Chapter 3 discussed strategy in detail. Strategy is mainly about competition and finding a sustainable way to beat it (Porter). But what do you do when you are not only the category leader but also almost the only player in the category? PepsiCo’s Lay’s is one such brand that has almost a 90% share of the potato chip category. Its rates of penetration, category share, awareness, trial, purchase and repurchase are remarkably high. What can it do now? What should it do now? The case notes that successful brands have their own problems (Dr. Aamir Khan, Case Advisor).
The Lay’s marketing team, part of PepsiCo Pakistan business unit, was huddled around the company conference table. The faces of the team members were both sparkling with excitement at the recent results, and exhibiting a self-questioning look that asked: What next? Lay’s had not only maintained its status as the category leader, but also that of being virtually the only player in the potato chips (PC) category, with a PC category share hovering around 90%. The awareness, trial, purchase and repeat purchase numbers were floating around in the same stratosphere.
At the same time, the team wondered: So, what does this mean? A host of questions had sprung up and demanded both conceptualizing and strategizing. What does such a high share signify: Has Lay’s reached saturation in terms of consumer penetration? Should it encourage the consumers of Lay’s to buy more of its top-selling Rs 10 SKU (entry price point)? Or should Lay’s intensify its campaign to shift its primary consumers from Rs.10 to solo packs (Rs. 20 & Rs. 30) and eventually multi-serve packs (Rs. 50 & Rs. 100) ? Should it expand the market of Lay’s by targeting non-users of the PC category? Or should it focus more on growing its premium ridge-cut line-extension, Wavy? Or look into further line extensions for e.g., Lay’s Maxx, Lay’s Stax and Lay’s Gourmet. Should Lay’s enter categories adjacent to PC, while remaining under the “snacks” category? Should this extension be accomplished through Wavy?
The brand manager of Lay’s mused: Successful brands has their own worries.
Lay’s shines in the PC category
Different companies may have different ways of defining categories and sub-categories, and may carry different nomenclature. Broadly speaking, the macro snacking category can be divided into salty, savory, sweet biscuits and confectionery. Within salty one can include the PC sub-category which not only includes regular cut potato chips and the up-scale line extension of Lay’s Wavy ridge-cut chips, but also extrudes such as Kurkure, Cheetos, Slanty and Nimko. When you expand it to savory, it includes salted biscuits. Sweet biscuits are another big category which is majorly dominated by two players and big brands like Sooper, Gluco, Prince, Rio and many more. Moreover, candies, cupcakes and chocolates categories would come under confectionery. Salty, sweet biscuits and confectionery demand spaces are quite different. However, within salty, many consumers eat a variety of products with Lay’s chips at the center of the Venn diagram. Also, category penetration can be larger than the highest penetration of the sub-category.
Over the years, Lay’s Pakistan has become synonymous with the PC category. “Chips” (as in “crisps”) in Pakistan means Lay’s. Since 2007, virtually all category growth has occurred on the back of Lay’s. Lay’s now enjoys 80% penetration: this means it is present in some 80% of the survey respondents’ households. Its PC category share, as mentioned above, also ranges around 90%. Oye Hoye entered the category in 2016, gaining some market share and expanding the PC category, but soon exited by 2019. This allowed Lay’s to reap the fruits of the expansion, gathering its consumers into its fold. Within the salty category, Lay’s share is estimated to be between 40 and 45%.
What led to Lay’s spectacular growth in Pakistan since its entry in 2007, when it launched the Salted, Masala and French Cheese flavors? The market at that time was very small and the responsibility to drive the market fell on its shoulders. Survey upon survey at that time revealed that consumers were beginning very early to associate Lay’s with high-quality natural home-grown potato, and then with high-quality, fresh potato chips that contained no artificial colors or preservatives. Product innovation played its part, as did a strong go to market strategy.
Lay’s flavors, such as Masala, BBQ and Yogurt & Herb, had continually titillated the palates of the 15 to 35-year-old urban and rural consumers, an astonishing percentage of whom would become repeat purchasers and even purchasers in the last seven days. Some of these flavors were permanent; others were temporary to excite the consumer (Dahi Baray, Papdi Chaat, Chinese Szechuan, Italian Pizza). This propelled Lay’s penetration into double-digit growth. From this point onward, Lay’s shifted to emphasizing daily (home, TV watching, screen watching) and special occasions (match watching, hangouts, movie watching). This helped Lay’s achieve 80% or above penetration and category share figures. The remaining players consist of Super Crisp and Kurleez, which Lay’s upscale line extension Wavy has restricted to 2-3% of the category each.
The price points remain affordable even in an inflation-prone era. Lay’s entry price point SKU was the most highly penetrated one, and possibly 50% of the volume was coming from it. If one moved to solo and multi serve packs, the volumes fell by half: this meant there was a lot of room for growth for both solo and multi serve packs. Looking at this opportunity, it led to a new communication strategy that was reflected in the TVC “Joy Hai Sharing Main”. To back it all up, Lay’s was as widely available as Pepsi-Cola was in the cities and towns of Pakistan. And further, Lay’s was marketing its products to a wide range of consumers aged between 16 and 35.
“Joy Hai Sharing Main”
The most recent Lay’s TVC “Joy Hai Sharing Main” (There is joy in sharing), provides a good synopsis of Lay’s brand identity and its growth strategy.
The TVC suggests that Lay’s current strategy of increasing the consumption of its potato chips in Pakistan comprises the following sub-strategies. First, it aims at expanding its target consumers (e.g., capturing age groups and people from all walks of life). Second, it also aims at increasing the frequency of consumption by identifying and reminding consumers of the occasions where Lay’s can be consumed (e.g., meeting new friends, chatting with old friends, during meetings, at parties, and so on). Third, in the same ad, consumers are being enticed to use larger SKUs on occasions where sharing with larger numbers of friends can, and should, happen. Fourth, Wavy, a line extension of Lay’s, but with richer flavors, is also mentioned. Last but not least, all of this takes place within a culture of sharing, a theme and a suggestion with which Pakistanis can relate as many youngsters, let alone the older ones, insist on paying for their friends rather than “Dutch” splitting the bill.
Strategizing future growth
The Lay's marketing team faced a number of issues, the most important of which was to strategize where its future growth should come from. This went back both to the question Peter Drucker had famously asked, “What is your business?”, as well as to the Ansoff matrix. In other words, Drucker wanted every business to define the area within which that business was or wanted to be a player.
Lay’s core business remains potato chips, a category whose indisputable leadership it has assumed since 2008. It has been driving the category. Its rates of penetration, category share, awareness, trial, repurchase and purchase in the last 7 days are remarkably high. An option, and some would say a very logical one, was to further exhaust the PC category. If penetration was high, the frequency of purchase could be raised. The customers could be shifted to higher price points along a ladder that started from Rs 10 and ended at Rs 100. The ads were already reminding customers of the occasions on which they could consume Lay’s potato chips.
A second option would be to focus more on its premium Wavy and grow it further. Wavy proved to be successful, and its intense flavors has been a hit. Wavy could be targeted at consumers who were not buying PCs but were buying within the salty category. Wavy was still a line extension of Lay’s and it was possible to imagine Wavy as becoming independent of Lay’s (or become a weaker brand extension of Lay’s till it assumes independence), and then spawning its own line and even category extensions, thus protecting the equity of Lay’s against any untoward development. In other words, should Lay’s be developing a stronger roadmap for its Wavy range?
But the PC category need not limit the growth of Lay’s. It was still a smaller part of the larger category of salty, where extrudes, nuts and namkeen were also present. Extrudes had become a big market in Pakistan, and Lay’s could attempt to expand into that part of the consumer wallet that was used to buy salty category products.
A third option is to make the pie bigger by exploring the macro snacks category i.e. occasions in which confectionery and biscuits are operating.
The marketing team that discussed the above and other issues took a coffee break. Many could not help noting the irony of success begetting more problems. Lay’s was now dominating the category of potato chips. The question was: what should it do now?
Links and media
Website: https://pepsico.com.pk/