Cutting the Fat: Frito Lay reaches buyers of low-fat potato chips
One-to-one marketing is often touted as a great strategy for high-ticket items. But what about low-cost, commodity-type products like those found in a supermarket?
In 1997, Plano, TX-based Frito Lay introduced a new potato chip for healthy eaters called Baked Lays. From a volume standpoint, the product did very well – unit sales for both regular and low-fat chips were higher than those for regular chips alone after 18 months.
But an analysis of who was buying the new product left company executives in shock. It showed that sales were coming from existing customers who were buying the low-fat product as a substitute for the regular Lays, and not from new customers – regular buyers of low-fat products. In other words, Frito Lay was cannibalizing its core product instead of broadening its loyal customer base.
To get back on track, the firm worked with Catalina Marketing Group to pinpoint the right audience. Out of its data warehouse of 48 million records (comprised of integrated transaction history from 50 retailers), Catalina identified households that had purchased six different low-fat products over a six-month period but hadn’t purchased potato chips.
Four million buyers fit the bill, according to David Diamond, executive vice president and chief vision officer of Catalina Marketing, St. Petersburg, FL. (Catalina maintains the frequent-buyer databases of many of its retail clients, which are only coded by card number and contain no names or addresses. In exchange for housing and maintaining the data, Catalina is allowed access to all transaction history.)
Once these 4 million prospects were identified, Catalina then programmed its checkout-coupon systems so that when they swiped their cards at checkout counters, they automatically received a coupon entitling them to a free bag of Baked Lays. (Coupon printers work off of localized rather than online databases. Catalina batches and downloads targeted promotion information to its retailers nightly.)
The effort worked: The coupons were redeemed by 40% of those who received them. But more importantly, of that 40%, 25% purchased another bag at full price, Diamond says. Those numbers equate to a 6% share among the 4 million identified buyers.
But Frito Lay isn’t stopping there. The company recently separated that group into three different customer segments: those who didn’t respond at all, those who redeemed the free coupon only, and those who redeemed the free coupon and also purchased a second bag at full price. A variety of offers is currently being tested to each group.
