Case 1: Frito‐Lay Dips
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Synopsis of the Situation:
In the mid 1980s the dips industry was a very profitable growing industry. The total dip sales through supermarkets in 1985 were $620 million (construct 80 % of the total dip sales), which encourage some of the main food companies to seriously pursue introducing a line of dips in their products line. Frito-Lays was the major competitor in shelf-stable dips with $135 million in sales. The total shelf-stable dips sales in 1985 were $185 millions. Since 1981 Frito-Lays had been enjoying profits and growth in sales. However, 1985 did not witness a growth in Frito-Lays dips sales. Frito-Lays Marketing director was faced with 2 options to develop their dips line, either focus only on the bigger market and expand their existing market in the “chip dip” category, or pursued the “vegetable dip” category.
Key Issues:
The dip market during that period was a very attractive market, which attract competition to enter and try to compete in that market. New Competitors aggressively pursued the dip market including well establish names as Campbell soup. In 1985 competitors spend $58 million just on consumer advertising a 25% higher than a year before. Although Frito-Lays had almost tripled their Sales from 1981 to 1985, they needed to develop their strategy and products to maintain their dominant position in the shelf-stable dips market. Sour cream-based dips are account for 50% of the total dips sales which motivate Frito-Lays to introduce a new Sour cream-based dip in 1986. Also, Frito-Lays had to look ahead not only for the competitors but the other product which might replace dips. Many consumers use salad dressing as a dip; actually 35% of refrigerated salad dressing volume is used for dips.
Define the Problem:
The main problem that Frito-Lays faced was what is the next step they have to follow to develop their product? Should they continue doing what they do best and stick to the “chip dip” and build market share or should they expand to the “vegetable dip”? Specifically with their new introduced flavor sour cream.
Alternative Solutions:
The first solution is to focus on the chip dip market, attempt to expand the market and build market share. Research showed that 97% of US households used salty snacks but only 45% used dips. Also only 20% of chips were eaten with dips. Thus, there is the possibility to expand the market. Moreover, Frito-Lays should promote dip more aggressively, Frito-Lays ratio of advertising and merchandising spending to sale is only 2.7% compared to 10% for industry average. Frito-Lays could take advantage of being the leader of chip production by including with the purchase of Frito-Lays chips promotions or coupons for the Frito-Lays dips. On the other hand, the competition over the “chip dip” is growing which minimize the chance for Frito-Lays to expand their market shares.