SUNCHIPS SNACKS CASE ANALYSIS

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-Lay’s test market; they might launch the
same product and upstage Frito-Lay.

2. Frito-Lay’s 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 this name is the result from the brand name testing.

1
 • 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, and the SunChips® was ready to be launched nationally.

2
 • Depth of repeat rate
The depth of repeat rate of Sunchips® was 2.9 times, however the recently
most successful O’Grady’s® 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-
Lay’s 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 ¼, 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.