Frito Lay Company: Strategy Analysis

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Introduction

The aim of modern marketing is to meet the needs and expectations of customers, and the organization’s ability and capacity to satisfy them. For this matching process to take place successfully, Frito Lay must understand who is the customer and what value is required, and how best to deliver this value on a sustainable basis in line with the organization’s overall corporate objectives. Frito Lay is one of the companies which develop unique strategies and marketing approach in order to compete on the market and increase sales (McDonald and Christopher 66). Frito Lay, a division of PepsiCo, specializes in corn chips, potato chips and snack products.

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Situation analysis

Company analysis

The mission of Frito Lay is to reach wider target market and expend its activities to new markets. The strategic aim is a continuous growth and expansion into new products. High quality is used as a strategic weapon and the aim of Frito Lay is to maintain high quality standards at costs lower than competitors. The current objective of the company is to find the best way to distribute the new snacks line. Also, the objective is to remain a market leader and strengthen its dealer structure around the world. The growth opportunities are line extension, new products for changing consume performance, development of snack food categories and international expansion (Johnson and Scholes 32).

External Environment

Today, political situation is stable marked by democratic processes and liberalization reforms. Strong political traditions have a great impact on global market. Political interference and corruption are the main risks for a foreign company. The main methods by which Frito Lay grows are innovativeness and creativity, unique brand image and a first mover position of the market (Johnson and Scholes 55).

Legal Environment in the USA introduces laws and regulations in order to support foreign subsidies and attract FDI (foreign direct investments). In order to support national inductees, the governmental prevents price rises, or even to rolls them back in basic industries such as steel. Governmental involvement seems to relate price increases to the impact on inflation and increased productivity. Government has the influence to block or roll back price increases. The USA has favorable legal laws and regulations which support market development and growth, thus they limit monopolistic position of every company. Political-legal forces acting upon Frito Lay allocate power and provide constraining and protecting laws and regulations (McDonald and Christopher 87).

Frito Lay operates on the dynamic market where the main objective is to maintain successful marketing communication strategies, implement high product quality and develop strategies to improve customer relations and manufacturing. The purpose of Frito Lay is to get and keep a customer proposing high quality innovative products. Economic situation in America is marked by low inflation rates and high income per capita. Thus, in Asia and Africa liberalization and high level of investments can be considered as opportunities for the company to enter this country. The US companies have higher standard of living. For Frito Lay, there are also the necessities of making long-run capital commitments, meeting the requirements of joint ventures with nationals, and the imposition of special income taxes and import duties on necessities, as well as differences in social legislation, location considerations, protection of home products, governmental attitudes and control, laws affecting labels and standards, transportation and communications problems, and the risks of inflation, currency devaluation, and expropriation. All these create many additional uncertainties to those encountered in national marketing.

Social-demographic factors suggest fast population growth and decreased mortality rates. In the USA, the population is constrained by the number of people who both have access to it and make active use of it (these not necessarily being the same thing). Estimates of the number of people who use the Internet and PCs vary widely, although a consensus seems to be emerging that currently tens of millions of people do indeed use the Internet. The social environment includes general forces that do not directly touch on the short. For Frito Lay, economic forces regulate the exchange of materials, money, energy, and information. This environment proposes great challenges for Frito Lay influenced by customers’ loyalty and trust. The snacks and fast food market is fragmented (Johnson and Scholes 88).

Technological factors involve the Internet access and development of telecommunication infrastructure, new methods of doing business and information availability. Such factors as continued economic growth, increased disposable income, vigorous domestic and foreign competition, accelerating technology, automation, population decentralization, expansion, and innovation will spur the appearance of this new marketing form. The application of computer technology and the use of new analytical techniques has added greatly to the efficacy of planning activities. Such tools as critical paths, input-output analysis, payoff matrices, decision trees, linear programming, and simulations.

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The decision as to whether or not to enter this stage and pursue rapid growth may be influenced by the business leader wanting to make more money, desiring to lead a large business or perhaps for the status. Alternatively it could be driven by the demands of the customers who may want to put more trade with the business and who might take their trade elsewhere if the business cannot respond. The company does not influenced greatly by political and legal changes. In spite of the fact that Frito Lay is a US-based company, it is affected by international trade regulations and laws. Environmental changes suggest that the opening up of the market and the resultant increased competition has widened the perspective of the planning framework with profound implications. Thus, the main threat for Frito Lay is that its competitors begin to copy its products (Johnson and Scholes 87).

Internal environment

Internal analysis is concerned with providing management with a detailed understanding of the business, how effective its current strategies are and how effectively it has deployed its resources in support of its strategies. The main competitors of Frito Lay borrow its ideas and technological innovations. Competitors do not have a great impact on market development because Frito Lay is a market leader. The snacks market has several leaders but there is no a dominant brand on this market. Frito Lay faces three main types of competition: (1) from national brand firms; (2) regional brand firms, and (private brand firms). The main competitors are Borden, Procter and Gamble, Nabisco and Eagle Snacks (McDonald and Christopher 79).

Competition

Frito Lay has a competitive advantage based on unique product management and product leadership. The threat of entry by new competitors is possible but they will create a real threat for Frito Lay. The main threat is that its direct competitors copy and borrow ideas of Frito Lay proposing customers low quality but cheap products. The intensity of rivalry among existing competitors has a great impact on Frito Lay facing with strong competition. Thus, Frito Lay has positioned itself as a market leader. Pressure from substitute products will not have a great impact on its activity. The bargaining power of buyers is crucial for Frito Lay. The aim of customers is to pay the lowest possible price to obtain products that they require. The advantage of Frito Lay is that it sells in large quantities. The bargaining power of suppliers does not have a great impact on Frito Lay because it develops and manufactures all of its products itself. It has differentiated and effective distribution channels for their products (Reed 108).

Frito Lay’s customers differ in their tastes and preferences. The main customer group of Frito Lay can be characterized as fast food eaters. Frito Lay products can be used by large target audience as they meet different criteria and expectations of diverse customer groups. In spite of the fact that individual differences have a great impact on the decision process, needs and priorities of this population do not differ greatly because of their lifestyle and expectations. Lifestyle and values are the main determinants of customers’ behavior patterns (Johnson and Scholes 65).

Problems and Opportunity statement

The main problem is slow growth of the market segment and increased competition. Another problem is a conflict between retailing and wholesaling. Taking into account current situation, it is possible to say that Frito Lay competitors operate in the shadow of Frito Lay. Positioning is used by Frito Lay as a communication strategy based on the notion of mental ‘map.’ Another problem of Frito Lay is to maintain high product quality and sustain strong market position. The company decided to expand its activities and attract low strata. The problem is that the market growth only 5% per year and this situation becomes a threat for Frito Lay and its fast growth. Frito Lays distributes its products through retail stores and supermarkets, specialty stores and fat food restaurants (Reed 18).

Today, Frito Lay is faced with fierce competition and decreased sales. The management asks: “What will be the next trend in fast food industry? What should we do to foreshadow coming changes and remain competitive? Who is the current customer of Frito Lay? How to influence his preferences and needs?”

The opportunities of Frito Lay include: high potential to growth based on the technological change and increasing number of users. The choice of communications mix is the most cost-effective solution for achieving the organization’s communication objectives. Innovative products, strong brand image and effective distribution structure proposes great opportunities to Frito Lay. The conceptual foundation of international positioning is that a set of products can be viewed as different collections of attributes which can provide benefits to the buyer/user. When targeting specific market segments the marketer tries to develop those product attributes that generate the benefits matching the requirements of a targeted segment. Frito Lay operates within a dynamic environment and it requires a structure and culture that are sensitive and readily adaptable to change. Frito Lay philosophy influences the level of morale and attitudes which members of the organization bring to bear on their work performance and personal relationships. Unique brand image attracts millions of buyers to its stores (Reed 76).

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Traditionally, Frito Lay uses positive consumer response as the main control measure and the commercial potential for snacks. Frito Lay uses pre-market tests to identify potential needs and preferences of customers. In order to launch a new product line, Frito Lay should conduct this analysis and develop the best marketing decision. Frito Lay relies chiefly on an efficient market system and product improvement. Marketing position and strategic decisions play a crucial role in successful market performance as they influence brand image and product recognition. For Frito Lay, effective marketing depends upon effective marketing system and ability to evaluate target market and economic conditions. Frito Lay has maintained high-speed growth constant technological innovations ands service improvement the help to increase market share. Higher volume generally confers greater scale economies in purchasing whereas larger product market share confers greater pricing power over customers. New product management is the main approach which helps Frito Lay to grow and remain competitive. The product line proposes great potential for Frito Lay because there is no a strong market leader in this sphere. The target market is identified as fast food eaters (Johnson and Scholes 123).

Alternative solutions

The alternative solutions for Frito Lay is to introduce new product line based on health conscious menus and low caloricity snacks. The idea of this product line is to differentiate from traditional snacks and fast food market. In this case, product differentiation is the core tactic to differentiate the content, context, and infrastructure of offers to the target markets. The aim of these strategies is to change needs and wants of consumers proposing quality products and goods. Most of such strategies are based on value indicator which consumers to avoid the commodity trap. It is the paradigm of a company to always meet or exceed the customers’ needs, wants, and expectations. In sum, all strategies are closely connected with each other (Reed 76).

The second alternative strategy is to introduce health conscious low caloricity cookies and biscuits products. To capture important brand insights, Marketing Mix planners are becoming involved at an earlier and more important stage in the overall strategic planning process. For instance, improvements in sales data reporting has given media planners a source of stronger quantitative information that allows for direct media and regional sales matches. Frito Lay creates a unique marketing mix in order to sustain its market position and strong brand image. Marketing Mix (product, price, place and promotion) can be described as a choice between alternatives. Therefore, for maximum penetration Frito Lay selects primary (first choice) media that interlock and cross support each other. As the most important, Frito Lay uses repetition in promotion campaign because it is as important as the promotion itself. Frito Lay uses specialty stores as a foundation. The company avoids mass mechanizing stores. Wholesaling and retailing are the main forms of distribution. The company sets a high price in order to sustain its brand image and remain profitable (Johnson and Scholes 76).

Marketing Plan

Product

The best alternative solution for Frito lay is new health conscious menu. This solution will help Frito Lay to attract wider target audience and appeal to existing customers with value proposition. To remain competitive Frito Lay should considered several option to for developing operations strategy. The target market will involve middle age people from low and middle social class.

Price

The market skimming pricing strategy will be part of a deliberate attempt to reach a market segment that is willing to pay a premium price for a particular product. Companies that seek competitive advantage by positioning their products in the premium segment frequently use market skimming. The skimming pricing strategy is appropriate in the introductory phase of the product life cycle when both production capacity and competition are limited. The expected price for Frito Lay HEALTH snack will be $29.00 which is low price for similar snacks from other companies.

Promotion

Aggressive advertising will help Frito Lay to attract potential consumers and increase sales. Traditional advertising provides Frito Lay immediate access to a market of potential consumers. The potential customer base is not limited by the number of catalogs or brochures that are printed and mailed, but strong brand image and core of word-to-mouth strategy. This results in economically efficient outcomes helping to attract millions of new jobseekers and improved service for customers.

Place

Also, Frito Lay should create an environment which encourages the creativity of Customer Relationship Strategy, and enables everyone to work without feelings of insecurity, and without insult. Frito Lay should use CRM as one of the most important communication technique to deliver customer value and maintain high service quality (Walker et al 76).

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The planning process will be divided into two related phases, strategic planning and controls. The market place of the twenty-first century is much more volatile than hitherto and is characterized by a greater willingness on the part of customers to switch brands or suppliers. Hence, the need to develop explicit planning to improve customer retention has become a business imperative. Controls must be the final criterion, namely cost effectiveness. Therefore, marketers will firstly consider what is the best marketing mix to adopt and finally adjust the mix to correspond with the finances of the company and the production resources available. Control will consist of measuring actual sales and expenditures. In the case of no variance between actual and budget, no action is usually taken (Reed 76).

Conclusion

The case of Frito Lay shows that in a market-oriented economy like the US one, food retailers cannot accept the notion that ready-made mass markets exist naturally. As a mass-producer, Frito Lay arrangements require the creation of extensive markets through marketing effort, just as snack products are created through production efforts. For Frito Lay, the distribution of the enormous output of the company’s productive network to diverse markets necessitates the use of a multitude of food producers and retailers as well as various market creating methods, such as advertising, personal selling, merchandise, transportation, and storage warehousing. Although the cost of manufacturing and product marketing is thus increased, the total costs of snacks for buyers, as a result of integrated mass production, decline. Hence, Frito Lay understand that consumer value an be and should be enhanced by the transfer of costs from physical production to mass marketing. Frito Lay should design its marketing in a way to assist this market by providing timely and critical messages necessary to aid in strategic and tactical planning for the fast growing market. These strategies should integrate technology innovate provisions early in the design process of marketing systems and components to allow upgrades during development, production and system operation.

Works Cited

Johnson, G., Scholes, K. Exploring Corporate Strategy. Hemel Hempstead: Prentice Hall, 1998.

McDonald M., Christopher M. Marketing: A complete Guide. Palgrave Macmillan. 2003.

Reed, P. Strategic marketing planning, Thomson Victoria, 2006.

Walker, O. C., H. W. Boyd J. Mullins and J-C. Larreche, Marketing Strategy: a Decision-Focused Approach, 4th ed., McGraw-Hill, Boston, 2005.

Frito-Lay Inc. Case study.

Appendix

Appendix 1 P&L account for the 1st year (new product, Health Snack)

$, a year
  1. Sales
800,000
Cost of sales 480,000
Gross profit 320,000
Net Operating Expenses 140,290
Profit on ordinary activities before taxation 50,710
Taxation 1-0,941
Profit for the financial year 30,769

Appendix 2

Cash Flow statement: Year 1,$ Year 2, $ Year 3, $
Price/ service $29 $27 $26
Multiplied by:
services sold
100000 115000 132300
Net Sales $8,000,000 $9,600,600 $1,1600,424
Variable Costs 4,800,000 5,700,960 6,900,854
Fixed Costs 1,200,000 1,200,600 1,300,230
Depreciation 1,400,290 2,400,490 1,700,490
Gain/Loss – Equip. Sale      
Pre-tax Income  500,710  100,550 1,500,850
Tax Expense  100,941 50027 500,389
Net Income 300,769 100,023 1,000,461
Adjustments
Add Back Depreciation 1,400,290 2,400,490 1,700,490
Net Cash Flow 1,800,059 2,500,513 2,700,951
       

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