Competition in the market is fierce as mentioned in the market analysis. Competition comes from various levels from national brands and regional to private brands. Each brand has a number of sub products that hit various niche markets. With over 650 new brands implemented each year, the competition is overwhelming the market with increased competition. Competition is not only seen across the industry but also occurs within each company. Within the Sun-Chip analysis, the main competition is itself where it must receive resources from the Frito-Lay brand.
Frito-Lay often may develop numerous new products each year but must decide where to allocate resources. Zero-sum applies within Frito-Lay where there are a limited number of resources and providing resources to one new product has to take away from another. Environmental Analysis The environment of the snack industry is weighed heavily between the economic influence and cultural influences. As with all consumer food products, there is regulation from the Food and Drug Administration which should be considered as any product that is released into the market that does not meet these standards could have a devastating impact to the brand image.
Pricing is always a large influence on the attractiveness of a product to consumer spending but with the current economic trend, there is increased pressure on efficiency of manufacturing and distribution to drive down prices. SunChips are targeted into an emerging sociocultural market for increased fitness and nutrition. The brand imaging is targeting the consumers’ motivators by lowering saturated fat, adding multigrain and offering a cholesterol-free product line. Internal Analysis Performance Analysis
Premarket testing showed that Sun Chips would have first year sales of approximately $113 million if the company spends $22 million in advertising and merchandising for the brand. A 52 week test marketing of Sun Chips predicted a predicted a revenue of $97. 12 million in first year sales. This results in a profit of $13. 43 million after factoring in $22 million in marketing expense and $11. 33 million of cannibalization from other products. A full scale national launch of Sun Chips would require a capital expenditure of $20 million.
Consumers perceive Sun Chips as a healthier product compared to regular snack chips. Also, contrary to initial research, consumers who tried Sun Chips believed it to be an “everyday snack. ” The name Sun Chip gave consumers the idea that the chip was wholesome, great tasting, light and distinctive, and fun. Compared to one ounce of Doritos, one ounce of Sun Chips have 10 less calories, 2 grams less fat, and 50 milligrams less sodium. This data is consistent with customers’ expectations of a healthier snack option compared to alternatives.
Sun Chips are made with quality ingredients including whole wheat, golden corn, and other natural grains. The primary target market for Sun Chips is adults between the ages of 18 and 34. Studies showed that consumers in this age group were looking for a healthier snack option to the standard potato chip. Sun Chips were branded as “the great tasting snack chip for people who care about what they eat. ” The advertising campaign would convey the message that Sun Chips are wholesome, fun, and simple. Sun Chips will have the same retail price as Doritos.
This cost come out to $2. 70 per pound which is found with the following formula: . Sun Chips were test marketed in two flavors: original and French onion. Each flavor was available in 2. 25, 7, or 11 ounce packages. If these products proved to be successful then the company will explore adding an additional mild cheddar flavor, and an additional 15 ounces package. Determinants of Strategic Options Frito-Lay first introduced a multigrain snack chip in 1974 called Prontos. This was done in response to customers’ desires for a nutritious snack chip.
Prontos sales were not as great as expected and were discontinued in 1978. Frito-Lays blamed the failure on a confusing name and an overly narrow target market. Basically they believed Prontos were a head of their time. Frito-Lays revisited the multigrain snake chip in 1981, but test markets still suggested that the market was not ready for this chip category. The multigrain category was not explored again until 1988. At this time Frito-Lays spent 13 months testing different product formulations, alternative positioning, and branding options. These tests yielded three flavors of a product name Sun Chips.
A major issue of concern is the competition in the snack chop category. Less than 1% of new products generate more than $25 million in first year sales. Pricing is very competitive and competitors are able to react very quickly to new product introductions. Frito-Lay has an advantage over competitors due to its highly recognizable brands. The company produces eight of the ten bestselling snack chips in the US and is the only company with sales that exceed $1 billion. Frito-Lays had a net income of $1. 077 billion and sales of $17. 8 billion in 1990.