Frito-Lay Company

Frito-Lay Company has a limited number of resources to expend and is deciding to introduce a multi-grain chip in the salty snacks category named SunChips. This final decision will be made after testing the product with various forms of research including concept testing, premarket testing, and test markets. After using these tests, it needs to be decided whether the new product will reach sales projection benchmarks give the marketing used to develop the product.

External Analysis

With nearly 90 million snack chip households nationally, there is a large market up for grabs. This industry is in a state of maturity but is constantly forced to introduce new brands in the market place. More than 650 products are introduced every year by national and regional competitors and less than 1% of new products generate $25 million in first year sales, which is the target to cover implementation costs. The snack industry has been instilled in America since its inception but with new developments with sociocultural environment changes, the market is forced to adapt. There are various levels of competition in the marketplace from national brands to local that prove entry into the market comes at a moderate investment.

With a manufacturing facility which can often has been contracted out to supermarkets, copy-cat products have lower implementation costs and can offer a substitute product often at a lower cost. This competitive environment would add difficulty if the market was not so large. With consumer demand high and preference broad, the various levels of competition and various product lines are able to become successful if they can find a market niche with a high repeat rate of return which is a key success factor in order to stay profitable in this market.

Customer Analysis

The target market of consumers of snack products are primarily in the demographic between 18 and 34 with a secondary focus on 35 to 49. These customers make 90% of the purchases within supermarkets and convenience stores. The behavioral segment overlaps with the sociocultural preference for snack products that are seen as healthy and nutritious. The consumer is motivated by fitness and nutritional influences which has been an unmet need provided traditionally from the snack food industry.

This is a key success factor that marketing developments should focus in developing a brand image. For consumers of snack products the trial rate is low which is why increased focus on marketing is needed. One of the ways products can be most effectively introduced into the market is by going through various market tests. Market Tests Three basic types of research tests are used in the marketplace which supplements effective marketing programs. Without research into the consumer preferences, the implementation of a product into the market could result in an unsuccessful product line.

As seen in the 1970’s with the failed attempt of Prontos, market research and testing could have altered the marketing approach to adjust for consumer preferences. Concept testing is a form of research that is not conducted in the field but is rather conceptualized in a controlled environment. This testing allows potential marketing programs to ask a controlled group of consumers what they think either verbally or by involvement with the product by taste testing. Premarket tests involve a higher level of engagement and realism by exposing the product to selected consumers representing a sample of the population market.

Controlled testing allows a trial and error period for determining how the product can be expected to be transfused into the population market. This step involves a higher level of development, creating mock-up advertisements in order to identify attributed perception and purchase behaviors of the sample population theoretically representing the population target. Premarket testing could be misleading if there is a sampling error which could result in a variance between expected and actual results of the population implementation. Test markets take the approach from the premarket tests and apply them to a target market.

With increased exposure, sampling error is reduced providing higher quality results since it captures a large sample size. Since an entire market is being tested, implementation of price, promotion and distribution factors can also be measured. Each phase of research testing provides more realistic results but also comes at a higher cost. Within the planning phase of product implementation, a balance must be weighed between the costs of the market research verse the benefit that could be provided. If the net benefit is less than zero then the marketing research should not be conducted.