This case study analysis examines Frito-Lay's introduction of SunChips, a multigrain snack chip tested in Minneapolis–St. Paul from late 1989 through 1990. The paper reviews Frito-Lay's competitive position in the $9.8 billion snack-chip market, identifies the marketing and manufacturing challenges associated with launching a "healthier" chip, and evaluates pre-market and test-market research results. Drawing on ten months of consumer data, the analysis concludes with a phased action plan covering timing, large-scale manufacturing investment, advertising budget allocation, packaging sizes, and flavor expansion — all aimed at maximizing the product's chances of a successful national rollout.
Introducing a new product of any kind is risky at best. However, introducing a new snack product to a finicky public could be considered especially daring. Frito-Lay, a leader in the snacking industry, was not afraid of that risk. In late October 1989, a team led by Dr. Dwight R. Riskey, VP of Marketing Research and New Business at Frito-Lay, introduced SunChips to a test market in Minneapolis–St. Paul, Minnesota for ten months. The following is an analysis of the case study describing SunChips' performance and the potential actions that team could take in moving the product forward.
The snack industry recorded sales of $37 billion in 1990, a five percent increase over the previous year. Of those sales, $9.8 billion are attributed to snack chips, which also showed a five percent increase. The industry was clearly growing at a significant pace, creating a demanding competitive environment in which every snack chip manufacturer was competing for a share of those sales.
The good news for Frito-Lay was that the company was considered a leader in the industry, holding 13% of total snack food industry sales in the U.S. In fact, Frito-Lay controlled half of total retail sales in the snack-chip category, with eight of its snack items ranked among the top ten best-selling chips. Frito-Lay's national competitors included primarily Borden, Procter & Gamble, RJR Nabisco, Keebler, and Eagle Snacks. Regional brands were manufactured only in specific areas, while private-label companies manufactured products for major supermarket chains. Together, national and regional companies introduced over 650 snack chip products every year. Even though most of these were new flavors for existing products, the failure rate remained high. Industry reports showed that fewer than one percent of these new products generated over $25 million in sales in their first year.
To promote new products, Frito-Lay and its competitors created extensive advertising campaigns using both electronic and print media. To identify which products to introduce, national competitors monitored the performance of new and existing products closely. Shelf space in a grocery or convenience store is comparable to prime real estate, and ensuring those shelves were generating sales was critical.
Frito-Lay sat in a very attractive position as an industry leader with significant sales. However, maintaining that position required constant effort. Part of that work involved monitoring consumer snacking trends — and it was precisely that monitoring that led to the introduction of the SunChips line.
Long before 1989, the idea of a multigrain chip had begun to take shape at Frito-Lay. Consumers in the 1970s were looking for more nutritious snack choices, which led the company to introduce Prontos. After four years on the market, Prontos was withdrawn due to poor sales and manufacturing problems. In order for SunChips to succeed where Prontos had failed, the team needed to understand and overcome those earlier problems. The key challenges were as follows.
Confusing name: A confusing name leads to poor brand recognition among consumers. To avoid this, the new product needed a name that consumers could immediately associate with the product's identity.
Narrow target market: In the 1970s, the target market for "healthier" snacks was too narrow. By the late 1980s, however, many different age groups had become interested in eating healthier, creating an opportunity to market to a much larger audience and achieve greater sales volume. Without expanding the target market, a new product risked repeating the failure of Prontos.
Poor advertising copy: Advertising would need to deliver a message that captured consumer attention and motivated purchase. It would also need to include promotions to encourage trial and offer savings opportunities to convert first-time buyers into repeat purchasers. Without repeat buyers, a product's commercial life becomes very short.
"Consumer testing data and ten-month trial outcomes"
"Phased rollout covering timing, manufacturing, and advertising"
The numbers support the potential success of SunChips and an aggressive action plan. The plan recommends a large-scale regional release to take advantage of demonstrated market readiness for a healthier snack food option. After a period of evaluation, a full national release should follow. This phased approach gives manufacturing the time needed to prepare for national-scale production, while also providing room to expand into a larger package size and an additional flavor. Executed well, this action plan positions SunChips to capitalize on increasing consumer demand and cement Frito-Lay's leadership in the evolving snack-chip market.
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