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UNIVERSITI TEKNOLOGI MARA MKT 750: MARKETING MANAGEMENT FINAL EXAM: CASE STUDY FRITO LAY, INC; SUN CHIPS TM MULTIGRAIN SNACKS PREPARED FOR ASSOCIATE PROF. DR. FAIZAH ABD RAHIM PREPARED BY FATIN HUSNA SUIB 2010241764 DATE OF SUBMISSION 1 st November 2010
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Page 1: Answer MKT

UNIVERSITI TEKNOLOGI MARA

MKT 750: MARKETING MANAGEMENT

FINAL EXAM:

CASE STUDY – FRITO – LAY, INC;

SUN CHIPS TM MULTIGRAIN SNACKS

PREPARED FOR

ASSOCIATE PROF. DR. FAIZAH ABD RAHIM

PREPARED BY

FATIN HUSNA SUIB 2010241764

DATE OF SUBMISSION

1st November 2010

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QUESTION 1

Using the “DECIDE” Formula, analyze the above case.

The decision making process describe as the DECIDE Formula which:

1. Define the problem

2. Enumerate the decision factors.

3. Consider relevant information.

4. Identify the best alternative.

5. Develop a plan for implementing the chosen alternative.

6. Evaluate the decision and the decision process.

Step 1: Define the problem.

The problem of Frito Lay, Inc face is to determine the continuously marketing strategy

for Sun Chips Multigrain Snacks for future, how they need to retain and when they need

to take action on future action pertaining to the brand. The objective of this company is

1. To create a sustainable competitive advantage

2. Maximizing business performance.

3. Increase sales of the brand.

4. To examine the nature of the US market; whether Frito Lay, Inc should consider

venturing into healthy snacks industry.

5. Lower the risk of introducing their new product, Sun Chips TM Multigrain.

6. Ensuring that this product been recognized (brand awareness) by their consumer

and target market.

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Step 2: Enumerate the decision factors.

In enumerate the decision factors; there are two sets of decision that must be enumerated

in decision making process, which are:

a) Alternative changes of action.

These are controllable decision factors which include the marketing mix; product, place,

price, and promotion strategy.

Product

First, the product itself should be evaluated based on its added value and uniqueness,

which differs it from others, so that it could attract consumers to buy.

The product that the company wants to introduce to the market is the Sun Chips TM

Multigrain Snacks. The details about the product are as follow:

i. Sun Chips TM Multigrain Snacks is a crispy, textured snack chip consisting of a

special blend of whole wheat, corn, rice and oat flours with a lightly salty

multigrain taste chips and is made with canola or sunflower oil which represent a

healthier snack for the consumer.

ii. It had been packages in two sizes: 2 ¼ , 7 and 11 oz.

iii. It had two different tastes: Natural and French Onion.

Price

Frito Lays, Inc should consider the amount consumers pay for the product. Is it worth for

their money or otherwise. The prices of Sun Chips TM Multigrain Snacks when the

company introduces in their test – market plan are as follows:

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Package Size

(ounce)

Suggested Retail Price Frito – Lays Selling Price to

Retailer

2 ¼ $ 0.69 $ 0.385

7 $ 1.69 $ 1.240

11 $ 2.39 $ 1.732

Table 1.0 : SunChips TM Multigrain Snacks Price List

For the selling prices, here is the calculation:

Product size

(ounce / oz)

Selling price Price per ounce % of purchase Average price

per ounce

2 ¼ $ 0.385 0.1711 $ / oz

(2.25 / 0.385)

15 % 15 % x 0.1711

= 0.0257 $/0z

7 $ 1.240 0.1711 $ / oz

(7 / 1.240)

47 % 47 % x 0.1711

= 0.0832 $/oz

11 $ 1.732 0.1575 $ /0z

(11/1.732)

38 % 38 % x 0.1575

= 0.0599 $ /oz

Average Price per oz 0.1688

Average Price per 2.7004

The price that ad been introduce by the company for the product were consistent with

customer reference prices for snack chips and represented a good value.

Place

Place is the location where the product can be purchased or distribution channel also

important for availability of the product.

Frito Lay, Inc had chosen Minneapolis – St. Paul, Minnesota for their product‟s test

market. This location had been chose due to its high population volume, which

Minneapolis is a metropolitan area that could give them sufficient information to test the

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product. The population of consist of 1.98 million households that were identified as

users snack chips, (2.2 % of the 90 million snack chip user households in the United

States).

Frito Lay, Inc been distributes this product to:

1. Supermarkets.

2. Grocery stores.

3. Convenience stores.

4. Retail stores.

Promotion

Promotion is all the communication, which Frito Lays, Inc may use in the market place

chosen. These include advertising, public relation, personal selling and promotions

strategies.

The company had introduced the product marketing strategies to pursue growth

opportunity:

1. Grow established Frito – Lay brands through line extension.

2. Create new products to meet changing consumer preferences and needs.

3. Develop products for fast – growing snack - food categories.

4. Reproduce Frito – Lay successes in the international market.

The company also makes advertising and merchandising strategy:

1. Television advertising.

Television advertising had successfully gain several groups of target market:

- ages 19 – 34 (primary users).

- Ages 34 – 49 (demand for healthier snacks).

- Ages under 18 years and below (in – home usage)

2. in store displays.

3. free standings inserts (FSIs) in newspaper

4. coupons in newspaper FSIs

5. free samples in supermarkets.

6. trade allowances given to retailers.

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b) Uncertainties in competitive environment.

Uncontrollable factors that face Frito Lays, Inc are:

1. Competitors.

The company cannot control the existence of competitors in snack food industry.

Their competitors are:

- national brand firms (Borden, Procter & Gamble, RJR Nabisco, Eagle

Snacks)

- regional brand firms (Synder‟s, Mike Sells, Charles Chips)

- private brands ( Kroger and Safeway).

2. Buyer response.

The company cannot control their buyer‟s response of the Sun Chips TM

Multigrain Snacks that represents a healthier snacks compared to other

competitor‟s products.

In this case, positive consumer response had been recognize by an independent

marketing research firm towards the product concept and brand name of Sun

Chips TM Multigrain Snacks.

Step 3: Consider of Relevant Information.

The third step in the decision-making process is Consider of Relevant Information

that relates to the alternatives identified by the company as being likely to affect the

future events. Refer to First In Show Pet Food, Inc; the company has several

consideration of relevant information which will influence the decision-making. The

table below shows one of the relevant information in terms of Strengths, Weaknesses,

Opportunities, and Threats (SWOT) Analysis.

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Strength Weaknesses

1. Established company name.

Frito – Lay already has an establish

company name due to it is a division of

PepsiCo, Inc and a worldwide leader in the

manufacturing and marketing of snack

chips.

2. Capture of nearly one – half of retail

sales for snack chips.

Frito – Lay, Inc accounts for 13 % of sales

in the United States snack – food industry

which consists of nearly one – half from

retail sales in the snack food category.

Eight of Frito – Lay‟s snack chips also are

among the top ten best selling chips in the

U.S Supermarkets.

3. Plenty of capital available.

PepsiCo, Inc recorded net income of $

1.077 billion on net sales of $ 17.8 billion

in 1990 which could provide enough

capital to the Frito-Lay, Inc.

4. Test market research ability.

The company has effective Research and

Development Department to test their new

product in the market. The company also

uses an independent marketing research to

monitor potential customer response.

5. Established distribution strategy.

The company has several effective

distribution strategies to make sure that

their product could be finally reached to

1. High new product rate failure

Frito – Lay, Inc face the problem of high

new product rate failure that happens on a

multigrain snack chip called Prontos was

introduced in 1974. the failure is caused by

“noncommittal” copy , a confusing name,

and a product that generated appeal among

too narrow target market.

2. Weak management team.

Frito – Lay, Inc face the problem of weak

management team in the mid – 1980s due

to staff changes and other responsibilities

of project team members thus cause in

change in top management and corporate

objectives.

3. Competitive pricing.

The prices that had been introduced by the

company give them difficulties to compete

with other competitor‟s prices which quite

similar with them.

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customer. The strategies include using

store – door delivery system that will be

sold to supermarkets, grocery stores,

convenience stores and retail stores.

6. Brilliant president in managing the test

market.

Dr. Dwight R. Riskey is the vice –

president of marketing research and new

business at Frito – Lay, Inc; have the

ability to manage the test market.

Opportunities Threats

1. Fast growing snack food categories.

The snack food industry had been

increasing due to the customer demands.

This situation gives Frito-Lay, Inc a chance

to develop their new product introduction

to the market.

2. Positive customer response towards a

more nutritious snacks.

Frito – Lay‟s corporate marketing research

had indicate that consumers were looking

for nutritious snacks in the early 1970s thus

open up the opportunities to introduce the

Sun Chips TM Multigrain Snacks which

had been claimed as a healthier snacks.

3. international marketing of products.

1. Competitors.

Increase number of competitors makes

Frito – Lay, Inc introduction program of

Sun Chips become harder.

2. Copying similar products.

Other competitors could copy similar

technology and products like Frito – Lay,

Inc plan.

3. change in consumer preferences.

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Step 4: Identify the best alternative.

There are four alternatives that could be choose by Frito – Lay, Inc:

1. Continue the Test Market to collect more data

2. Expand the Test Market

3. Eliminate the Sun Chip project

4. National introduction of Sun Chips, which consist of:

• Use Test Market strategy

• Increase Advertising and Merchandising spending

• Add larger package size

• Add additional flavor

The pros and cons of each alternative have been show in the table below:

Pros Cons

Continue the test market to

collect more data.

1. Obtain more accurate

information.

2. Lowers risk by performing

more research

1. Lost revenue and market

niche.

2. Risk losing first to market

advantage.

3. Allows competitors time to

develop a similar product.

Expand the test market 1. May be more representative

of the entire U.S. population

2. Lowers risk by performing

more research

3. Could provide key

demographic information for

products (size, flavor).

1. Risk losing first to market

advantage.

2. Allows competitors to

develop products.

3. Original test market may

have been accurate.

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Eliminate the Sun Chip

product.

1. Limit risk and potential

losses.

2. Eliminate project‟s future

expenses.

3. Company‟s superior image

will remain in tact.

1. Risk of losing potential

profits.

2. Risk of losing access to a

potentially growing and

uninhabited segment of the

market.

3. Not pursuing would violate

company product-marketing

strategies.

National introduction of

Sun Chips.

1. Huge potential profits

2. Portray healthier image

3. First to market advantage

4. Easy to add to distribution

strategy

5. Gain access to new segment

of market

1. Risk of potential losses.

2. Potential damage to

company image.

3. Segment of market may not

be profitable.

Step 5: Develop a plan for implementing the chosen alternative

From step 4, we had identified the best alternative, which is National introduction of Sun

Chips. After choose this alternative, Frito-lay must increase advertising and marketing

expenditures to create brand awareness.

Brand awareness would increase with additional spending and felt that spending the

national introduction equivalent of $30 million could stimulate brand trial as well.

However, there are some pros and cons when they increasing the expenditure on

Advertising and Merchandising campaign:

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1. Pros

- Increase brand awareness and trial rates

- Increase volume

- Larger sustained profits

2. Cons

- Reduced 1st year profits

- Trial rates are projected based on PMT data

Second plan to be developed for the launching of Sun Chips is to add larger package size.

They can develop 4 package sizes of 2¼, 7, 11 and 15oz. A fourth, larger package could

add about one-half ounce to the average annual purchase amount per repeat (and

repeater) purchase occasion. However, there are some pros and cons to be considered

when add larger package size

1. Pros

- Increases volume and profits

- Additional purchase options

- Once product has foothold in market

- Consumer survey indicates demand for larger size

2. Cons

- Stretches production capacity

- Increases inventory

- Increases number of SKU‟s

- Limits marketing efforts

Third plan to be considered is to add new cheddar flavor (mild cheddar). Flavor

extension could increase the „repeats per repeater‟ to an average of 3.5 times per year. In

addition, of another flavor could increase the cannibalization rate to 35%. Frito-lay also

can introduce new two flavors, which are Natural and French Onion.

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1. Pros

- More consumer options

- Increase sales and profits

- Increase “repeats per repeater”

- Perfect large scale production of new flavors

2. Cons

- Increases number of SKU‟s

- Expensive to produce

- Higher cannibalization rates

- May not be popular with consumers

- Large scale production not perfected

Competitive Positioning

PepsiCo‟s Frito-Lay division focuses on product innovation to differentiate its snack

foods from those of other producers in the market. Premium products such as Frito-Lay

Doritos, Cheetos, and Sun Chips demonstrate this differentiation strategy. These

products are comparatively high-priced, offering more than just a typical salty snack.

This strategy effectively creates a competitive advantage, increasing the consumer‟s

willingness-to-pay while maintaining or decreasing costs.

In order to increase the consumer‟s willingness-to-pay, Frito-Lay focuses on adding

product value through product innovation. For example, to find the perfect “chipping”

potato Frito-Lay develops “thousands of proprietary potato seed varieties not available to

other manufacturers.”i Frito-Lay has also patented a process that intensifies flavoring by

coating both sides of its potato chips. Both of these examples show efforts to

differentiate potato chips (an unlikely candidate) in order to increase prices.

While Frito-Lay works to differentiate its products by adding value, it also is involved in

aggressive cost cutting measures. Investments in improved distribution channels, such as

through the merger with Quaker Oats, will reduce lead times and inventory carrying

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costs. Maintaining or lowering product costs allows PepsiCo/Frito-Lay to further gain a

competitive advantage and increase operating profits.

Competitors in the salty snack foods industry use a variety of positioning strategies.

Proctor and Gamble, Frito-Lays largest competitor, uses a similar differentiation strategy

to position its Pringles potato chip line. The innovative Pringles round cylinder

packaging adds customer value by improving quality (less broken chips) and increasing

product awareness (branding). Alternatively, generic chip producers pursue a low cost

position. These generic products come in plain packaging and are sold at a discount. In

these companies, competitive advantage will be gained through the efficient operation of

their production and distribution facilities

Step 6: Evaluate the decision and the decision process.

Frito-Lay has to explore additional markets (International) to grab more variety of clients.

The recommendation to increase the expenditure for advertising and merchandising will

help to create brand awareness. Frito-Lay considers timing and competitive the big

strategic issues so that quick decisions, operational efficiency and high capital investment

are critical for Sun-Chips™ Multigrain snacks to take advantage of first markets. Frito-

Lay introduces two package sizes with distinctive package design for each flavor. It

does not charge a premium price in order to be consistent with consumer reference prices

for snack chips. The primary target of Sun-Chips™ is people between the ages of 18

and 34 because they represent the principal purchasers and heavy users of snack chips.

The secondary target is people who bracket to 49 years old. Sun-Chips™ will be

supported by television advertising so that people will aware about this product.

Introduction of Sun Chips Multigrain Snacks in other states of America would expand the

product distribution channel and cater more customers which would lead to greater

market share instead of take more time doing test market.

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QUESTION 2

Test market is critical prior to new product introduction versus consumer research

and launching. Discuss.

New product development (NPD) can initiate from new technology or new market

opportunities. But irrespective of where opportunities initiate, when it comes to

successful new products it is the consumer who is the ultimate judge. So, in order to

develop successful new products, companies should gain a deep understanding of their

consumer. Consumer research can be taken during each of the basic phases of the NPD

process: (1) opportunity identification, (2) development, (3) testing, and (4) launch. It is

most widely applied during the development, testing and launch stages. Companies use

consumer research to verify that consumers will accept a new product when it will be

launched at the market. Successful NPD strongly depends on the quality of the

opportunity identification stage. The goal of this phase is to search for new areas of

opportunities, which typically involve the unmet needs and wants of consumers.

Consumer research is often considered difficult during this stage because it is unsure

what to ask consumers at this point. Consumer research, however, helps to increase the

probability of success in the market. Even though consumers may not always be able to

state their wants, it is important to understand how they recognize products, how their

needs are shaped and influenced and how they make product choices based on them. In

this way, it helps to avoid working on a new product that has a low probability of success

in the first instance. Additionally, it guards against potential winning product concepts

being overlooked. As a result, carrying out consumer research in this stage is inexpensive

compared to the risk of product failure. Moreover, gathering consumer understanding

with the help of formal consumer research methods has the advantage that the results can

more easily be disseminated across departments in an organization.

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Fig. 1 shows the four typical major stages in NPD along with representative consumer

research methods. Since this review is focusing on the opportunity identification stage,

only examples of methods are being listed under the other phases. Unfortunately, despite

the large number of available methods and techniques to be used in the NPD process, the

majority of them are not used by companies or mostly applied in an ad-hoc manner.

Large parts of the conducted research in NPD consist of focus groups, surveys and the

study of demographic data. This is considered to be one of the reasons for the relatively

low new product success rates.

A test market, in the field of business and marketing, is a geographic region or

demographic group used to gauge the viability of a product or service in the mass market

prior to a wide scale roll-out. The criteria used to judge the acceptability of a test market

region or group include a population that is demographically similar to the proposed

target market and relative isolation from densely populated media markets so that

advertising to the test audience can be efficient and economical. The test market ideally

aims to duplicate 'everything' - promotion and distribution as well as 'product' - on a

smaller scale. The technique replicates, typically in one area, what is planned to occur in

a national launch; and the results are very carefully monitored, so that they can be

extrapolated to projected national results. The simple go or no-go decision, together with

the related reduction of risk, is normally the main justification for the expense of test

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markets. At the same time, however, such test markets can be used to test specific

elements of a new product's marketing mix possibly the version of the product itself, the

promotional message and media spend, the distribution channels and the price. In this

case, several `matched' test markets (usually small ones) may be used, each testing

different marketing mixes. Clearly, all test markets provide additional information in

advance of a launch and may ensure that launch is successful, it is reported that, even at

such a late stage, half the products entering test markets do not justify a subsequent

national launch. However, all test markets do suffer from a number of disadvantages:

1. Replicability - Even the largest test market is not totally representative of the

national market, and the smaller ones may introduce gross distortions. Test market results

therefore have to be treated with reservations, in exactly the same way as other market

research.

2. Effectiveness - In many cases the major part of the investment has already been

made (in development and in plant, for example) before the `product' is ready to be test

marketed. Therefore, the reduction in risk may be minimal; and not worth the delays

involved. 'Competitor warning'. All test markets give competitors advance warning of

your intentions, and the time to react. They may even be able to go national with their

own product before your own test is complete. They may also interfere with your test, by

changing their promotional activities (usually by massively increasing them) to the extent

that your results are meaningless.

3. Cost- Although the main objective of test markets is to reduce the amount of

investment put at risk, they may still involve significant costs.

One form of `new product launch' which is little discussed, but is probably the most

prevalent - and hence most important - of all, is that of replacement of one product by a

new one; usually an `improved' version. The risk levels may be much reduced, since

there is an existing user base to underwrite sales (as long as the new product doesn't

alienate them - as `New Coca-Cola' did in the US and `New Persil' did in the UK). Such

an introduction will be complicated by the fact that, at least for some time, there will be

two forms of the product in the pipeline. Some firms may opt for a straight cut-over; one

day the old product will be coming off the production line, and the next day the new

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product. Most will favor parallel running for a period of time, even if only because this is

forced upon them by their distribution chains. This ensures that the new really does,

eventually, replace the old; and it may reveal that both can run together. The considerable

amounts of time and resources necessary to conduct test markets restrict the amount of

test markets which can be conducted by companies. The risk to reveal a new product

design too early is another concern for companies in fast moving and highly competitive

markets, which is independent from any cost & time considerations.

But irrespective of where opportunities originate, when it comes to successful new

products it is the consumer who is the ultimate judge. So, in order to develop successful

new products, companies should gain a deep understanding of 'the voice of the consumer.

Consumer research is often considered difficult during this stage because it is unsure

what to ask consumers at this point. An often-heard argument is that asking consumers

what they want is useless, because they do not know what they want. Consumer research,

however, helps to raise the odds of success in the market. Even though consumers may

not always be able to express their wants, it is important to understand how they perceive

products, how their needs are shaped and influenced and how they make product choices

based on them. In this way, it helps to avoid working on a new product that has a low

probability of success in the first instance. Additionally, it guards against potential

winning product concepts being overlooked. As a result, carrying out consumer research

in this stage is inexpensive compared to the risk of product failure. Moreover, gathering

consumer understanding with the help of formal consumer research methods has the

advantage that the results can more easily be disseminated across departments in an

organization. Knowledge obtained through formal methods is generally used to a greater

extent, most likely through its verifiability and credibility.

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QUESTION 3

Cannibalism effect for Sun Chips TM and calculate the effect based on incremental

Gross Profit effect.

Cannibalization refers to a reduction in the sales volume, sales revenue, or market share

of one product as a result of the introduction of a new product by the same producer. In

the world of business, there is such thing as inside product competition. This aptly refers

to cannibalism in that two offerings from the same manufacturer would compete head on

for revenue, being similar in function, market and other attributes. Cannibalism is

common among conglomerates and empires that produce several brands under the same

line. To address cannibalism, though, a company must carefully plan out the marketing of

its product or service. If it offers two similar products, it must make sure that each one

has a specific and unique market segment to serve. The entire market can be divided into

different categories: upscale, middle and downscale market; kids and adults; men and

women; young boys and young girls; east and west; etc. The company needs to carefully

examine its offerings regularly, making sure there is no cannibalism whatsoever. Effect

of cannibalism made Sun Chips Multigrain Snack sales rapidly increase in a short period

of time. Based on the result, 30 percent of Sun Chips Multigrain Snack pound volume

comes from consumer switching from Frito-Lay‟s potato, tortilla and corn snack chips.

And one-third of the cannibalized volume from Frito-Lay‟s products came from Doritos

brand tortilla chips. Because of that, the gross profit for Sun Chips Multigrain is higher

than other snacks chips. Below show the calculation based on incremental Gross Profit

effect. The independent research firm also identified the incidence of product

cannibalization. The research firm‟s tracking data indicated that 30 percent of Sun Chips

Multigrain Snack pound volume resulted from consumers switching from Frito-Lay‟s

potato, tortilla, and corn snack chips.

About one third of the cannibalized volume from Frito-Lay‟s products came from Doritos

brand tortilla chips. The 30 percent cannibalism rate was not uncommon in new product

introductions in the snack food industry. For example, when Frito-Lay introduced

O‟Grady‟s brand potato chips, one third of its pound volume came from its Ruffles brand

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and Lay‟s brand potato chips. Even though cannibalization was an issue to be considered

in evaluating test market performance; Frito-Lay executives noted that the gross profit for

Sun Chips Multigrain Snacks was higher than for its other snack chips.

INDUSTRY ANALYSIS

VOLUME CALCULATION

Purchase Amount Volume Calculation Total Ounces

Trial Volume

(6 oz)

19.9% x 90,000,000 x 6oz

107,460,000

Repeat Volume

(13 oz)

41.8% x (19.9% x

90,000,000) x 13oz

97,322,940

Repeater Volume

(13 oz)

3.0rep x (41.8% x (19.9% x

90,000,000)) x 13oz

291,968,820

Total Volume (oz)

Total Volume (lbs)

496,751,760

31,046,985

SELLING PRICE CALCULATION

Product Size

Selling Price

Price Per

Ounce

% of Purchases

Average Price

Per Ounce

2.25 oz

$0.385

0.1711 $/oz

15%

15% x

0.1711$/oz

=0.0257 $/oz

7 oz

$1.240

0.1771 $/oz

47%

47% x

0.1771$/oz

=0.0832 $/oz

11 oz

$1.732

0.1575 $/oz

38%

38% x

0.1575$/oz

=0.0599 $/oz

Page 20: Answer MKT

Average

Price$/oz

Average Price

$/lb

0.1688

2.7004

Similar calculation yields Average Retail Price = 3.8726 $/lb

Projected Sales & Gross Profit

Total Volume = 31,046,985 lbs

Average Selling Price = 2.7004 $/lb

Projected Sales = $83,839,278

Projected Retail Sales = $120,231,344

Gross Profit = 1.30 $/lb x 31,046,985 lbs

Gross Profit = $40,361,081

Cannibalization Analysis

Gross Margin Sun Chips = 1.30 $/lb

Gross Margin Others = 1.05 $/lb

Cannibalization = 30%

Cannibalization Volume = 30% x 31,046,985 lbs

= 9,314,096 lbs

Profit Increase = (1.30 $/lb - 1.05 $/lb) x 9,314,096 lbs

= $2,328,524

Incremental Profit Analysis

Sun Chips Incremental Volume = 70% x 31,046,985 lbs

= 21,732,890 lbs

Incremental Profit = 1.30 $/lb x 21,732,890 lbs

= $28,252,756

Cannibalization Profit = $2,328,524

Page 21: Answer MKT

1st Year Profit = $30,581,280*

*not including Advertising & Merchandising spending

Sustained Sales & Profit

Repeater Volume = 18,248,051 lbs

Average Price = 2.7004 $/lb (3.87 $/lb Retail)

Sustained Sales = $49,277,037 ($70,666,692 Retail)

Sustained Gross Profit = $23,722,467

Sustained Profit Increase with 30% Cannibalization =

(70% x 18,248,051 lbs x $1.30) + (30% x 18,248,051 lbs x $.25)

= $17,974,330*

*not including Advertising and Merchandising spending

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QUESTION 4

Analyze the Snack Industry using the Porters Five forces model.

Michael Porter provided a framework that models an industry as being influenced by five

forces. The strategic business manager seeking to develop an edge over rival firms can

use this model to better understand the industry context in which the firm operates.

a) The threat of the entry of new competitors

The snack industries main threats is on the its brand identity. There need to be well

known through advertisement. Next is access to distribution channels. The snack

products need to supply easily and in large supermarket. Capital requirements can be a

threat of the snack industries because to market the snack need cost for advertisement and

marketing expenses.

b) The intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the

competitiveness of the industry. Competitive rivalry is likely to be based on dimensions

such as price, quality, and innovation. The snack industries growth rapidly and generate a

huge profits. The brand identity of the products must merge with current customers

needs.

c) The threat of substitute products or services

The existence of products outside of the realm of the common product boundaries

increases the propensity of customers to switch to alternatives. Buyer inclination to

substitute product. Customers maybe switch to eat snack as light food to fast food. Some

of the snack products need to switch their products lines to compete with other products.

The cost for switching the product lines can be a biggest threat to the industries. The

switching may need new advertisement or branding cost and also the product research

and development.

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d) The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs, the ability

of customers to put the firm under pressure, which also affects the customer's sensitivity

to price changes. The buyer volume play an important roles in determine profits to the

company. So products in snack industries need to compete in price and product identity.

Product differentiation will resulting the success of the company.

e) The bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of

raw materials, components, labor, and services to the firm can be a source of power over

the firm when there are few substitutes. In the snack industries, the most important is to

get the supplier concentration so that they will always to get our products. The volume of

products supply to the supplier should high and consistency to ensure consistent profits.

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QUESTION 5

How would you answer the criticism that it is impossible to plan given how fast

today’s market condition are changing?

With competition arising from diverse and unexpected sources enterprises can no longer

be confident about their market shares: they must constantly innovate to compete. In this

new business environment the following key drivers have been gaining in importance: a

focus on improving the productivity of knowledge and service workers (rather than

industrial productivity), with productivity programmes shifting from culling costs to

improving organizational performance and effectiveness; a focus on quality in both

products and service, with quality programmes moving from manufacturing operations to

knowledge and service operations and firms building a corporate culture around quality

the challenge of responsiveness, with a rising need to react rapidly to changing market

conditions, competition and customer demands; the globalization of markets, operations

and competition; an interest in out-sourcing certain aspects of production, distribution,

sales service and support functions, resulting in a shift of enterprise focus to vertical and

horizontal integration across organizations; partnering, to function on global markets by

establishing alliances and joint ventures with other key players in both similar and

disparate markets and greater attention to social and environmental responsibility.

Overall, the trend suggests that the changing market conditions now require firms to meet

more refined and personalized customer tastes, as well as society's collective needs, as

expressed through a wide range of democratic and associative mechanisms. Interaction

between producers and these more demanding and better informed customers is an

essential factor for growth and competitiveness.

A marketing plan is a written document that details the necessary actions to achieve one

or more marketing objectives. It can be for a product or service, a brand, or a product

line. Marketing plans cover between one and five years. A marketing plan may be part of

an overall business plan. Solid marketing strategy is the foundation of a well-written

marketing plan. While a marketing plan contains a list of actions, a marketing plan

without a sound strategic foundation is of little use. A formal, written marketing plan is

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essential in that it provides an unambiguous reference point for activities throughout the

planning period. However, perhaps the most important benefit of these plans is the

planning process itself. This typically offers a unique opportunity, a forum, for

information-rich and productively focused discussions between the various managers

involved. The plan, together with the associated discussions, then provides an agreed

context for their subsequent management activities, even for those not described in the

plan itself. Additionally, marketing plans are included in business plans, offering data

showing investors how the company will grow and most importantly, how they will get a

return on investment. In particular, we focus attention on the importance of marketing

planning with special attention given to the role marketing strategy plays in the planning

process. For marketers planning is an essential task that must be continually undertaken.

As we will see, shifting market conditions, including changing customer needs and

competitive threats, almost always insure that what worked in the past will not work in

the future, thus requiring revisions in how a product is marketed. Marketing planning is

also important since it is often a prerequisite for obtaining funding whether one is a

marketer in a large corporation seeking additional money for his or her department or is

part of a small startup company looking for initial funding. Like a business plan, a

marketing plan is an important document that needs to be updated on a regular basis.

Even five year marketing plans should be revisited periodically - at least once each year -

to address changes in market conditions, demand, pricing issues, etc.