CASE NO.

9: Group 1
FRITO-LAY TARGETS THE HISPANIC MARKET

Frito Company was founded in 1932 in San Antonio, Texas, by Elmer Doolin. H.W. Lay
& Company was founded in Atlanta,Georgia, by Herman W. Lay in 1938. In 1961, the
two companiesmerged to form Frito-Lay, Inc., with headquarters inTexas. Frito-Lay
produced, distributed, and marketed snackfoods with particular emphasis on various
types of chips. In1965, the company merged with Pepsi-Cola to form PepsiCo,Inc.
Three decades later, Pepsi-Cola combined its domestic andinternational snack food
operations into one business unitcalled Frito-Lay Company. Today, Frito-Lay brands
account for59% of the U.S. snack chip industry, and there are more than45,000 Frito-
Lay employees in the United States and Canada.In the late 1990s, despite its overall
popularity, Frito-Lay faceda general lack of appeal to Hispanics, a fast-growing U.S.
market.In an effort to better penetrate that market, Frito-Lay hired variousmarket
researchers to determine why Hispanics were notpurchasing their products as often as
company officials hadhoped and what could be done about the problem. In the
studies,market researchers discovered that Hispanics thought Frito-Lay products were
too bland, Frito-Lay advertisements were notbeing widely viewed by Hispanics, and
Hispanics tended to purchasesnacks in small bags at local grocery stores rather than
inthe large family-style bags sold at large supermarkets.Focus groups composed of
male teens and male youngadults—a group that tends to consume a lot of chips—
wereformed. The researchers determined that even though manyof the teens spoke
English at school, they spoke Spanish athome with their family. From this discovery, it
was concludedthat Spanish advertisements would be needed to reachHispanics. In
addition, the use of Spanish rock music, a growingmovement in the Hispanic youth
culture, could be effectivein some ads.Researchers also found that using a “Happy
Face” logo,which is an icon of Frito-Lay’s sister company in Mexico, waseffective.
Because it reminded the 63% of all Hispanics in theUnited States who are Mexican
American of snack foods fromhome, the logo increased product familiarity.As a result of
this research, Frito-Lay launched its firstHispanic products in San Antonio, in 1997.
Within a few ofyears, sales of the Doritos brand improved 32% in Hispanicareas. In May
2002, Frito-Lay teamed up with its Mexican affiliate, Sabritas, to launch a new line of
products to further appealto Hispanic customers. Included in these offerings are
Sabritas Adobadas tomato and chile potato chips, Sabritones Churrumais fried corn
strips with chile and lime seasonings, Crujitosqueso and chile flavor puffed corn twists,
Fritos Sabrositas lime and chile chips, El Isleno Plantains, and others.

Discussion
In the research process for Frito-Lay Company, many differentnumerical questions were
raised regarding Frito-Lay products,advertising techniques, and purchase patterns
among Hispanics.In each of these areas, statistics—in particular, hypothesistesting—
plays a central role.Using the case information and theconcepts of statistical hypothesis
testing, discuss the following:
1. Many proportions were generated in the focus groups andmarket research that were
conducted for this project,including the proportion of the market that is Hispanic,
theproportion of Hispanic grocery shoppers that are women,the proportion of chip
purchasers that are teens, and so on.Use techniques presented in this chapter to
analyze each ofthe following and discuss how the results might affectmarketing
decision makers regarding the Hispanic market.

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CASE NO.9: Group 1
FRITO-LAY TARGETS THE HISPANIC MARKET

a. The case information stated that 63% of all U.S.Hispanics are Mexican
American. How might we testthat figure? Suppose 850 U.S. Hispanics are
randomlyselected using U.S. Census Bureau information.Suppose 575 state that
they are Mexican Americans.Test the 63% percentage using an alpha of .05.

H0:p=0.63
Ha:p≠0.63

Let α=.05
A two-tailed test, α/2 = .025
Z.025= ±1.96 critical value

z =.6765-.63 = 0.0465 = 0.281 or 2.81%

√ (.63)(.37) 0.165
850
b. Suppose that in the past, 94% of all Hispanic groceryshoppers were women.
Perhaps due to changing culturalvalues, we believe that more Hispanic men
arenow grocery shopping. We randomly sample 689Hispanic grocery shoppers
from around the UnitedStates and 606 are women. Does this result
provideenough evidence to conclude that a lower proportion of Hispanic grocery
shoppers now are women?

H0 = p=.94
Ha = p ≠.94

Let α = 0.05 n=689 x=606

z = ±1.645 (critical value)

z = p̂ - p = .8795 - .94 = -0.0605 = -6.68

√ p.q
n √ (.94) (.06)
689
0.0090475

Decision: Since -6.68 < - 1.645, the decision is to reject the null. The proportion
of Hispanic grocery shippers that are women is less than .94

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CASE NO.9: Group 1
FRITO-LAY TARGETS THE HISPANIC MARKET

c. What proportion of Hispanics listen primarily toadvertisements in Spanish?

Suppose one source saysthat in the past the proportion has been about
.83.Wewant to test to determine whether this figure is true. Arandom sample of
438 Hispanics is selected, and theMinitab results of testing this hypothesis are
shownhere. Discuss and explain this output and the implicationsof this study
using α = .05.

Given the details of the case, it primarily aims to determine whether the source that
says 83% of Hispanics listen to advertisements in Spanish is true or not. On this
context, the null hypothesis would mean that p=0.83 versus the alternative i.e.
p≠0.83. To test for this, a random sample of 438 (population) Hispanics were
selected. From this population, only 347 Hispanics actually listened to
advertisements in Spanish which accounts for 0.792237 or 79.22% (i.e. p̂ =
0.792237). To test whether this difference is significant, we refer to the p-value or
sig.value. The MINITAB results provided an adjusted p-value. Based on the
hypothesis, the MINITAB output used a two-tailed test since the direction is on both
tails (i.e. not equal to). On this basis, since the p-value 0.042 is <0.05, the decision
is to reject the null hypothesis which translates to the idea that the actual proportion
of Hispanics who listened to advertisements in Spanish is less than 83%.

2. The statistical mean can be used to measure variousaspects of the Hispanic culture
and the Hispanic market,including size of purchase, frequency of purchase, age
ofconsumer, size of store, and so on. Use techniques presentedin this chapter to
analyze each of the following anddiscuss how the results might affect marketing
decisions.
a. What is the average age of a purchaser of Doritos SalsaVerde? Suppose initial
tests indicate that the mean ageis 31. Is this figure really correct? To test whether
it is,a researcher randomly contacts 24 purchasers ofDoritos Salsa Verde with
results shown in the followingExcel output. Discuss the output in terms of
ahypothesis test to determine whether the mean age isactually 31. Let be .01.
Assume that ages of purchasersare normally distributed in the population.

Mean 28.81
Variance 50.2651
Observations 24
df 23
t Stat –1.52
P (T<=t) one-tail 0.0716
t Critical one-tail 2.50

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CASE NO.9: Group 1
FRITO-LAY TARGETS THE HISPANIC MARKET

P (T≠t) two-tail 0.1431

t Critical two-tail 2.81

With the given problem in the case, it purports to determine whether the mean
age of Doritos Salsa Verde purchaser is 31 or not. Relevantly, the hypothesis
could be expressed as H0:µ =31 and Ha:µ≠31. To test the identified hypothesis,
24 randomly selected purchasers were surveyed. Based on the given data, in all
likelihood, the test would require a one-sample T-test since the point of
comparison is already provided i.e. 31. On the excel output, the computed t (i.e.
tsat) is -1.52 which is less than 2.81. Ultimately, the basis of decision is the p-
value. The problem set the α value at .01 and since the excel output provides a
0.1431 p-value/sig.value using two-tailed test, the decision is to accept the null
hypothesis. This is translated to the idea that the mean age of Doritos Salsa
Verde is equal to 31.

b. What is the average expenditure of a Hispanic customeron chips per year?

Suppose it is hypothesizedthat the figure is $45 per year. A researcher
whoknows the Hispanic market believes that this figure istoo high and wants to
prove her case. She randomlyselects 18 Hispanics, has them keep a log of
grocerypurchases for one year, and obtains the following figures.Analyze the
data using techniques from thischapter and an alpha of .05. Assume that
expendituresper customer are normally distributed in thepopulation.

$55 37 59 57 27 28
16 46 34 62 9 34
4 25 38 58 3 50

H0:  = 45
Ha:  < 45  = .05 n = 18 df = 17 t.05, 17 = -1.740

x = 35.67 s = 19.26

x   35.67  45
t  = -2.06
s 19.26
n 18

Since the observed t = -2.06 < t.05,17 = -1.740, the decision is to reject the null
hypothesis. We conclude that the average expenditure of Hispanic
customers on chips per year is less than $ 45.

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