Frito Lay Dips
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Problem Statement
We are currently faced with the dilemma of how to market or Frito-lays line of dips. Should we categorize our dips only in the “chip and dip” category or should we actively pursue the “vegetable dip” category as well? With the significant raise in sales growth from 1981- 1985 with an increase of $57 million dollars, it is obvious that the Frito-Lays Dips are a highly profitable product line. With the upcoming budgets for 1986 for both sales and advertising media, we are troubled with the possibilities for our company to misrepresent our product and potentially lose revenue if we make the mistake of not furthering the development of the vegetable dip market. Moreover, at this particular time, it is crucial that we truly identify a well thought out plan and execute it efficiently to the best of our ability. By deciphering between which market will have the most promising benefits to our company.
Analysis
Frito-Lay is given the opportunity to profit from their most recent powerful position in the dip market by expanding their product line to include vegetable dips that will harmonize their successful cheese and Mexican dip lines. With the accurate launch and positioning, Frito-Lay, Inc. could penetrate and venture into a large and undefined, yet extremely feasible, vegetable dip market. We can opt to produce a new product line consisting of vegetable dips. The more products we have, the more acknowledgment we could receive, and the profits will highly increase.
We switched our marketing strategy to consumer promotions in 1985, such as product sampling and coupons to generate “trial” of new products that could raise awareness of our new products that we are offering that compliments are established line of salty snacks. They have already developed an understanding for the industry as well as the technological “know-how” of survival within it. Frito-Lay inc. has flat lined its expansion and there is no real growth in our current industry and we are risking the chance of incurring decreased profits if we stay where we are.
Even though the phenomenon of cheese dips spread insanely fast from $5 million dollars in 1983 (when it was introduced), to $55 million in the following year, and then a decrease in 1985 to $48 million dollars and is forecasted at the same sales for 1986. Our company is facing a fully saturated market for cheese dips. The market for shelf-stable sour cream dip is not near being at its capacity yet and as of right now there are no competitors that have marketed self-stable sour cream dips, which means that great opportunities exist for our company. We have forecasted our first years of sales in 1986 at $10 million dollars when we execute our launch. Sour cream-based prepared dips and dip mixes account for approximately 50% of the total dip sales in the salty snack segment. These sour cream based dips are the majority elements that are used for vegetable dipping. Because the vegetable dip market has not been fully developed and there are very few direct competitors with a competitive position besides salad dressing and dip mixes, the unit gross margin is a little bit lower than cheese dips and Mexican dips and its total gross margin is almost the same. The vegetable dip market is estimated at $23 million in sales per year and the gross margin on the sour cream dip will be a healthy 45%, which makes it very attainable to create a cash cow product line. The overall