Frito-Lay Dips

Frito Lay's Dips

Case Study

September 20, 2005

Blair VanHook

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. 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