MKTG 761 Product Innovation Mgt.

SUNCHIPS SNACKS CASE ANALYSIS

Jia SU 1. The challenges and risks Frito-Lay faces in marketing SunChips are: Competition The snack chip category is highly competitive and the new-product failure rate is high. Very few new products can generate more than $25 million in first-year sales. It leads to the competitive pricing problem and the importance of using other tools to stimulate the sales. Manufacturing Since SunChips is a multigrain product, large-scale manufacturing requires different process and technology; in other words, a new investment in new production line is necessary. Creating brand awareness As we know, this category is highly competitive, in order to expand the market, the brand awareness is a key issue. As long as the product is launched, more money should be spent on advertising to increase the brand awareness. Product cannibalization The research in the test-market shows a 30% cannibalization rate of SunChips. And one-third of the cannibalized volume are from Doritos brand tortilla chips, which is also a product from Frito-Lay. Timing and competitive reaction The competitors were monitoring Frito-Lays test market; they might launch the same product and upstage Frito-Lay. 2. Frito-Lays last multigrain snacks program failed, the insights can be drawn from that experience are: Choose a right name The failed multigrain product called Prontos, which is hard for people to link to the healthy, nutritious snacks. However, SunChips has a very positive image and 814290757 10/02/10

MKTG 761 Product Innovation Mgt.

this name is the result from the brand name testing. A broader target market Prontos was first introduced in 1974, when the wholesome snacks market was not yet fully formed. But later this concept was perceived as a healthier product, the market was mature. Manufacturing technology available The other reason led to the failure of Prontos is the difficulties of manufacturing. But now this is no longer an obstacle for SunChips multigrain snacks. 3. The conclusions we can get from the Premarket Test are: Strong selling potential A prediction of first-year sales volume of $133 million was given from the research. $22 million of A&M would be a proper amount In order to achieve the $100 million first-year sales goal, Frito-lay has to adapt the larger amount of advertising and merchandising expenditure. Natural and French onion Vs. Natural and Cheddar Frito-Lay was going to combine two different flavors together. From the results, (a) Natural and French onion combination produced the lowest cannibalization, and (b) it had a better selling potential, the sales volume was supposed to grow by 58%. (c) In the other hand, the combination of Natural and Cheddar were better accepted according to the first-year trial rate and first-year repeat rate. 4. The results from the in-market testing conducted in the Minneapolis-St. Paul showed some differences from those of the pre-market test. Trial and Repeat Rate The first-year trial and repeat rate from the simulated test-market was 25% and 57%, however, the trial and repeat rate of the first month reached almost 20% and 42%. These data showed that the market accepted the product very well,

MKTG 761 Product Innovation Mgt.

and the SunChips was ready to be launched nationally. Depth of repeat rate The depth of repeat rate of Sunchips was 2.9 times, however the recently most successful OGradys depth of repeat rate was only 1.9 times. Product Cannibalization The cannibalization rate of SunChips was only 30%, which was much lower than the forecast in the pre-marketing test, 42%. That cannibalism rate was common, and the gross margin of SunChips was higher than that for Frito-Lays other snacks. Frito-Lay can afford that cannibalization and SunChips was a profitable product. 5. Frito-Lay should launch the SunChips nationally using the strategies adapted in the test market to ensure its first-to-market position in the new snack chips category. Most of the strategies applied in the test market would still be used in the national launch, some of adjustments would be considered: A&M Strategy In order to reach the goal of high brand awareness, Frito-Lay should consider invest more money on marketing and advertising. A budget of $30 million would be a proper amount. Product Strategy At the beginning of the introduction, the SunChips will provide customer with two flavors (Natural & French onion), in three sizes (2 , 7, 11 ounce). A new flavor of mild cheddar and a larger size of 15 ounce are under consideration. However the decisions would be made according to the performance of the initial flavors and packages, more marketing research would be required.