The US market of snacks is highly competitive. It is possible to identify three categories of competitors that operate on different levels: national, regional and private.
Introduction of a new product is a challenging process as it requires significant investment and it has been estimated that only 1% of new items generate over $25 million during the first year of sales. The company made certain attempts to introduce a similar product in the 1970s and early 1980s, but they failed.
The company has implemented a profound research. According to the research, Frito-Lay could generate more than $100 million during the first year of sales if the company invests $22 million to produce and market the product nationwide.
It is possible to state that the company’s vice-president, Dwight R. Riskey, faces a number of issues. First, the new product showed good results and a significant potential, but the results are still confined to one state only.
There are chances that the product will perform much worse in other areas. Of course, the investment of $20 million is rather significant and top executives always try to be sure in the success of the campaign.
At the same time, as it is mentioned in the case, the decisions should be made quickly as the test-market could trigger production of similar products by the company’s competitors (on all the three levels).
In that case, the company will not come up with a new product but will simply provide a similar item, which may lead to lower sales. Another issue to address is quite a high risk of product cannibalization (30%). Clearly, this figure can be different if the product is marketed nationwide and the company has to be ready to deal with that as well.
It is necessary to note that the company faces issues, which are quite common for competitive markets. Companies are always trying to increase the range of products provided introducing new items or new flavors and shapes.
This process is often associated with certain losses, as even though extensive research is held, some products are not as successful as it was predicted or desired. For instance, Coca Cola’s New Coke is regarded as a conventional example of a new product’s failure (“5 Products That Failed and Why” par. 3).
Customers may dislike the idea of changing the constituents of the product. It is noteworthy that this happened to the company in question during their attempts to introduce new blends.
In view of the above said, the company should consider the following steps. The research implemented is quite extensive and informative. Even though it is confined to quite a limited area, it is seen as representative of the USA. More so, Riskey implemented additional research involving similar products.
The chances to lose are quite low and the risks to become followers not innovators are rather high as competitors (especially regional and private firms that are more flexible) can introduce the new product under their brands.
Of course, it is necessary to stick to the flavor that shows the most appropriate results (as to repurchase and product cannibalism).
Introduction of new flavors may need additional funds and the success of the new (unchecked) flavors is quite doubtful. It is also important to develop a strategic plan in case the rate of product cannibalism is significant. The company has to be ready to remove less competitive products with minimum losses.
“5 Products That Failed and Why.” Forbes 13 January 2011. Web.