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The subway story

Introduction of Subway restaurant

The Subway story started when Fred DeLuca, its cofounder and his family friend Dr. Peter Buck, worked on a business plan for a submarine sandwich shop. Dr. Buck gave a loan of $1000 for implementation of this plan. The first restaurant was opened in Bridgeport, Connecticut, in 1965. It did well in its first summer with the help of advertising slogans like "put a foot in your mouth.'' Emphasizing the foot-long sandwich, and "when you're hungry, make tracks for Subway." Buck suggested opening a second restaurant. "That way people will see us expanding and think that we're successful." DeLuca has changed the company's system of franchise development several times over the years and has kept the concept simple and relatively inexpensive for franchise buyers (Walker, J.R. 2007, p.27). Subway restaurants' is a registered trademark of Doctor's Associates Inc. (DAI). DAI owns the operational business concept and trademark of SUBWAY Restaurants. It is the franchisor and seeks to find entrepreneurs, or franchisees to partner with. The franchisee buys the right to operate the SUBWAY® franchise according to DAI's contract. DAI is a privately owned company, located in Milford, Connecticut. Here, at corporate headquarters, approximately 600 people work to keep SUBWAY® Restaurants the number one sandwich franchise in the world (http://www.subway.com/StudentGuide/, 2006).

Strategic marketing environmental analysis with a special focus on competitive analysis. (Use at least two analytical tools)

INTRODUCTION

According to Ennew, C. and Waite, N. (2007, p.69-72), one of the first stages in a marketing process is to understand the environment in which an organization operates. Marketing forces organizations to look outside and to develop an awareness and understanding of the environment in which they operate. There are several components in the overall marketing environment such as internal and external environment. Internal environment is the conditions with in the organization. External environment is the conditions outside the organization. Strengths and weaknesses are internal factors specific to the organization and opportunities and threat are factors which are present in the external environment and are independent of the organization. PEST analysis is concerned with political system, economy, society and technology.

SWOT ANALYSIS

According to Catherine Kaputa (2006, p.21-22), SWOT Analysis is strengths, weaknesses, opportunities and threat. This analysis is an intensive look at the strengths and weakness in a real - world framework.

According to McCarty, M. (2006) SWOT analysis of Subway is as following:

Strengths

Weaknesses

Opportunities

Threats

PEST ANALYSIS

PEST (political, economical, socio-cultural, technological) analysis (Curtis, G. and Cobham, D. 2005, p.54) is concerned with- Political/ legal: monopolies legislation, tax policy, employment law, environmental protection laws, regulations over international trade.

Health and safety guidelines, labeling of GM foods, animal rights campaigns can affect business of Subway.

Economical: inflation, money supply, economic growth trends, the business cycle- national and international.

Low set up cost, growing market of fast food, recession can affect Subways' business.

Socio-cultural: population changes-age and geographical distribution, lifestyle changes, educational level, income distribution.

According to Alon, L. (2006, p.47-48), due to religious prohibition to eat pork in case of Muslims and to eat beef in Hindus in India, no pork or beef products are used in any of the sandwiches. Instead these were substituted with lamb, chicken and turkey. Counter area and preparation areas in India are separated because vegetarians do not like to be served from the same place that non- vegetarian food are prepared.

Technological: new innovations and development, technological transfer, obsolescence.

Subway is using Partech POS (point of sale) System.

Competitive analysis- According to McCarty, M. (2006), Subway is also facing competitive pressures. Main competitors are McDonalds, KFC, and Pizza Hut. McDonald's is the world's largest retailing chain with 31,000 fast food restaurants in 119 countries.(FAQ, 13), All fast food chains, including McDonald's®, Burger King®, Wendy's®, Taco Bell®, KFC®, Quiznos Sub®, Blimpie® and Arby's® are the SUBWAY® chain's competitors.

This chart has been made with the help of data available on http://www.subway.com/StudentGuide/ (How we compare to our competitors, 2006)

Franchisee fee of Subway is less in comparison to other restaurants. Start up cost of Subway is also less comparison to other restaurants. But the basic royalty of Wandy's is less as compare to Subway. Advertising royalty of Taco bell, Pizza hut, and Scholtzky's deli is less as compare to Subway.

CONCLUSION

Marketing environment can be analyzed with the help of SWOT analysis and PEST analysis. SWOT analysis is the strength and weaknesses of the organization, and opportunities of its growth and threats to its success. PEST analysis is the affect of political system, world economy, society and technology changes or advancements. Subway's main strength is its brand name, weakness is franchise saturation. Subway is also affected by changes in political system, socio-cultural changes, and recession. It is using POS system.

Vision, mission and values at Subway

Mission

According to DeLuca, it is our mission to provide the tools and knowledge to empower entrepreneurs to successfully compete in the QSR (quick service restaurant) industry worldwide. We take pride in serving each other , our customers and our communities, and we know that our success depends on the initiatives we take individually we take individually and on our ability to work as a team (Canfield, J., Hansen, M.V. and McKowen, D. (2006, p.124).

Core values

Subway is committed to customer satisfaction through offering high quality food with exceptional service and good value. It feels great pleasure in serving each other, its customers and its communities. It improves its functions continuously. It values a sense of urgency .it puts emphasizes on new and entrepreneurial approach to business. It looks forward for fairness and mutual respect an all activities. It knows that its success depends upon the initiative it takes individually and its ability to work as a team. (http://www.subway.com/StudentGuide, 2006)

VISION

Fred DeLuca's vision is of a far-off land. It means to open Subway franchisee in different countries. (Case study)

Segmentation, targeting and positioning strategies

INTRODUCTION

According to Dibb, S. and Simkin, L.(1996)Market segmentation aims to identify groups of customers with similar needs and purchasing behavior, allocating them to market segments; select which segments to target; develop market programs which convey the desired brand positioning.

SEGMENTATION STRATEGIES

According to Pizam, A. (2005, p.412) to be viable, a market segment must meet several criteria. It must be measurable in terms of size and identifying characteristics. It must be meaningful i.e. differentiable from other segments and large enough to be served at a profit. It must be marketable i.e. reachable through reasonable marketing efforts given the firm's resources. Common bases for segmentation include geographic, demographic (age, education, income, occupation, gender, and ethnicity), psychographic (lifestyle, interests, and opinions), and behavioral (product usage or media usage). According to Reid, R.D. and Bojanic, D.C. (2009, p.143-144), there are three segmentation strategies: mass -market strategy, differentiated strategy and concentrated strategy. A mass- market strategy calls on a firm to develop one product- service mix that is marketed to all potential consumers in the target markets. According to this approach the market is homogeneous and everyone has same needs and wants. One type of marketing program is developed, as all consumers are alike. A differentiated strategy calls on a firm to appeal to more than one market segment with a separate market program for each segment. This approach helps in capturing the several different smaller segments and by this way helps the firm in increasing the sales and market share. Each of the market programs is tailored to the specific needs of a market segment. A concentrated, or focused, strategy calls on the organization to develop modifications of one or more products- service mixes that are marketed to one or relatively few market segments with limited changes in the marketing program.

TARGETING STRATEGIES

According to Wilson, R.M.S. and Gilligan, C. (2005,p.353-354), the way in which an organization or a brand is perceived by its target markets is determined by a series of factors such as the product range, performance, price, distribution networks, advertising, promotions, customer profiles, word of mouth, customer's experiences and media used. According to Pelsmacker, P.D. and Geuens, M. and Bergh, J.V.D. (2005, p.62-63), there are five types of targeting strategies. Concentration on one segment: organization chooses one segment and develops a marketing mix for that segment. Selective specialization: an organization chooses a number of segments that looks attractive. There is no similarity between the segments but every segment looks advantageous. Product specialization: an organization concentrates on one product and sells it to different markets. Market specialization: an organization concentrates on one market segment and sells different products to that group of customers. Full market coverage: an organization concentrates on all customer groups with all the products they need.

POSITIONING STRATEGY

According to Sandhusen, L. R. (2008, p.308), a product's position is its brand image with respect to competing products- the way the product is competitively defined by consumers on key attributes. According to Wilson, R.M.S. and Gilligan, C. (2005, p.355), Process of positioning involves three steps: identifying the organization or brand's possible competitive advantages, deciding on those that are to be accentuated and implementing the positioning theory. Pelsmacker, P.D. and Geuens, M. and Bergh, J.V.D. (2005, p.64-65), Different positioning strategies are product attributes or benefits, price / quality, use or application, product class, product user, competitor and cultural symbols. Positioning by product attributes and benefits is based on a unique selling proposition which makes a company's brand or product special for the target market. Positioning by price /quality means to offer the same or better quality at a lower price than competitors. Positioning by use or applications implies emphasizing a specific use one application of the product. Positioning by product class is an alternative to positioning against another brand. Positioning by product user is associating a product with a specific group of users. In positioning by competitor, comparative advertising is used. Cultural symbols refer to brand personalities for branding services.

SUBWAY RESTAURANT'S STRATEGIES

Subway restaurant is following differentiated strategy as it is targeting more than one market segment. According to case study, Subway Restaurants has identified its target segments as adults between the ages 18-49. This is demographic segmentation. According to Pizam, A. (2005, P.412), this age group is heavy fast food user and eat quick meals (behavioral) and seek good-tasting options (psychographic and benefits sought). According to Kelley, L.D., Donald, and Jugenheimer, W. (2006, p.9), Subway sandwich chain has staked out a position as a healthy alternative to other fast food burger fare. The Subway spokesman, Jared, lost many pounds eating Subway sandwiches and is a great demonstration for that healthy - fast- positioning. Nguyen, M. (2005) reports that De Pasquale creative director, Cos Luccitti, said the strategy was pinned on reinforcing Subway's position as the original healthy and low-fat fast-food restaurant in the face of competitors such as McDonald's, Hungry Jacks, Red Rooster and KFC adding healthier options. According to Reid, R. D. and Bojanic, D.C. (2009, p.146), Subway uses slogan "eat fresh" to focus on food quality.

CONCLUSION

Segmentation strategy used by Subway is differentiated strategy. Its target is age group of 18-49. It has positioned itself as healthy fast food restaurant. Targeting strategy used by Subway restaurant is market specialization.

Marketing strategies (use strategic tools to choose marketing strategies).

INTRODUCTION

(FAQ, 26)Subway restaurants' goal is to be ranked the number one restaurant by consumers and number one in restaurant count in every market that we serve. According to case study, aim of current marketing, advertising and public relations campaign is to support the growing number of Subway outlets and boost the brand's profiles. According to Piercy, N. (2002, p. 455), there are two sources or competitive advantage -low cost and differentiation. This leads to the identification of three strategies. Adcock, D., Halborg, A. and Caroline Ross, C. (2001, p.410), Michael porter identified three generic strategies. According to Michael management of every organization must accept the need to select and follow one of these strategies to be effective with in a competitive market.

Michael porter's model for industry analysis

According to Dibb, S. and Simkin, L.(1996, p.77),Michael Porter considers the competitive arena to consist of competing organizations jockeying for position in an environment determined by the threat of entry by new entrants, the threat of substitutes, the bargaining power /threat of buyers and the bargaining power/ the of supplier. The bargaining power of suppliers- the degree to which a particular supplier impacts on the situation depends on the availability of alternative suppliers and product substitutes. The bargaining power of buyers -high buyer bargaining power usually occurs in industries where suppliers' power is low and where large volumes of standardized items can be readily be sourced elsewhere. Threat of substitute products or services- a proliferation of substitute products with in an industry can limit the growth potential and long- term profits. Threat of entry by new entrants- new entrants in the market give increased capacity which can limit the market share or profits of existing competitors.

The bargaining power of suppliers will affect less to Subway because there are many suppliers of raw material required for food preparation. The bargaining power of buyers could affect the business environment of Subway as there is much competition among Subway and other food zones. The threats of substitute to Subway are convenience shops, health food shops, mid- range restaurants and pre- cooked food. Threat of entrants could be new fast food restaurants. Competitive rivals for Subway could be McDonalds, KFC, and other new entrants. There can be price war among these food places.

Porter's three generic competitive strategies-(Wilson, R.M.S. and Gilligan, C. (2005, p.387-)

Porter's thesis is straightforward: to compete successfully selection of a generic strategy is must. Porter identified three generic types of strategy- overall cost leadership, differentiation and focus.

Overall cost leadership- by pursuing this strategy of cost leadership, the organization concentrates upon achieving the lowest costs of production and distribution so that it has the capability of setting its prices at a lower level than its competitors. Cost leadership requires aggressive construction of efficient - scale facilities, strong quest of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like research and development, service, sales force, advertising, and so on.

Differentiation- by pursuing this strategy of differentiation, the organization gives emphasis to a particular element of the marketing mix that is seen by customers to be important and, as a result, provides a meaningful basis for competitive advantage. This can be achieved by the creation of strong brand identities, consistent pursuit of those factors which customers perceive to be important, greater flexibility, higher service levels, speed of distribution, and the achievement of cost parity or cost proximity relative to its competitor and so on.

Focus-- by pursuing this strategy of focus, the organization concentrates its efforts upon one or more narrow market segments, rather than pursuing a broader- based strategy. By following this strategy the organization builds a greater in -depth knowledge of each of the segments, as well as creates barriers to entry by virtue of its specialist reputation.

According to Doole, I. and Lowe, R. (2005, p.294), franchisor is a way of exploiting a successful business formula with considerable benefits to the franchisor and franchisee. It is a low risk method of setting up a business for the franchisee and is a way for the growth of the franchisor. According to Alon, L. (2006, p.47), Franchising concept is a standardized marketing strategy; it is a force that continues to push for/ look for cultural commonalities.

Subway's strategy

According to Kotler, P. and Keller K. L. (2005, p.319) Subway differentiates itself in terms of healthy sandwiches as an alternative to fast food. Atwater, D. and Suzuki, S. (2006), Subway used the campaign illustrating the benefits Subway food products. Subway used Jared Fogle for campaign. Subway continued its campaign with F.R.E.S.H. steps. Subway offers food for kids even. Andreasen, A.R. (2005, p.185), in fast food industry, a concentration on nutritious offerings can offer a clear basis for differentiation. The Subway franchisee chain has positioned itself as the healthy fast food outlet. Subway took advantage of the concern of parents regarding childhood obesity. F.R.E.S.H. campaign is feel, responsible, energized, satisfied and happy. Subway franchises present Kid's Pak with deli sandwiches and other branded products, such as Minute Maid 100% juice fruit punch, that are less unhealthy than the regular fast food Kid's meal.

CONCLUSION

Among Porter's 3 strategies Subway is using differentiation strategy. It has positioned itself as healthy food provider. It pushes its commonalities by expanding its outlets with the concept of franchisee. Franchisee is a standardized marketing strategy.

Marketing mix with a special focus on Branding strategy.

INTRODUCTION

According to English, J.W. (2003, p.165), the marketing mix refers to the operational components of the marketing strategy. Marketing mix is described as four Ps. Marketing mix is just like the baking of cake. Marketing strategy is recipe and four Ps are ingredients. As there are different ranges and flavors of cake to suit different tastes, there are different marketing mix's to suit different marketing objectives. The key is to select that marketing mix that is helpful in the access of least expensive and direct way to target market. According to Hollensen, S. (2009, p.296), Booms and Bitner in 1981 considered three extra Ps in case of services. These three Ps are vital in the delivery of services. According to Gelder, S. V. (2005, p.1)Brands are formed, motivated and applied by people working in the organizations seeking to build valuable experiences for their customers that will provoke behavior beneficial to the organization.

MARKETING MIX

Lancaster, G. and Reynolds, P. (2005, p.40), the idea of 'four Ps': product, price, promotion and place were suggested by McCarthy. The figure below represents how the marketing mix can be utilized. A marketing strategy takes the tools of the marketing mix and assigns to them variable degrees of importance that market considers appropriate to a given set of circumstances.

The marketing mix-available marketing tools to target customers

According to Reid, R. D. and Bojanic, D.C. (2009, p.17), the Price element of marketing mix refers to the value placed by a firm on its products and services. Price decisions involve pricing the product line, discounting strategies, and positioning against competitors. The product element of the marketing mix refers to the unique services offered by the organization to the consumers or customers. Product includes both tangible and intangible elements of the service offering. Product decisions involve product attributes such as quality, warranty, and guaranty, the number and types of products and services offered by the organization. The place element of marketing mix refers to the method by which products and services are delivered to the customers. This element is also known as distribution. It involves decisions related to the location of facilities and use of intermediaries. Marketing of services includes the decision regarding customer involvement in the production process. The promotion element of marketing mix refers to the methods used to converse with the customers. It includes advertising, personal selling, sales promotion and publicity. These are the ways by which the organization communicates its premeditated messages to customers. The decisions involve the amount to be spent on each component of the promotion mix, the strategies for each of the components, and the in general message to be sent.

Third P of marketing mix (Seven Ps of services marketing, 2007) is Place in which the services will be distributed. Delegation of services can be in the form of franchising. It involves expanding the delivery of services to multiple locations by outsourcing the services to a franchisee. Franchisees get the advantage of using an established brand without having to invest in the brand building of the product. According to Oh, H. and Pizam, A. (2008, p.80), additional 3 elements of marketing mix are Physical evidence, participants/ people and process. Physical evidence-this element includes the atmosphere of the service operation and any tangible evidence used to market the product. Participants/ people- this element recognizes that people are part of the service production and delivery process. Service firms must train their employees, educate their consumers, and manage consumer expectations. Process- this element deals with the delivery of the services to consumers and includes process design elements such as franchising policies, and employee training procedures.

SUBWAY RESTAURANT'S MARKETING MIX

Product - subway is a chain of franchisee restaurants. It sells sandwiches and salads. Sandwiches are made in front of the customer. Sandwiches are made according to the taste of the customers. Prices of all the food items sold or offered by Subway restaurant are reasonable. These are not high or low. Place - According to case study, Subway restaurants are adaptable to any type of location. It has ability to fit into spaces where other restaurants can not fit such as airports, hospitals, schools, convenience stores, stadiums, business centers, amusement parks, supermarkets etc. According to Cooper, S. W. and Grutzner, F.P. (2008, p.14), Instead of locating on free-standing locations, Subway aggressively partnered with interstate filling stations, fitness centers, school cafeterias, and other nontraditional locations. Promotion- According to national advertising, http://www.subway.com/StudentGuide/ , Subway is promoting its brand on the 'freshness' platform and 'tasty' and 'healthy' food. Majority of advertising is done via national TV during prime time, sports and late programming on major broadcast networks. Advertising is also done via local markets on TV, radio and in print. It also promotes advertising messages and specials in-store with point -of-purchase material such as posters, menu translates, etc. According to Parsa, H. G. and Kwansa, F. A. (2002, p.29), subway donated free food to students who participated in arts programs in 1998. Physical evidence-According to Oh, H. and Pizam, A. (2008, p.80), Subway promotes itself as providing fresh food that is healthy. Participants/ people- (FAQs-14), food safety and handling knowledge is provided to the employees. According to Parsa, H. G. and Kwansa, F. A. (2002, p.25), Subway encourages consistent friendliness and attention to customer service. Subway has representatives to hear customer complaints. According to case study, the Subway chain provides the great tasting food made as the customer want it. Process- (FAQs-15), two- week training course is provided to each franchisee candidate. In this course, business concepts, methods of operation and basic management skills are taught. Hand- on experience is also provided.

BRAND (concepts and strategies of brand management)

Brands provide value to companies as well as to customers. Top brands earn greater market share, so the companies promoting them get economies of scale and premium prices. To customers, brands provide assurance of quality.

Co- branding is when two or more brands come together to create or promote a product or service. It is partnership of two brands, which reinforce each other. It is used to generate additional market share and ultimately increases the revenues of the companies. Co- branding is undertaken for capitalizing on partner brands equity, maximizing brand extension success rates, extending the usage of brands and for reinforcing the image of a brand.

There are six brand management strategies or models.

  1. Line brand model-using this model companies create a single product and then offer complementary products, or create one product and offer its variations. This way, companies can reduce their launching and advertising costs. Also, the brand becomes stronger because the new products complement or increase the range of the main product.
  2. Range brand model-it is the extension of the line brand model. While the line brand model focuses on products that complement or enhance the main product, the range model groups in the same area of competence. It has same advantages as the line brand model.
  3. Umbrella brand model-by using this model, a variety of unrelated products is marketed using the same brand name.
  4. Source brand model-it is used by companies that are brands in themselves to create products that also have a brand name.
  5. Endorsing brand model- it is similar to source brand model, except that here, product brands are independent from parent brands.
  6. Product brand model-in this model companies create different brands for different products.

SUBWAY RESTAURANT'S BRAND STRATEGY

According to Prideaux, B., Moscardo, G. and Laws, E. (2006, 74-76), Co branding can be in hospitality and non-hospitality centers. Subway sandwiches and salads opened over 1700 outlets in convenience stores. Subway sandwich and little Caesars Pizza co branded together to increase the sale. Taco time and Subway and A and W combined menu choices and attracted both male and female consumers and increased meal time offerings. According to Parsa, H. G. and Kwansa, F. A. (2002, p.22), Subway has started to serve its sandwiches on Ansett Australia airlines. It has teamed up with the cartoon network.

Subway is using range brand model.

CONCLUSION

Subway is using all the components of marketing mix but mainly product mix. Subway is following Range brand model of brand strategy.

Recent and future changes in marketing environment and Subway

Parsa, H. G. and Kwansa, F. A. (2002, p.76-77), Consumer's needs for healthy food and fresh food are changing. In response to this several sandwich chains appeared in the market. Subway took advantage of this emerging trend of healthy menu offerings. Consumers are concerned with the healthy food but still they look for tasty food. What type of change will come in the taste of customer, one can not judge. According to Mercer, D. (1998), Future forecasts are uncertain and must be considered as such. Uncertainty must not become an excuse to avoid making decisions and taking actions. These decisions are necessary to decrease the effect of surprises given by the future. According to Prideaux, B., Moscardo, G. and Laws, E. (2008, p.82), Co - branding has a very bright future in hospitality industry. Irrespective of the economy changes, businesses continuously look for the new methods and co branding looks like to be a very rational answer. The cost of real estate is increasing; demand for ease is increasing in the consumers. Use of technology and trend of mergers, alliances and joint ventures is also increasing. All these contribute to the future demand for co-branding. Service industry is also booming these days.co branding will become a normal way of combining two or more units. It will find applications in 'brand extension' activity.

(http://www.subway.com/subwayroot/AboutSubway/timeline.aspx ) subway restaurant sponsored the Little League Baseball World Series, held in Williamsport, Pennsylvania. In 2007 Subway restaurant chain launches its FreshFit and FreshFit for Kids meals. The FreshFit launch teamed Jared Fogle and musician LL Cool J on a double-decker bus for a TV and print media event in Times Square, New York City, while 150 SUBWAY brand ambassadors awarded bicycles and thousands of SUBWAY Cash Cards to consumers and spectators for their "random acts of fitness" - such as climbing stairs or power-walking. During 2007 and 2008, the SUBWAY chain co-sponsors NASCAR driver Tony Stewart and his new #20 Toyota for the Joe Gibbs Racing Team. Tony notched sixth place in the 2007 NASCAR official driver standings, and charged to a third place finish at the 2008 Daytona 500.

According to case study, specialists in SUB sandwiches and salads, the Subway chain has experienced significant growth in recent years as a 'popular alternative' to other food options.

In future Subway can add more variety of healthy food menus. It can increase its mode of advertising, as the competition is increasing. It can try to increase the Co- branding, non traditional sites. It can try to decrease the saturation.

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