THE BATTLE FOR THE COOKIE MARKET - Essay Example

The Battle for the Cookie Market Summarize the key factors that P&G and Frito­ Lay identified in their situation analyses that prompted their entry into the packaged cookie market. Procter & Gamble and Frito‑Lay entered the cookie market at a time when the novice would think that it is the end of the road. With unit sales as well as the per capita consumption declining for the 15 years (1967 through 1982), it made little business sense to venture into the domain of cookies. However, the marketing managers at these two companies had an eye for detail which prompted them to take the plunge.

The main reasons for the decline in sales were primarily demographic and socio cultural in nature. The target market for the cookies; the 5 to 13 year olds, as a percentage of the total population had shrunk over a period of time and customers were all the more concerned about the nutritional value of the food that they bought and ingested. Competition from the unorganized market as well as the emergence of private labels was eating into the market share Nabisco, the market leader. In addition to this, the advertising spend was relatively low in the industry.

Any challenge or threat is an opportunity when looked at from a different perspective. That is precisely the opportunity that marketing executives at P&G and Frito lay saw in the situation. The new entrants had the option to expand the market as such by targeting a separate demographic profile; i.e. age group other than the 5-13 year old. Marketing managers at P&G as well as Frito Lays would have realized that the per capita consumption of cookies can be increased with the help of advertising.

Since the advertising spend in the industry was very low, the prospect was huge. Furthermore, the prices had been kept relatively stable by Nabisco; therefore premium pricing could help the company increase the top line (sales) as well as the bottom line (profits). Both companies had deep pockets and had the potency to fight the unorganized market as well as private labels on the price plank. Thus profit potential was immense in this apparently saturated market. All these were compelling reasons for P&G and Frito Lays to enter the cookies market.

Perform a competitive analysis of the packaged cookie market as of early 1984 and indicate the apparent key strengths and weaknesses of each competitor. The table indicates the relative strengths and weaknesses of the market leader Nabisco as well as the two new entrants P&G and Frito Lays on the marketing mix parameters. Parameter Nabisco P&G Frito Lays Product ‘Almost Home’ range introduced after competitors entered. ‘Duncan Hines’ patented biscuit line introduced. Crunchy outside chewy inside.

Brand ‘Grandma’ introduced by the company. High moisture content, therefore low shelf life. Price Low, stable priced brands. The company had a tremendous cost advantage because of backward integration. The company had its own mill and manufactured the boxes on its own. Pricing competitive with the market leader Nabisco. Premium pricing (20 percent higher than competition) Promotion Promotional activities were not Nabisco’s forte. In fact the company had an advertising budget of merely $ 8 million in 1982.

The company later increased the advertising budget by $30 million when it confronted competition from the new entrants. The company invested $ 30 million in the line well before the national roll out which was expected in 1984. Frito Lay was very aggressive on the advertising front from the very beginning. With an annual budget of $70 million it ensured that its above-the-line activities backed its new product. Place (Distribution) Not so strong: Similar to that of Frito Lays, but 3000 in number and therefore covering only larger stores and supermarkets.

Used the grocery chain warehouses to distribute its products. Low cost of such a distribution method is an advantage. Furthermore it is ideal for the product type which has 6 months shelf life. Very strong: Through its 10,000 person snack food sales force covering as many as 3, 00,000 distribution points. Ideal to support the low shelf life product. What Types of marketing strategies were being employed by each of the competitors as of the end of 1983? The entry of P&G and Frito Lays provided a spark to the sagging industry.

The existing players also pulled up their socks as competition rose. Frito Lays targeted the premium segment of the market. It kept the price of its brand ‘Grandma’ at a 20 percent premium. It positioned the product as ‘soft and chewy, not hard and crunchy’ thereby conveying the superiority of the product. The product attributes of high moisture content giving it a fresher taste backed the premium pricing. P&G too differentiated its product. It positioned its Duncan Hines line of cookies as crunchy from outside and chewy from inside thus promising that it could satiate the taste buds of the connoisseurs.

Market Leader Nabisco introduced a new range of ‘moist and chewy cookies under the brand name ‘Almost Home’ and backed it up with an advertising spend of $30 million. Additionally it resorted to sales promotion schemes like coupon distribution. Thus it used a mixture of ‘push’ and ‘pull’ strategy to promote its new brand. Keebler which trailed Nabico in market share segmented the market on the basis of geography and ventured into a new territory; the West Coast. Additionally the company also upped the ante on sales promotion Sunshine Biscuits, which had the 3rd largest market share, targeted the price conscious consumers.

It trimmed its product line and focused on the Hydiox brand with a price point of $1.00 Thus all the companies in the industry devised their own STP (segmentation, targeting and positioning) and started vying for a larger chunk of the market share.