulatory Easy to create new products because all ingredients are safe and common.
Step Two: Problem Definition

Frito-Lay needs to consider whether they should continue to pursue the chip dip market only or also market their dips as a vegetable dip using the new sour cream dip as a spearhead.
Step Three: Alternative Solution Set
One view was that Frito-Lay should expand the chip dip market and strive to increase market share. There are several advantages to this strategy. Research has indicated that only 20 percent of chips were currently eaten with dips. Only 45 percent of U.S. households used dips in 1985 but 97% used salty snacks. Research also indicated that the average number of times shelf-stable dips were purchased by households was 4 times per year and Frito-Lay's dips were purchased 3.6 times per year. There are thoughts that Frito-Lay could expand the number of times household buy dips per year by frequency-building promotions such as on-pack coupon offers to encourage repeat sales. A third argument to pursue the chip dip market is the increased competitive activity. There were 40 new Mexican-style cheese dips introduced since 1983. There was extreme competition amongst shelf stable dips seeking shelf space near the salty snacks. It was also believed that Kraft was coming out with a new chip dip that would create further competition. A fourth argument was that historically Frito-Lay had not marketed their dip products aggressively. It is understood that a typical advertising to sales ratio is 10%. Frito-Lay's advertising to sales ratio for its dip product line was 2.7 percent in 1985. The final argument is that Frito-Lay could use its sour-cream based dip to spin off other products.
Other executives argued that Frito-Lay would be faced with too much competition in the chip dip category and they could only hope to hold, not improve, their current position. Frito-Lay's recent growth in the dip market was due to new products and it was unclear whether other new product extensions would produce continued growth. There was also potential for cannibalization of existing cheese dips. Finally, the new sour cream dip was more suitable for vegetable dipping and represented a break from the popular Mexican style dips.
Another view of Frito-Lay executives is that they should pursue the vegetable dip market. There has been research done that shows 33 percent of dip sales were linked to vegetables. Only one-fourth of vegetable dipping came from refrigerated salad dressings and the rest was accounted for by dip-mixes and refrigerated dips. Research also indicated that sour-cream based dips were more popular than cheese dips for vegetable dipping. Trend data indicated that people were becoming more nutritionally concerned and aware and the salt, fat and preservatives in chips might be replaced by healthy vegetables for dipping. Frito-Lay's new sour-cream line had not yet been promoted and merchandised for vegetable dipping. Also, no major competitor had introduced a shelf-stable dip for vegetables and some executives believed this was an opportunity for Frito-Lay to begin the trend. Finally, the gross margins would be for the most part unaffected.
Other executives expressed the view that pursuing the vegetable dip segment would be hard and time-consuming and possibly not as profitable as focusing their efforts on the chip-dip segment. Frito-Lay's front-door sales approach would be unfavorable because supermarket executives preferred that vegetable dips be handled by their produce warehouse. This would also cause problems because Frito-Lay had never dealt with produce managers and a new sales technique would be crucial. It was also estimated that selling expenses could increase from the current 22.7 percent of sales to 25 percent. Frito-Lay was unfamiliar with merchandising products in the produce section where the vegetable dip would need to be merchandised. Another concern was that Frito-Lay's Dips would lose some economies in merchandising and advertising since they were always sold in conjunction with their salty snack products in the past. A final concern was that in order to get into the vegetable dip line Frito-Lay would need to have more than one product. They would have to do research and development and promotions which would add significantly to expenses.
Step Four: Case Solution
If Frito-Lay decides to keep pursuing their market segment of chip dip lovers they will benefit because they will stay in the market where they are familiar and comfortable. They can use the time and expense they would have to use to pursue the vegetable dip market to create new cheese or Mexican dip products that will compliment their salty-snack products. In order to break-even in the Mexican and cheese dip category, Frito-Lay only had to produce sales of $14mm. The contribution margin is approximately 73 percent. Profit contribution is around $7mm in the Mexican and cheese dip segment. Frito-Lay has never aggressively advertised and marketed their dips and their plan for 1986 is to spend $4mm in promotions and advertising. Their competition spent $58mm in advertising in 1985 while Frito-Lay spent a little over $2mm. Frito-Lay would benefit immensely from their budgeted advertising for 1986. They capture 33% of the salty snack food tonnage sold in the United States. If they keep their dips in the salty snack category they can use the "halo effect" and as new chips are being introduced Frito-Lay can do research and development to introduce new dips that compliment the new chips.
If Frito-Lay decides to pursue the vegetable dip market they will be entering a market that is foreign to them and it will be time-consuming, complex and expensive. The new sour-cream dip should have a negative profit contribution and the contribution margin is approximately 57%. Break-even dollars are $1.3mm and if you add in costs to market the dip as a vegetable dip, the break-even dollar volume would increase. If they pursue the vegetable market they would have to spend more time and expense on figuring out where to place the dips in the produce section and what media they want to use to advertise the product. 33% of dips are eaten with vegetables and most of the dips are refrigerated salad dressings. Frito-Lay's sour-cream based dip is not similar to the refrigerated salad dressings. Its shelf stable and they would have to spend money doing research on how to merchandise and advertise. Frito-Lay would lose in profit and time by attempting to enter the vegetable dip market. Their current market segment is chip and dip lovers and they are already a huge player in this segment. Therefore, they would benefit on trying to expand their market in the chip dip segment.
Step Five: Implementation
Frito-Lay will now want to expand their market in chip dip category. They will need to do research and development to find out what new chip dips will be popular. They will need to focus their efforts on advertising and marketing their dips in conjunction with their salty snacks. If they focus their time and efforts on new salty snacks that go along with their new dip products they will increase sales and experience massive growth in future years.



Frito Lay Case Study 3 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