Three (3) Marketing Challenges
After the test market was complete, there were a few challenges realized with the introduction of Sun Chips:
1. Product Cannibalism – Whenever a new product is introduced into the market, if the company provides similar products, there is always the chance of cannibalism. Most times, cannibalism is expected and accounted for. However, if it is too high, it must be accessed to determine which item will generate more revenue in the long run.
After the test market, it was found that 30% of Sun Chips’ pound volume resulted from consumers switching from Frito-Lay’s potato, tortilla, and corn snack chips and about 1/3 of this cannibalism came from Doritos. This percentage was expected and therefore normal. However, there is a gain from this cannibalism because the gross profit from Sun Chips was $1.30 per pound while the gross profit from other snack chips was $1.05 per pound (a $0.25 increase of gross profit per pound).
2. Sustainability – There was much concern with the sustainability of Sun Chips in the long run. While the test market numbers were good, management was not entirely sure that this new product would be sustainable over time.
Sustainability can be estimated via the “depth of repeat” which is the number of times a repeat purchaser buys a product after the initial repeat purchase. During the test market, this number was 2.9 (meaning that repeat purchasers of the product purchased the product an average of 2.9 times over the course of the test market). Compared to 1.9 for Frito-Lays O’Grady’s brand, these numbers looked fairly promising for sustainability.
3. Timing – The are pros and cons to either introducing a new product too early or too late If you introduce a new product too early, you may not have enough information to accurately forecast the numbers associated with introducing that new product (cannibalism, sustainability, sales, brand awareness, etc…). This can be detrimental if you are forecasting for a product to do well and then it does not.
On the other hand however, if you do not introduce your product fast enough, you may lose your competitive advantage for that market. Generally, the first to penetrate a market with a new idea becomes the leader of that market/product. If you wait too long to put your new product on the market, you risk a competitor being the first to introduce a similar item and becoming the leader. This could be detrimental to your forecasted numbers as well.