Frito Lay Inc., which has a full line of shelf-stable prepared salty snack dips with a new sour cream based dip used for chip and vegetables, must determine how to allocate advertising funds between towards their chip or vegetable dip market to maintain and potentially increase their current gross margin and profit contribution of dips while not exceeding the 1986 advertising expenditures of $4.73 million.
II. Industry Analysis
The dip industry has seen many changes in the early and mid 1980s. The two main types of dips are already prepared dips and dip mixes to make at home which retail about $0.09 per ounce including the base needed for preparation. The prepared dips are broken down into two additional categories of refrigerated and shelf-stable dips. Refrigerated dips consist of sour cream based and cheese based dips which retail about $0.07 to $0.15 per ounce. The two main cheese types are Mexican nacho style cheese dips and cream cheese dips which are more popular with vegetable consumption. Shelf-stable dips, which prior to 1985 only included bean and relatively new shelf-stable Mexican cheese dips, range from $0.13 to $0.20 per ounce. The major advantage to shelf-stable dips is the ability to place the dips directly next to the salty snack isle in the stores. The main complementary products for dips include salty snack foods and vegetables. Of all dip consumption, 67% are used with salty snacks. More specifically, about all Mexican bean dips and 85% of cheese based dips are consumed with salty snacks. However, only 25% of cream cheese dips are used with salty snacks and these is a growing trend towards healthier eating and choosing vegetables instead of high sodium unhealthier snacks.
The dip industry showed significant sales growth between 1981 and 1985. Industry research indicated that there is about a 10% increase per year in sales. Therefore the estimate for 1986 sales is to be $852.5 million. However, this growth was due mainly...