Terra chips
Summary Introduction
I - S.W.O.T. analysis II - Market trends III – Positioning strategy IV – Marketing Mix V – How to achieve psychological pricing
competitive
advantage
by
using
VI – Value-based pricing VII – Buyer’s perception of high quality purchase VIII – Innovative distribution channels to enhance the perceived value IX – Would Terra Chips be successful in other countries X – What marketing steps would you recommend?
Conclusion Bibliography
Introduction TERRA CHIPS, a USA-based company, founded in 1990, offers a wide range of vegetable and potato chips, which have created a new niche on the salty snack market. Terra has always had a tradition of creating masterful combinations of unique vegetables with a variety of fabulous flavours. So we are going to deal with this business case, in order to make you more familiar with this company.
I)
Swot analysis First, to define the framework in which the company is evolving, a SWOT analysis has to be carried out. Indeed, that will helps us find the internal variables of the company (its strengths and weaknesses), that is to say those under the control of the firm and the external variables (opportunities and threats) that the company has to face. S Strengths Company • •
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Trailblazer: They were the first to introduce vegetable chips on the US market. Positio Position n as the non-po non-potat tato o chips: chips: They They differ different entiat iate e themse themselve lves s from from the generic type of chips (potato chips). Rewarded at the 1993 NAFST’s (National Association for the Specialty Food Trad Trade) e) trade trade show show:: This This show shows s that that the the comp compan any y is reco recogn gnis ised ed by the the professionals. Money-savings: The firm has not done any advertising; they have been a positive buzz effect. This is what is known as “Viral Marketing”. Hard-core loyal consumers.
Product • • • • • • •
Pretty and multicoloured: Strong visual identity. Wide-range of tastes. Eye-catching product. Ingredients: Sodium, fat and additives-free. Luxury product affordable for people. Product with a badge value: Status→Maslow’s hierarchy of needs. Product substitute to caviar and chips.
W Weaknesses Company • • •
Narrowness of the product mix. Creating labels: This could cannibalize Terra Chips. Distribution of the products: They can’t be bought everywhere and this might discourage customers.
Product •
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Fad product: they should have product in the pipeline to sustain sales and profit. Exotic and uncommon taste in the USA: It may be more ordinary abroad, and so, what is successful in the country of origin may be a failure in Asia for example. Exports won’t be easy. O Opportunities
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92% of the US households consume salty snacks: High penetration-rate and 8% of people to be targeted. Finding new niches. Converting light consumers in heavy consumers. Targeting nutritional snackers and weight-watchers: They represent 36% of the total US snackers. 15% of party snackers in the US to be targeted: They may like the multicoloured chips(‘The party natural’) Selling abroad: For the time being, Terra Chips can only be found in the USA. T Threats
Competition
_From other types of snacks: Potato chips, corn chips, tortilla chips, cheese puffs and pretzels account for 97% of the salty snack food market. Terra vegetable chips are in the ‘other specialty product’ category. _From other companies: National brand firms, regional brand firms and private brands. Pre-empted market: It is difficult for newcomers to enter the market. Terra Chips may be too expensive to economical snackers: They account for 18% of the snackers in the American population. The market is plateauing in terms of volumes. Lack of innovations. • •
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Sweet snacks. People who, because of health problems, can’t eat salty snacks. Consumer fatigue High degree of brand-switching: snackers like to try everything
II – Market trends A – The snack food market
The snack food market has been estimated at around $ 79 billion in 1999.
Specialty snacks 15%
Salty snacks 25%
Ice cream $ 11.5 bn
Chips $ 19.4 bn
$ 19.2 bn
Bakery snacks 24%
Cookies, crackers $ 28.7 bn Gum, chocolate
Confectionery 36%
The U.S. snack food market, size and segmentation The snack market as a whole is growing at some 5% a year. Certain sectors, such as meat snacks, yogurt and sugar – free candy, are experiencing much faster growth, while many of the most established product sector are seeing much more modest growth. There is an evolution concerning snacks: before they used to be only salty snacks, but today we can notice that specialty snacks, bakery snacks or sweet snacks appear. We can identify four major trends in the snack food market in 2000: - the first one is a return to rich, robust flavours and full tastes
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the second trend is a demand for more out-of-the-bag, ready-to-eat, meal replacement snacks. the third one is the diversification of distribution, as well as other alternative distribution trends, such as the creation of dedicated snacks fixtures within large supermarkets the last one is the fact that the firms are focussing on kids, teens and young adults, across a wide variety of snack food sectors
Marketers also identify another trend, they qualify it as “healthy oriented”. The healthy trend is certainly not the only trend in packaged snack foods, but it is by far the most important and widespread one, driven in large part by a heavy national focus on children’s health. Although sales of packaged snack foods in the U.S. topped $61 billion in 2005, this is up only 6% over 2001 sales, since good returns from "healthy" categories like yogurt and fresh fruit have been mostly offset by losses in "less healthy" categories like candy and cookies. Because kids snack even more than adults do, it is critical that snack makers maintain a hold on this young demographic, and attracting consumers of all ages to healthier snacks without severely cannibalizing sales of more traditional, not-sohealthy ones will be the fine line that marketers will have to walk in the coming years. The U.S. snack food market is populated by a large number of players. We can divide them into four categories: - the Pillars - the Builders - the Followers - the Differentiators
size
positioning distribution examples
Pillars big, international, U.S. owned
Builders big, international, U.S. or European owned mass mass retail, mass retail, segmented foodservice Frito – Lay
Kellogg, Nestlé
Followers Differentiators mid-sized to small to midbig, U.S. sized, U.S. or owned international owned economy/mass niche mass segmented Utz
Chupa Chups, Pringles
B – The salty snack food market
Today, snacking is no longer occasional: it’s a part of the U.S. consumption patterns. There is a growing number of people who eat snacks to replace a traditional meal (smaller portions of food are eaten in a day).
Concerning demographics, the increasing number of over 50 year - olds will entail the development of fat reduced food. These people have a high purchasing power; they are concerned about their health, their appearance. The growing independence of women and their increasing buying power, together with their recognition that snacking is prevalent in women has identified women as a whole new target market for snack foods. Consumers are more and more sensitive to new products and to high - quality products. The $ 21 billion U.S. salty snack market grew 23% from 1998 to 2003. Americans consumers eat four or more snacks a day and consume more than 6.5 billion pounds of snack food annually. The salty snack food market has been growing at a rate of about 6 percent per year on a dollar basis in recent years; however the pounds sold per year have plateaued. It is expected that the growth registered by the salty snack market trough 2008 will be fuelled primarily by the potato chips, tortilla chip and snack nuts segments. It is forecast that all these segments will increase by more than 20% through 2008. In the United – States of America, snacks are largely consumed: indeed, 92% of the households consume salty snacks. So there is a very high penetration rate. We can deduce that only 8% do not consume salty snacks: we call them “non-users”. But who are they? They can be people with health problem so who cannot eat snacks because it is dangerous for their health. They can be sweet snacks consumers or specialty snacks consumers. They also can be against snacks, or they can go on a diet. Concerning the products: what types of products are sold? The salty snack food market includes potato chips, corn chips, tortilla chips, cheese puffs and pretzels. Potato chips represent the largest product class and account for 46% on a pound basis. Corn chips account for 11%, tortilla chips for 18%, cheese puffs for 10%, and pretzels for 12% of the salty snack food market. A lot of new products are launched every year on the snack food market (about 150), but most of them are failures. These products are more and more convenient (ready-to-eat meals); they are also portable and cheap. In terms of health, interests in salty snack products that are organic or all natural, low – calorie, low – fat … or offer health benefits are in greater demand by the consumers. In fact, 34% of the salty snack products introduced in 2003 featured some types of healthy positioning.
Concerning the brands: which brands sell salty snacks? There can be:
National brands firms Regional brands firms Private brands firms
Examples of firms Frito – Lay, Borden’s , Procter and Gamble (Pringles), Nabisco Snyder, Bachman, Laura SCUDDER, Sunshine and Weaver Regional or local manufacturers
Frito – Lay’s market share accounts for 50%, which represents $3.5 billion in sales each year. Concerning the snackers: who are they? We can identify 6 categories of snackers: - the weight watchers (14% of the American population) - the nutritional snackers (22%........................................) - the indiscriminate snackers (15%..................................) - the economical snackers (18%......................................) - the party snackers (15%................................................) - the guilty snackers (9%.................................................) Each type of snackers has a specific behaviour in terms of lifestyle and personal characteristics, buyer decision process, degree of price sensitiveness, benefit sought …
III) The position of terra chips on the market Definition of Positioning Simply, positioning is how your target market defines you in relation to your competitors. A good position is: - What makes you unique - This is considered a benefit by your target market Both of these conditions are necessary for a good positioning. Positioning is important because you are competing with all the other companies in order to attract your potential fans attention. If you can stand out with a unique benefit, you have a chance at getting their attention. In order to begin positioning a product, two questions need to be answered: -What is your marketing environment? -What is your competitive advantage? •
The marketing environment is the external environment. Some things to consider: Is the market now satisfying your needs? •
What are the switching costs for potential users for your market? What is the position of the competition? The competitive advantage is an internal question. What do you have that gives you advantage over your competitors. Some things to consider: Is your company small and flexible? Do you offer low cost and high quality? Does your product offer unique benefits? Are you the first on the market with this product (First mover advantage)? At the end, the creator maintains high margins by developing and launching innovative concepts in the niche snack food segment. It also sustains its premium position by developing creative relationships with the consumer base. However, the threat of competitor copy-cats requires that a significant proportion of revenue be reinvested into research and development to help differentiate the product and protect its position on the snack and chip market. • •
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Positioning Strategies
There are seven positioning strategies that can be pursued: Product Attributes: What are the specific product attributes? Benefits: What are the benefits to the customers? Usage Occasions: When / how can the product be used? Users: Identify a class of users. Against a Competitor: Positioned directly against a competitor. (In it not the case for Terra Chips strategies) Away from a Competitor: Positioned away from competitor. Product Classes: Compared to different classes of products. Positioning by attributes (What are the specific products attributes?) Terra Chips introduces a “Novelty effect”, by positioning itself on the salty snack market by new attributes on their products. Its products are created with the potato base, but are from now on conceived of uncommon ingredients. That new trend contributes to the dramatic success of the firm. For example, Terra Chips created chips with vegetables like tomatoes, onion, or with regional icons like the Mediterranean Terra Chips. In addition, the company created chips mixed with salt and pepper, vinegar, fine herbs, parmesan,… So the company pioneers a new trend in producing chips totally different from the common chips based only on potatoes. At the end, Terra Chips introduces new varieties of potato and vegetable chips that have created a new niche in the natural snack market “doing what the major chip companies can’t or won’t do in order to produce alternative snacks”. So today, the strategies of the firm concerning the product positioning consists producing chips which mix both health and indulgence health, traditional and exotic tastes, sweet and salty-based flavoured chips, and both planned and impulse positioned chips. Positioning by benefits (What are the benefits to the consumers?)
When we read the different testimonies of Terra Chips consumers, we could conclude that the benefits they expressed concern essentially the taste and the flavour of the chips. Feeling addicted, they consider the Terra Chips products as delicious and divine, as an epicurean delight, as a good snack for a lunch… Moreover, the ingredients contained in the chips are health-friendly. They, indeed, contained low rate of sodium, are made with 50% less fat,… As the consumers find benefits in consuming Terra Chips products than anything else, they create a positive buzz effect by telling other potential consumers what benefits they find, and so people become more and more brand loyal, even to a certain sort of chips in the whole production. Positioning by usage occasions (How / when can the product be used?) Chips, as part of the snack-food market, can be consumed at every moment of the day. We can, indeed, eat a snack outside or inside when it is not the time to eat, instead of a proper meal as a meal replacement, faster than a proper meal… We could find snacks and chips in vending machines, in supermarkets, in local stores. Chips are a convenient food, in the way that they need no preparation, you can also eat with your hands, and they are a kind of food you can take away (in the street, at work, at home, at school,…). Terra chips should make their positioning strategy by usage occasions by applying strong concerns on the impulse purchases from the consumers. People who enjoy their products would be likely to buy them frequently, it does not matter the moment of the day. In addition, the motto “ The Party Natural” may suggest that Terra Chips products are ideal for parties.
Positioning by users (Identify a class of users) Terra Chips, with its positioning strategy by user categories, must apply it with the class of snackers, who must be frequent consumers, brand-loyal as they consume regularly. There exists different kind of snackers. In fact, it depends on your behaviour. Terra Chips wants to attract all the categories of snackers, as the company provides products for the whole family of consumers. The nutritional snackers, as health conscious people and knowledgeable
consumers, may consume products which do not put on weight. But it may be a category difficult to attract, as the nutritional snackers consider since the beginning, snacks and so chips, as a second-best product and not as a meal replacement. However, the company has positioned itself as the non-potato chips’ company. They are producing indeed, vegetable chips that contain low rates of fat and sodium. The economical snacker who is someone who may have to snack everyday out of home, and may have not lots sums of money, could be also a category difficult to
seduce as the price of Terra Chips is relatively high because of the ratio quality/price. They are not brand loyal people, so it could be difficult for the company to attract them. However, it can be interesting for the company to seduce that category by having them to consume its chips from time to time but not regularly. The party snackers are one of the categories Terra Chips could capitalize on. They express low price sensitiveness, and so they don’t take into account the high price of the products they will choose, in the case they are hosts and not guests. In addition to realize a better party, the host will choose innovative products, as for example the exotic chips of the company. The guilty snackers , are a category of consumers we have to pay attention to. They enjoy snacks but regret immediately after, so it could be a good point for the company, but in that case, the firm will make profits with the misfortune of people. Either they are obsessive people, which have problem of weight, or they are compulsive consumers, advantageous for the profits of the company. The weight watchers are people who express a high degree of weight sensitiveness. It could be a category of users the company could not capitalize on. However with light and non-fat products, those people could be satisfied. The Indiscriminate snackers are a category of snackers who choose their product according to their mood. They don’t enjoy any product in particular, either they are salty snack or sugar snack. Moreover, they are not brand loyal, so it could be difficult for the firm to capitalize on that category of snackers. It can be interesting only for the firm to have them to consume chips from time to time, and so any strategy worth to be carried out. Positioning away from a competitor (Positioned away from a competitor) By creating a new product category, with vegetable chips, Terra Chips differentiates its products totally from the products of its competitors, who produce in the salty snack market copy-cat goods. Moreover, Terra Chips positions itself by its brand image, well appreciated for example for the high quality of its products as can prove us the ratio quality/price. As a result, Terra Chips would go away from the trend of salty snack products which would be in period of maturity (according to the diagram “The Product Life Cycle”). It would not be interesting, indeed, for Terra Chips to enter a market with already well established competitors. This may be the reason why Terra Chips created its proper differentiate category of vegetable chips, segment to be pioneered. Positioning by product classes (Compared to different classes of products) Terra Chips positions itself by its production of chips, especially vegetable chips, which is a certain product class. This could be compared to any other class of food products, either we talk of the salty snack food market, or the whole food market. Terra Chips is unique, but we have to pay attention to the copy-cat chips, which may create problem to the us-based firm.
IV) The marketing mix – the 4ps Definition of the Marketing Mix or the 4Ps That is made through four elements, which enter into the notion of “marketing mix”, the four P of operational marketing. This concept was introduced in 1960 by Jerome McCarty. It acts of: • • • •
The Product The Price The Place The Promotion
1. The Product Concerning the product strategy, Terra Chips positions itself as a non-potato chips producer. Its products are said to be pretty and multicoloured, with a wide range of tastes, flavours, textures and colours. Concerning Terra Chips products, it can be said that that the firm has set up a strategy of differentiation. In reality, all the firms in competition in the chip market adopt strategies with products characterized by the same ingredients (in the chip market, all the firm produce chips based on potatoes). However Terra Chips positions itself differently with its wide range of products based on different ingredients and tastes: That is to say that Terra Chips adopts a differentiated Marketing Mix, its products integrated secondary functions along with the main one “the potato ingredient”.
This is the range of the different chips provided by Terra Chips: Terra Chips : Original Terra Chips – Mediterrenean Terra Chips – Zesty Tomato Terra Chips
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Terra Kettles : Sea Salt White Russet and Sweet potato chips – Salt and Pepper White and Russet potato chips – Sea Salt White and Russet and Blue potato chips
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Terra Taro chips: Taro chips – Spiced Taro chips
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Terra Frites: Malt Vinegar frites – Seasoned Salt frites
Terra YukonGold potato chips: Yukon Gold potato chips – Yukon Gold Onion and Garlic potato chips – Yukon Gold Salt and Pepper potato chips – Yukon Gold Salt and Vinega potato chips •
Terra Sweet Potato chips: Sweet potato chips – Jalapeño Sweet potato chips – Spiced Sweet potato chips
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Terra RedBliss potato chips: Red Bliss potato chips – RedBliss Fine Herbs potato chips – Red Bliss Roasted Garlic and Parmesan potato chips – Red Bliss sun-dried tomatoes and balsamic vinegar potato chips •
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Terra Blues potato chips
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Terra Stix
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Terra PotPourri potato chips
All those flavours contribute to the notoriety of Terra Chips which implement a niche market, which is little segment of the chip market. It is profitable because the competition was low in that niche. The firm, indeed was the only one at the beginning providing such chips. It was an innovator, but it is likely to be copy by active followers. However it have to take into account copy-cat products in a lucrative market with other products in the pipeline. In addition the multiplicity of the products is linked also to a certain degree of exoticism, with sometimes “ethnic marketing”. In some cases, Terra Chips products are moving towards “connoisseur”, because of the non-knowledge and the lack of curiosity of the other consumers. In addition Terra Chips products are eye-catching ones thanks to the sophisticated black and silver packaging. Moreover the high design of the packaging is a sign of prestige. Terra Chips provides also products with good ingredients, that is, to say without any additives. All those factors make consumers more and more addicted, who become sometimes heavy-users, even hard-core loyal consumers who don’t want to taste any other products.
We have to take into account the three level of the product, that is to say -The Core Product, i.e. the ingredients, the texture… -The Actual Product, including the Core Product, i.e. chips with the packaging. -The Augmented Product, including the Core and the Actual Products, i.e. the promises of the products. In Terra Chip’s case, the Core Product is all the time different with at least a potato base, as the firm produces different kind of chips based on multiple vegetables, exotic ingredient, even less fat chips. The Actual product is also different according to the chips concerned. The packaging is the same that is to say black and silver, but the contents depend on the chips packed. The Augmented product, which corresponds to the promises the chips would bring to the consumers in that case, depends on the attempts the consumers would have when buying a package of chips. In some case they would be convinced and may be become brand loyal, even they may switch from another brand. Nevertheless, they may be deceived and don’t buy again the chips, even they may have a bad buzz effect. 1. The Price We have to take into account the price into the marketing mix strategy of Terra Chips. This variable corresponds indeed to the ratio quality/price. Famous for their high quality products, Terra Chips has to adopt a high priced strategy in order to remain coherent compared to the valued range. In that case the price of its products is not the consequence of the cost engaged by the firm in the production, but on the contrary, the price corresponds to the high quality of the products. Consumers are, in that case little, little price-sensitive because they deem that the price is worth the quality. The company should nevertheless, pay attention in not increase or decrease too much the price, above all in a non-justified way. As the firm is a pioneer into the differentiated market chips, providing nonusual chips, its prices are not fixed by the competition but by Terra Chips itself. Becoming an element of reference mark for the new copy-cat products, the price is high evaluated because of the strategy of differentiation of Terra Chips.
2. The Place It corresponds to the means and operations which allow setting up goods and services of a firm for users and final consumers The objectives of the distribution of Terra Chips is to ensure itself a quantitative cover of the market as well as a qualitative aspect, that is to say to have a well agreement between the retailing channels and the brand image of the products. Moreover, Terra Chips must ensure a good competence and dynamism of its retailing agents, as well as the quality of the presentation of the products in outlets. Terra Chips provides its high quality products in specialist retail outlets, which once more, confirms the high quality of the products to be sold in such stores. We could find Terra Chips products also in supermarkets, or in the Internet by ordering them from the Terra Chips site. By developing their retail outlets in supermarkets, the firm wants to gain market share, and to reach more and more consumers. 3. The Promotion Concerning the promotion set up by Terra Chips, it could be said that the firm does not use advertising campaigns. On the contrary its products have benefited from the buzz effect, that is to say a benefiting word of mouth from the peer group. We could talk of a viral marketing, i.e. consumers became the main actors of the firm notoriety. In that case, advertising costs are reduced and it allows the firm to touch more and more people. Consumers prefer to refer themselves to their influence network. Some people discover Terra Chips products by chance, for example they knew them from their colleagues who consume them at work, or from their professor, friends, during a road tripping,… Some individuals are even brand switching, in the way that they change their minds concerning others products. By changing the lifestyles of the individuals, those ones don’t want to taste anything else and as a consequence, we could talk of a Terra Chips community. People, indeed, meet themselves in a Terra Chips group, they enjoy a high degree of satisfaction. What is interesting today, is that new strategies appears, like contrary to the 4Ps: the 4Cs. The 4Cs refers to : -Customer (What is the added value for the consumer?) -Cost (What is the cost price?) -Convenience (What is the better access for the consumer?) -Communication (What is the better communication?).
V) How To Achieve Competitive Advantage By Using Psychological Pricing? How is established the psychological pricing?
The psychological pricing is established in function of a study carried out by companies on consumers in order to know how much the consumer will be prepared to pay a product. The company will pool a representative sample and then will establish tables and a graphic. The company will do an average to find the price which would be acceptable for consumers. Psychological pricing is used in order to make believe the consumer that he is making a good bargain. Definition of psychological pricing .
Prices are often expressed a little less than a round number e.g.: $ 19.99 or £ 9.95. This is what we call psychological pricing. It is said that these prices have a psychological impact on consumers and that it drives demand. However, there are three hypotheses concerning psychological pricing: * Consumers ignore subconsciously or not the cents. Maybe because they are printed smaller: $ 2.99 * The fact that there are cents makes the consumer believe that the product is sold at the lowest price possible. * Now, consumers are used to psychological pricing. Psychological pricing is an attempt by merchants to appear as if they were underselling the competition while in fact they are lowering prices by only a small margin. Today many firms or retailers use psychological pricing in order to reinforce their brand image of quality and sophistication. How Terra Chips could take advantage of the psychological pricing?
Terra Chips sells its products with a psychological pricing: for example: from $ 0.99 for a 1.5 once bag to $ 2.99 for a 6 once bag and even $ 3.99 for special flavour. It has been proved that according to a study published in the Marketing Bulletin products with prices ended with 99 cents were more likely to be bought than others. For Terra Chips using a psychological pricing means that their products are high quality products and that they try to be available for everyone, for every kind of consumers because of the cents. And as it has been seen before: with psychological pricing consumers believe that the product is sold at the lowest price possible, that the company worries about its consumers and their purchasing power.
Most of the competitors of Terra Chips like Lay’s, do not apply psychological pricing. For example chips flavour barbecue from Lay’s are sold 1.35 $. Subconsciously, the consumer will think that the chips cost more than 1 $ whereas for chips from Terra Chips sold 1.99 $ he will think than they cost less than 2 $ but he won’t realize that in fact they are more expensive than those of Lay’s. To conclude it is in the interest of Terra Chips to continue having a psychological pricing in order to differentiate from competitors. But it will have to be cautious because some consumers, who know very well this approach of psychological pricing, may become irritated.
VI) Value-based pricing Price is one of the variables of the marketing mix. It is the only one that brings profit to the company and it is also a way to position a product on a market. So, not only price depends on the ex-work price, but it also takes into account the strategy of the company. So, first, we will deal with the objectives a price has to fulfil, and then, a diagram will show us what variables determine the price of a product. This will convey us to Terra Chips’ strategy: Value-based pricing. A) Price has to fulfil different objectives:
Objective
Justification for Terra Chips
Profit
The company has to make profit in order to re-invest.
Market shares
Gaining market-shares in order to reinforce its position against competitors.
Product-line
Prices of the products in the same line can’t be too different or customers may be suspicious.
Brand Image
The price of a product is often perceived as a novel of quality. The higher the price is the higher quality the product is perceived by customers.
B) What determines the price of the product?
C) Terra Chips’ strategy: Value-based pricing.
Now that we have understood the importance of the price for the company and in the marketing mix, let’s see what pricing strategy is Terra Chips using? Actually we can define it as “value-based pricing”, that is to say that the product is priced in relation with the quality of the product. Indeed, the company has highly priced its product in order to create a price/quality ratio effect. This means that the higher the price is, the higher quality the product will be perceived by the customers. To them, a high price can be justified by the value of a product. In Terra Chips’ case, the high price of the product is justified in terms of: •
Ingredients:
As we saw it before, Terra Chips are positioned on the market as non-potato chips. Indeed, they are made with exotic vegetables. For instance, the original Terra Chips contain: seasonal mix of taro, sweet potato, yuca, batata, parsnip, taro (coloured with beet juice), canola oil and/or sunflower oil. For the company, those ingredients represent a higher cost than if they would have been making mere potato chips. That is why the ingredients are a value taken into account in the price strategy of Terra Chips. •
Quality:
Some kinds of snackers are ready to pay more to get good quality products. Let’s take the example of weight-watchers or nutritional snackers: They are not pricesensitive, their only concern is to get products that won’t make them gain weight or that are good for their health. Terra Chips correspond to their needs because they are lower in sodium and fat, and that enable the firm to price its chips according to this value.
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Distribution:
Terra Chips were at first distributed in higher-priced outlets such as delicatessen or grocery stores: This has given a good badge value to the product because only high quality products are sold in that kind of outlets, and as we have seen it before, the price/quality ratio justify a high price when the product is of high quality. •
Packaging:
As well as the distribution, the packaging has helped giving Terra Chips a high-quality image: It is a sophisticated silver-and-black package with a colourful picture of the chips on the front. When seeing this package, customers understand that those chips are not like the others: They look upscale and more sophisticated. This can justify the higher price to them.
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Colours of the chips:
Thanks to their beautiful colours, Terra Chips are extremely eye-catching. People are proud to serve them to their guests: They are perfect to show you are a person of refined taste. Of course, these beautiful colours are an argument to price the chips a bit higher than common yellow potato chips. •
Rareness/unusualness of the product:
Terra chips operate on a niche (It belongs to the 3% of other specialty product on the salty snack market). As it is rare and unusual, it can be priced higher than more generic types of product because of the law of supply and demand. •
Image of exclusivity:
Terra chips is perceived as a cosmopolitan product: it’s for DINKs (Double Income No Kids) or YUPPIES (Young Urban Professionals). Those categories of persons don’t mind paying a high price to get a product that will show they are trendy and that will give them a good image to their peer group.
VII) The buyer ‘s perception of high quality purchase The question which has to be asked is the following one: What is a high quality purchase?
There are many factors to take into account. First of all, regarding the product itself. That is to say a high quality product is a product you can rely on, and it is reliable thanks to its components, ingredients, durability, taste, flavour, nutritional values, health care values and so on. The consumer knows that he will not be deceived by his purchase because he is perfectly aware of what he buys, and he does not need to be a connoisseur for this. Then, a high quality product always comes with a sophisticated package, which can be created by designers, who realize important researches and studies on colours, pictures, materials, size and so on. You have to feel secured when you see it. A top of the range product is expensive compared with the other products available in the range because the consumer not only pays for the product itself, but also for the packaging and above all for the brand name which is the main guarantee for a high end product. Actually, the brand name enables you to identify and distinguish yourself in society; it provides you a good badge value. Thus, your purchase is not in contradiction with your ideas, values, feelings, and way of life nor with the way you want to be “seen” by your environment (family, friends, colleagues etc). So, a high quality purchase is high priced but finally it is a good value for money. Terra Chips is a high quality purchase
The party natural Thanks to the ingredients it is composed of: potatoes and exotic vegetables, Terra Chips is considered as a healthy gourmet snack food, a healthy product, because it has no additives, it is lower in sodium and fat than regular potato chips. Because salty snacks are second bests, they generate a light consumption and thanks to the Terra Chips ingredients, those new potatoes are environmentally friendly. They don’t make people put on weight and they allow people who cannot enjoy salty snacks, to eat them thanks to their nutritional values and advantages compared to those of the competitors. Terra Chips potatoes can also be considered as an educational product, because it can be used to make children discover and eat vegetables in a funny way, it is time saving for mothers, and can have a dramatic effect on children consumption habits. We have to notice that Terra Chips, is higher priced than other potato chips but it is justified by its novelty, the consumer buys the innovation. In this case you pay for vegetable chips, a product which takes care of your health, which is organic and additive free.
But if we perceive Terra Chips as a high quality purchase it is obviously thanks to its packaging which is well designed. Indeed, they have created a sophisticated silver-and-black package with a colourful picture of the chips in the front. So when you take a look at a Terra Chips box, you can immediately see the product and feel secure thanks to black and silver colours which are elegant and representative of luxury. And not only thanks to the packaging but also thanks to the product itself, a wide range of fabulous flavours, it is easy to impress your guests and improve your badge value. Last but not least, this product is a little bit expensive regarding competitors’ products, but it is nonetheless affordable for the consumer because it is available in large scale retailing outlets (in the USA), and we have to bear in mind that it is nothing but a mass consumption product: you buy quality and that is why, in this case, there is no price sensitiveness. The highly noticeable package, the exclusive and exotic image fostered by a high price, the foreign or unusual ingredients, and the distribution through higherpriced food and grocery outlets, the noticeable product differentiation (multi-colored chips), and the strong visual appeal have proved prosperous. In a word, since we are talking about a healthy gourmet snack food, it seems that a change in snacking patterns is occurring. So, can Terra Chips still be defined as a snack?
VIII) Innovative Distribution Channels To Enhance The Perceived Value What are the distribution channels already used? Terra Chips has a high brand image for its high quality product. So first, chips were sold only in upscale outlets but it was inefficient. But then, they were sold through delicatessens, natural food stores and a few select grocery chains. But here again it was not easy for consumers to find their chips everywhere they could. Today, the chips are available on the Internet which has made easier for consumers to buy products from Terra Chips as most of the population of the United States has access to the Internet. On top of that, Terra chips is also available now in hypermarkets. This type of distribution is a good thing for being bought by many people but it is not a good thing if the company wants to keep its image of high quality and brand image. It can be viewed unfavourably by consumers who buy Terra Chips because they are expensive and they are not common as other products. By this way of distribution Terra Chips could lose its high brand image.
What are the distribution channels Terra Chips should find to enhance the perceived value? When we talk of distribution channels, the first words that came are shops and stores. But the distribution of a product can be done in many other ways. Another way of distribution could be a partnership. That is to say that Terra Chips should find some posh restaurants or bars for the partnership and for example the restaurant or bar would suggest in its menus as accompaniment of a dish, or even for the aperitif the chips. Then at the time of paying the bill, the customer will find behind the counter some shelves with products of Terra Chips and could buy them. This partnership, if it is done with establishments very smart, could really enhance the value of Terra Chips. In order to be known of the professionals of the catering, the company Terra Chips should attend exhibitions. Exhibitions enable to meet directly retailers, consumers and even competitors. Another channel of distribution would be the cinemas but above all famous cinemas in big cities. Indeed, products sold in cinemas are usually a little bit expensive and they are mainly high-class product and Terra Chips should be present in this way of distribution. At the same time it could target the young. However, there still exist a way of distribution that Terra Chips did not use: to have its proper shops. For instance, the brand Nespresso (which manufactures espresso makers) have its proper shops for selling its coffee because it is said that it sells “experience”. Terra Chips should open some shops in big cities (e.g.: New-York, Seattle, Chicago…) and in smart districts. In its shops Terra Chips could sell all its products and these shops would be a way for testing the new chips, flavour, colour… that it would launch. Terra Chips should be present in luxury cruise ship, it would be a good thing for enhancing their perceived value. It would be present also in fashionable holiday resorts.
IX) Would TERRA CHIPS be successful in other countries? A – In European countries
The European Community (E.C.) registered $ 21 million in U.S. salty snack purchases in 1991, up from only $ 6 million in 1987. Among the E.C. countries, the United – Kingdom tops the list at $ 7 million - one third - of the E.C. market. In fact, the U.K. has recently become the second largest salted snack food market in the world (behind the U.S.A.), due mostly to persistence and determination of the snack industry. - In France
French who have loved their sweet snacks for years are now developing a strong taste for salty snacks. Together sweet and salty snacks in France represent a $ 4 billion market. The salty snacks market is growing at a rate of 7% per year, and the entire snack food market in France is expected to double within five to six years, reaching $ 8 billion. 80 % of French consumers consider snacks as a supplement to traditional meals or to replace meals. Snacking becomes more and more popular in France. So TERRA CHIPS could find a lot of outlets in the French market, it is a growing market with a great potential. - In the United - Kingdom It is estimated that the U.K. snack market was worth £ 2.6 billion in 2004. The salty sector is predicated to increase by 6.8% and the sweet snack sector by 3.4% between 2002 and 2006. In 2003, potato crisps accounted for a further 43% of the U.K. snack food market. Maybe it will be difficult for TERRA CHIPS to enter the U.K. market because as we saw before this market became the second largest salted snack food market in the world. It could have reached maturity. B – In Asia
- In Thailand Overview of the market
Snack foods are popular in Thailand. The market has an enormous potential for growth: consumption of all snack food accounts for only 1kg/ per person / per year. The snack food sector is dominated by local manufacturers who also export a significant part of their production. Snacks are also imported, but their contribution remains only a small proportion of the overall market. Snack sales have benefited from improvement in the distribution system which has opened the rural markets. This is a price sensitive market with a consumer base of children and teenagers. Some imported snacks are able to compete with locally made products – these are in the high end segment, for example Pringles (Procter & Gamble, in the U.S.A.) Salted snacks
Potato chips account for 30% of the salty snack food market. The total snack market represented Bt 15 billion in 1998. The total sales value of salty snack products in 1998 was estimated at about Bt 8.5 billion.
Trends
Frito – Lay has injected about Bt 170 million this year to stimulate the domestic snack consumption. The domestic consumption of potato chips was flat in 1998 because potato output was limited in the planting areas. There is a huge potential for the extruded snack segment, which is now underdeveloped in terms of product innovation and development of modern distribution channels. -In China Shanghai’s retail markets offer a remarkable variety of snack food products. U.S. exporters may be challenged by the complexity of the market, but opportunities prevail for producers who learn about and take advantage of established local tastes and distribution channels. Tradition and habits
China is experiencing the "Little Emperor" phenomenon in which one child receives the exclusive care of two working parents. These children spend, on average, more than $1 every week on snack foods. The Shanghainese spend 9 percent of their total grocery bill on snacks. In supermarkets, snack food spending increases considerably as most meats, vegetables and fruits are still purchased in traditional outdoor markets called "wet" markets. Traditional Chinese snack foods were originally classified as either "wine accompaniments" or "food accompaniments" and included fried beans, nuts and tofu. The Chinese normally adhere to strict mealtimes, rarely skipping a meal. Snack foods are usually eaten on a whim or to satisfy an impulse.
The brands
Popular brands include Hershey’s Kisses, Pringles potato chips, Keebler crackers, Wrigley’s Doublemint gum, Britain’s Cadbury, France’s Prince and Japan’s Oishi. Domestic Products
A few brands have established quality images, but most are generally less attractively packaged and less aggressively marketed due to budgetary constraints and limited experience.
Snack foods from Taiwan and Japan are more competitive. Brands such as Mamee, Wangwang, Khongyuen and Oishi occupy significant shares of the chips and cracker segments. New products
The Shanghai market is saturated with diverse products, and new product entry can be expensive. It is very important that marketers understand that Shanghainese usually try snack foods based on a whim. U.S. products can readily sell here. Pringles and Hershey’s have used marketing and promotional techniques to achieve the sales they have today. So TERRA CHIPS can also try to enter this market but with marketing and promotional strategy adapted to Chinese habits. -
In Japan
Health concerns are VERY important in Japan. They are very informed about the glycemic index of food, which is a measure of how quickly food converts to sugar in our bodies. They’re well acquainted with terms such as anti-oxidants, polyphenols, and GMO issues. TERRA CHIPS which offers healthy products with high-quality ingredients can take advantage of this Japanese trend. Maybe TERRA CHIPS will have to adapt their products to this new market because the tastes and the habits are different, but it is true for every country. C – In North America
- In Canada Canada is the best market for U.S. salty snacks. At $ 38 million in 1991, this market has increased by 153% since 1986 and accounts for nearly 30% of the U.S. salty snacks exports. The country’s proximity to the United States of America has helped to make it a strong market. In 2001, Canadian per capita spending on snack food products was about $24. Annual per capita consumption of snack foods is estimated at 6.1 kg. An aging population combined with consumers who are more concerned with health have provided new opportunities for some snack food products. Children are an important market for this industry and influence household snack food purchases. Many companies target their products to the 12-24 age group to capture the interest of this market segment who demand snack foods for taste and variety. Niche products that offer novelty flavours, shapes, or unique ingredients have also been introduced. Unique flavours, products made from hemp seeds and root vegetables such as parsnips, beets, sweet potatoes and carrots, as well as organic snack food products are recent offerings in the market.
D – In South America
The food industry continues to quietly grow and prosper, year after year. The snack food market segment, in particular, has enjoyed a spectacular growth over the past five years. Global players such as Nabisco, Frito – Lay and PepsiCo all say that Latin America is the fastest growing region in their global empires. -
In Mexico
Overview of the market
The snack food market in Mexico is worth $4.3 billion, and has registered a 20% growth over the last 5 years. Consumption of salted snacks in Mexico increased from $1.8 billion in 1999 to $3.5 billion in 2002. The per capita consumption of salted snacks, which totalled 2.1 kg in 1999, increased to 2.9 kg in 2002. At 6 kg per person, Northern Mexico has the highest per capita snack consumption rate. The production of snack foods in Mexico increased from $2.4 billion in 1999 to $4 billion in 2002. Most of the salted snacks sold in Mexico are supplied by local companies. Opportunities
One of the main reasons behind this growth in snack consumption is that people have less time to prepare meals because of their busier daily schedules. As a result, lighter lunches packed with lots of snack food are gradually replacing the complete mid-day meal. Also, several studies reveal that most snack foods are purchased impulsively, something that is usually done by young people. The younger generation in Mexico is increasingly adopting a more international lifestyle and buying imported goods. Approximately 53% of the Mexican population is less than 24 years old. Furthermore, Mexican consumers consider snacks to be less expensive than traditional meals. This factor has also contributed to the increased consumption of this type of product. There is an increasing demand for snack foods; it can be attributed, for the most part, to the younger generation. Salted snacks
Potato chips are the most popular salted snack in Mexico. In 2002, Mexican potato chips imports from the entire world totalled $47.7 million. The top-selling potato chip flavours in Mexico are: traditional salted, lemon, cheese, sour cream and spices, and jalapeno pepper.
X) What marketing steps would you recommend? To improve the Terra Chips marketing policy, we have to go further in the marketing mix. •
Fist of all, let’s have a look on the Product and the Price
Since the product has reached maturity, above all we have to work on the product line extension. We have to cope with the consumer fatigue, which is the worst enemy of the product. To win this fight, there is no secret, the response is: innovation. We must create and develop new products on existing markets (in the USA and Switzerland). For instance, we could create other products based on vegetables, to keep the Terra Chips values, and what have made its success. We can also merely develop the chips range creating new tastes, with new colours, but we do be cautious of cannibalisation. So, once again, we must innovate. But when you deal with innovation it includes, new prices and more, I would say higher prices. This could be a way to recover its initial brand image and arouse the consumers’ interest. It could be interesting to launch a special range of products with original packaging, for special occasions. I mean, for the Christmas and New Year period, and why not for Halloween (mainly celebrated in the USA but which has already reached Europe). It is totally out of order that Terra Chips becomes a common product It would judicious to modify the packaging. But just a little bit, to face the consumers’ fatigue, lure other customers or former ones, not too much because the danger could be to puzzle the consumer, its habits and marks cannot totally be changed. •
Then, let’s deal with the Promotion
So far, Terra Chips has not done any advertising campaign so we should cling to it and keep on making below-the-line advertising. In this field, two words to begin with: Sponsoring and Corporate. Terra Chips is already sponsoring a hockey team in Switzerland, and it should have this done once again. Nonetheless, it would be better to target other sports like golf, cricket, tennis, riding, and so on. I mean less popular disciplines, which could help it to recover its initial value of top of the range product. In another way, Terra Chips could be patron of an exhibition painting, or could build a foundation. Moreover, Terra Chips could find an interest in being present at local or international trade fairs or distributor display rooms. In order to find more distributors
and outlets, which would be more suitable. This would also enable it to ensure its brand image, find other customers data bases, introduce its innovations, and so on. Then, Terra Chips could also make hard selling, on the products which already exist, by using coupons or thanks to cross samples. I mean it could associate with another high end brand which would offer Terra Chips samples (or grant discounts on Terra Chips), for the purchase of one of their own products. Moreover, sometimes it would launch charitable promotions by giving a defined percentage of what they earn on the product sales, to a charitable association, or a foundation. Terra Chips could also organise a sort of tasting in specialised shops and delicatessens and other events, in order to create a sort of “Terra Chips private club” in which regular customers would be the members, and would benefit from gifts, discounts, samples and so on. The promotion can also come with advertising spots. Indeed some prestigious bars or tea rooms possess high tech TVs on which short advertising spots pass before your eyes, and it would be strategic because in this place you find a special clientele, the one Terra Chips wants to reach in order to help recovery. Besides, the group could also pay for an apparition of their products in a movie or in a series. I particularly think about Desperate Housewives, in which I perfectly imagine Bree Van Der Kamp, who is the perfect host always taking care of her guests, and who drastically applies well fitting rules, offering to her guests, before the dinner, an assortment of Terra Chips, don’t you? Last but not least, the firm has to focus on cross fertilization and repeat experiences like the one with Jet Blue, which proved prosperous in the past. Terra Chips could be tasted during a luxury cruise ship, for instance, and it should not hesitate to flood meetings, conferences, society gatherings and evenings, fashionable places and so on, in partnerships with famous companies and organizations. •
Finally, let’s talk about Place.
Terra Chips products could enjoy a revival, and recover its notoriety, by being available in the right outlets, and by being tasted in the right place. On the one hand, Internet is good for its products because it enables it to reach even more customers all over the world, since Terra Chips is not sold everywhere. But on the other hand, it kills the product and makes it losing its value and prestige because now, everybody can buy a Terra Chips box on the Net. Thus, we cannot take away Terra Chips products which are sold on the Internet at the present time. Nevertheless, the future innovations will have to be available in specialised shops, delicatessens, and some retail shops to avoid the trivialization of its products. In those outlets, tasting will take place to submit these innovations to the connoisseurs’ reactions.
As we said it before, it would be judicious to sell Terra Chips to famous bars, tea rooms or prestigious restaurants which would serve it to their clients by way of aperitif or cocktail snacks. But, the major points are the following ones: The market penetration of existing markets as Canada, Great Britain, Japan, with the existing range of products.
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The diversification, find new markets to penetrate with new products like France or China (which are growing markets), because of their consumption habits, due to their cultural, and social context.
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The market development and extension, discover new customers and new markets (business markets, reseller markets, international markets…) with the current range of existing products.
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In a word, Terra Chips has many opportunities to catch, to recover its initial image of high end product, and become more and more famous in the whole world.
Conclusion Terra Chips is a company that is successful on the American salty snack food market, but which has to go on innovating to face consumer fatigue and keep on being a market niches. It has also many opportunities to catch so that it can sustain sales and profit. Finding a new niche could be one of the possible solutions to Terra Chips future. For instance, it could introduce vegetable chips made with fair trade products, in order to improve once again its brand image.
