Demand Analysis Problem

DEMAND ANALYSIS PROBLEM Larson is trying to estimate the market potential for Stacy’s Pita Chips. She knows that there are 150 million snack food consumers in the U. S. market. Of these consumers, around 20% are heavy snackers, 50% are moderate snackers, and 30% are light snackers. Market research shows Larson that heavy snackers purchase 21 bags of snacks annually, moderate snackers purchase 8 bags of snacks annually, and light snackers purchase 3 bags of snacks annually, on average.

Heavy snackers were very price sensitive and waited for sales or used coupons so that they paid only $1. 99 for a bag of snacks. Light snackers were price insensitive and usually paid full price, $4. 99, for a bag of snacks. Moderate snackers sometimes bought on sale, but sometimes paid full price, so they paid $3. 49 for a bag of snacks. Currently, only 20 million snack food consumers purchased pita chips for their snacks. Of these, 6 million were heavy users, 13 million were moderate users, and 1 million were light users.

Three firms currently competed aggressively in the pita chip segment: Stacy’s, which had 10 million consumers who purchased 90 million units; Lay’s, which had 6 million consumers who purchased 63 million units, and Kirkland, which had 4 million consumers who purchased 80 million units. In 2008, Stacy’s sales were $429 million; Lay’s sales were $125 million; and Kirkland’s sales were $75 million. Q1: How big is the potential market (in consumers, units, and dollars) for salty snacks? What is the market penetration of pita chips?

Based on these answers, how much growth potential is there for a company like Stacy’s? The potential market for salty snacks is 150 million consumers. About 30 million are heavy snackers, 75 million are moderate snackers and 45 million are light snackers. Potential market in units per segment: Heavy users: 21 bags * 30 million users= 630 million bags purchased by heavy users annually. Moderate users: 8 bags * 75 million users = 600 million bags purchased by moderate users annually. Light users: bags * 45 million users = 135 million bags purchased by light users annually. We are speaking about a potential market of 1. 365 million units annually. Potential market in dollars per segment: Heavy users: 630 million bags * $1. 99 = $1. 253,7 million payed by heavy snackers annually. Moderate users: 600 million bags * $3. 49 = $2. 094 million payed by moderate snackers annually. Light users: 135 million bags * $4. 99 = $673 million payed by light snackers annually. The weight in dollars of the market is $4. 021,35 million.

Consdering that only 20 million snack food consumers purchased pita chips for their snacks and that the potential market is 150 million consumers, the market penetration index is about 13%. [pic] In front of these results we can affirm that many potential customers are not currently buying the product. There are still 130 million more potential consumers for pita chips so there are opportunities to grow the market demand. Q2: What is the market penetration of pita chips in the three target markets? Which one offers the most untapped potential for Stacy’s? The potential market in the U.

S. for Stacy’s pita chips is 150 million consumers. Currently, the company has reached 20 million consumers of the potential consumers. If we split this 20 million customers in segments, 6 million are heavy snackers, 13 moderate snackers and 1 million belongs to light snackers. The penetration index per segment would be the customers already reached in each segment divided per the potential market. Penetration index per segment: Heavy users: [pic] Moderate users: [pic] Light users: [pic] The segment that remains more unexplored for Stacy’s pita chips is the light users segment.

As seen in the penetration index analysis, light users segment has the lowest penetration index of all three. That means that Stacy’s pita chips has attracted few customers in this segment. Q3: Looking at the current market for pita chips, what percentage of the business is driven by heavy users, moderate users, and light users? Looking across the three target markets, how many units of pita chips does a consumer, on average, purchase? How much, on average, does a consumer currently pay for a bag of pita chips? % PITA MARKET Heavy users: 6/20= 30% Moderate users: 13/20= 65% Light users: 1/20= 5% 50 million snack food consumers – 20 million purchased pita chips | |HEAVY |MODERATE |LIGHT | |Consumer shares |20% |50% |30% | |Consumers |30M |75M |45M | |Bags |21 |8 |3 | |Prices |1,99$ |3,49$ |4,99$ | |CONSUMERS |UNITS |SALES | |STACY’S |10M |90M |490$ | |LAY’S |6M |63M |125$ | |KIRKLAND |4M |80M |75$ | | |20M |233M |629$ | Units of Pita: [(6M x 30)+(13M x 8)+(1M x 3)] / 20M = 11,65 Price/Bag: [(6M x 1,99$) + (13M x 3,49$) + (1M x 4,99$)] / 20M = 3,115 Q4: Calculate the market share of the Stacy’s, Lay’s, and Kirkland in consumers, units, and dollars. Who is the market leader? Company |Consumers Share |Units Share |Dollars Share |TOTAL Consumers | |Stacy’s |50% |38,6% |68% |10 Million | |Lay’s |30% |27% |19,87% |6 Million | |Kirkland |20% |34,3% |11,92% |4 Million | |TOTAL |100% |100% |100% |20 Million | Stacy’s is the market leader. Who is the market leader? SNACKS MARKET: 150 million snack food consumers in the U. S. market( 0%: 30 million are heavy snackers: purchase 21 bags of snacks annually paying $1. 99 for a bag of snacks. 50%: 75 million are moderate snackers: purchase 8 bags of snacks annually paying $4. 99, for a bag of snacks 30%: 45 million are light snackers: purchase 3 bags of snacks annually paying $3. 49 for a bag of snacks. PITA CHIPS MARKET: 20 million snack food consumers purchased pita chips for their snacks(13,34% of snack food consumers in the US market purchase pita chips. 6 million heavy users( 30% heavy users 13 million moderate users( 65% moderate users 1 million light users(5% light users 1- STACY’S PITA CHIPS: 10 million consumers( 3 million heavy users(30% 6. million moderate users(65% 0. 5 million light users(5% who purchased 90 million units( sales were $429 million 2- LAY’S PITA CHIPS: 6 million consumers who purchased 63 million units sales were $125 million 3- KIRKLAND PITA’S CHIPS: 4 million consumers who purchased 80 million units sales were $75 million. • MARKET SHARE IN CONSUMERS: STACY’S: 10 M /20M =50% PITA CHIPS MARKET SHARE IN CONSUMERS 10M consumers/150M consumers = 6,67% SNACKS MARKET SHARE IN CONSUMERS LAY’S: 6M/20M=30% PITA CHIPS MARKET SHARE IN CONSUMERS 6M/150 M consumers= 4% SNACKS MARKET SHARE IN CONSUMERS KIRKLAND: 4M/20M=20% PITA CHIPS MARKET SHARE IN CONSUMERS M consumers/150 M consumers=2,67% SNACKS MARKET SHARE IN CONSUMERS Total Snack market consumers=150M Total Pita chips consumers= 20M • MARKET SHARE IN UNITS: STACY’S: 90M/233M=39% PITA CHIPS MARKET SHARE IN UNITS 90M/1356M=6,6% SNACK MARKET SHARE IN UNITS LAY’S: 63M/233M= 27% PITA CHIPS MARKET SHARE IN UNITS 63M/1365M= 4,6% SNACK MARKET SHARE IN UNITS KIRKLAND: 80M/233M=34% PITA CHIPS MARKET SHARE IN UNITS 80M/1365M=5,8% SNACK MARKET SHARE IN UNITS Total Pita chips market sales in units= 90M STACY’s units+63M LAY’S units+80M KIRLAND units=233M units Total Snacks market sales in units= 21 units*30M heavy users+8units*75M moderate units+3bags*45M light users= 1365M of snack units • MARKET SHARE IN DOLLARS:

STACY’S: 429M/629M= 68% PITA CHIPS MARKET SHARE IN DOLLARS 429M/4718,85M=9% SNACKS MARKET SHARE IN DOLLARS LAY’S: 125M/629M=20% PITA CHIPS MARKET SHARE IN DOLLARS 125M/4718,85M=2,6% SNACKS MARKET SHARE IN DOLLARS KIRKLAND: 75M/629M=12% PITA CHIPS MARKET SHARE IN DOLLARS 75M/4718,85M= 1,6% SNACKS MARKET SHARE IN DOLLARS Total Pita Chips market sales in dollars=$429M STACY’s sales+ $125M LAY’S sales+$75M KIRKLAND sales= $629M in dollars Total Snacks market sales in dollars= (21 units*30M heavy users* $1. 99 heavy users unit price)+(8units*75M moderate users*$4. 99 moderate users unit price)+(3units*45M light users*$3. 49 light users unit price)=$4718,85M in dollars