Frito-Lay is a well-known manufacturer of snack chips throughout the world. It is the leading selling brand of chips in the United States. Their major brand includes Doritos, Raffle, Tostitos, Cheetos, Sun Chips, and Funyuns. Lynne Peissig being the vice president and general manager of the New Venture Division Frito-Lay, is responsible for outlining a plan and find the factors by which Frito-Lay can take over the brand named Cracker Jack. She has to provide a formal presentation to the executives of Pepsi Co by combining the findings provided by the business team and estimating the “fair market value” of the Cracker Jack brand (Kerin & Peterson, 2010).
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The major problem arising in the current scenario is evaluating a “fair market value” that would help the executives of Pepsi Co. decide the acquisition price to propose the bid on the Cracker Jack brand. To resolve this problem, Lynne Peissig has been asked to identify the marketing issues and provide recommendations that would help to pursue the business opportunity of new ventures by the acquisition of Cracker Jack.
Cracker Jack is one of the most well-known consumer food brands of original caramel popcorn in the United States. It is enjoying 95 percent of awareness among the consumers between the ages of 15-60. This is one of the most important strengths as Frito-Lay wouldn’t have to spend money on introducing the brand. Cracker Jack has an exclusive product line and has built a good market position by its highly appreciating advertisements and positioning statements.
Cracker Jack has a premium pricing strategy as compared to its competitors. But this is becoming a weakness for the company as its profit margins are reducing because its competitor “Crunch ‘n’ Munch” has downsized its packaging.
There are three main opportunities that Frito Lay can obtain by acquiring Cracker Jack. First, Frito Lay would be able to expand into new eating occasions. Second, this would help Frito-Lay enter into new product categories, capitalizing its store-delivery salesforce, and improving brand marketing skills. And the third opportunity is the acquisition of Cracker Jack would enable corporate restructuring.
The major threat for Frito Lay would be the list of competitors of Cracker Jack with “Crunch ‘n’ Munch” being its biggest competitor in the sweet popcorn industry.
Identifying the Root Problem Components
Frito Lay addressed all its personnel of different departments about the acquisition opportunity of Cracker Jack. Every department had specific issues concerning the current decision. Sales and Distribution had two main issues; first, the SKUs of Cracker Jack was 32, which were comparatively larger than a typical Frito Lay brand, which mostly had 5-10 SKUs. The second issue was that the estimated cost of a direct store delivery appeared to be understated. The manufacturing and product department also stated some problems such as actual inspection of the Cracker Jack plant were required because, without that, the marketing and product assurance personnel cannot decide the production, box, and bag lines of the Cracker Jack brand.
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According to Dianne Touseley, the finance director of New Venture Division, revenue forecasts of the marketing of Cracker Jack under the Frito Lay brand was not being finalized as there were issues about trade promotion and advertising budget (Kerin & Peterson, 2010). Cracker Jack’s competitor, “Crunch n Munch” will also be a huge issue for Frito Lay because they provide the best quality of sweet popcorns. Cracker Jack is using a premium price strategy. It is comparatively expensive compared to other companies in the sweet popcorn industry, so after acquiring Cracker Jack, Frito-Lay would have to reconsider prices to acquire a well-known position in the market.
Evaluation of the Alternatives
Frito Lay has a few main factors in evaluating. The Brand Marketing team and the brand marketing personnel have different aspects for the Cracker Jack extension. As marketing personnel believed that Frito Lay should emphasize the establishment of Cracker Jack base business in the first year, brand and flavor extension should be done in the second or third year. However, the marketing team advised that the Crack Jack snack bar be introduced in the second year.
They speculated that the snack bar could generate 50 to 100 million dollars in incremental manufacturer net sales. And in the third year, flavor extension should be added to increase 5-10 percent of dollar sales. So this can bring an advantage to the company as they would be able to enter into new food products and provide different flavors to the consumers, which would increase Frito Lay’s market position and generate profit. There is one disadvantage; in the finance sector, they have ongoing general and administrative costs of marketing of Cracker Jack as a Frito Lay brand is relatively high and is ranging from 4 to 7 percent of net manufacturer sales.
At the current point, it is determined that a cost of $75-$100 million is calculated to develop and launch a new product internally. And the success of this new product is approximately one in ten. But as we can see, there are relatively more benefits in acquiring this high-level brand, so the decision to take over Cracker Jack should be confirmed, and Frito Lay should fulfill its mentioned opportunities. After making Cracker Jack a part of Frito Lay, the company should maintain its market value using the best means of promotional marketing strategy. In my view, “Pull Strategy” would be highly effective.
Pull strategy attracts and motivates customers to search for your brand actively. With the help of this strategy, there would be high demand for your products retailers would place more and more orders. As Cracker Jack is already a very visible brand in the market, with the help of mass media advertising and sales promotions, reasonable pricing would raise its market value. It would also help to introduce new products with numerous varieties (Marketing Made Simple, 2010).
Other promotional strategies can also be used, such as follow up with the Cracker Jack and “Crunch n Munch” customers and analyze their choices and taste. Carry out different events to promote the products and introduce new flavors in those events, which would also help the company to know whether their upcoming products would be a big hit or not. As Cracker Jack is famous for giving gifts in their packets, that rule of promotion should continue and provide coupons in the daily magazines and newspapers to promote the products.
To take control of Cracker Jack’s entity, it is very important for Frito Lay to consider the historical sales growth of Cracker Jack and should first make an appropriate business plan before making an acquisition. It should also have a keen look at the market growth and the competitive positioning of the products that are being sold by the Cracker Jack. And last but not least, the expected levels and trends of operating profitability should also be considered. These all variables would provide a fair value, which is also one of the most important points for Frito Lay right now.
The manufacturing and sales, and distribution department also have few issues that should be resolved. The personnel of product assurance should visit the Cracker Jack manufacturing plant and should have the know-how of the products. And as Cracker Jack has a large number of SKUs, so it is necessary to consult the retailers and the other departments of the company to overcome this challenge too.
Kerin, R., & Peterson, R. (2010). Strategic Marketing Problems. New Jersey: Prentice Hall, Inc.
Marketing Made Simple. (2010). Push and pull strategies – two approaches for promotion. Web.