Marketing strategy Multinational fast food restaurant chain Marketing strategy of Subway

Offering healthier alternative to traditional fast-food chains

 

Introduction

Subway is a multinational fast food chain started in 1965 with annual sales of $6.5 million and more than 30,000 units worldwide. It started by offering healthier, fresh, custom-made sandwich which offered a healthier alternative to that of the traditional fast food chains such as Kentucky fried chicken, McDonald’s, Pizza Hut etc. The concept of the product of Subway was to offer freshly prepared sandwich from fresh ingredients right in front of the customers has proven to be a winning marketing strategy in the United States and many European countries. The health-conscious customers were attracted to the healthier alternative provided by Subway and the customer’s responses are indicated by the growth of the fast food chain in the developed countries. Subway has also expanded into a lot of developing nations; however it has not been able to deliver a fast paced growth similar to that of the rivals such as KFC and McDonald’s. One of the negative factors of Subway is considered as the lower brand awareness among the consumers and their unique product offering mainly in developing nations (Boone and Kurtz, 2011).

Report overview

The objective of the present report is to identify and evaluate the present marketing strategy of Subway and to analyse the strengths and weaknesses of the existing marketing strategy. Further in the report based on the weaknesses and threats of the existing marketing strategy an alternative or an enhanced strategic approach will be developed particularly for the expansion process into the developing nations. Hence the report is divided into two sections where the first section is evaluating the present marketing strategy, the value creation process and the advantages and disadvantages of the healthier diet concept offered by Subway. The first part of the report evaluates the marketing strategy by using swot analysis, pest analysis, and five forces analysis and by evaluating the product positioning, promotions, pricing and several other marketing parameters. The second part of the report uses case studies and appropriate theories to develop an alternative strategy for increasing the market share, profitability, value creation and sustainability of Subway in the developing nations.

Background of organisation

Subway, similar to other multinational fast food restaurant chains have grown based on the franchising system where low levels of capital investment attracted many franchisees. Subway has seen enormous growth in the United States from the start in 1965, has won several awards, and rewarded the investors. According to industry analysts Subway plans to open more than 20,000 restaurants in Europe to cater to the health-conscious customer, develop its branding strategy, and promote the brand awareness among the health-conscious customers. Subway with its franchising system is competing with other fast food chains which are offering quick service and fast food, however with healthier meals in the menu and concentrating on nutrition and healthier diet. According to Pride and Ferrell, (2010), out of all the fast food chains which has worldwide presence, Subway is considered as the market leader offering healthier and nutritional fast food to the customers.



Part one

Analysis of present market strategy

Swot analysis of Subway

Strengths

Subway has expanded with numerous stores, healthier diet options in the menu, partnership with several associations and organisations promoting health consciousness, customising the menu options and offering low franchising cost (Boone and Kurtz, 2011). One of the unique propositions of Subway is to use only fresh ingredients in the food it prepares in front of the customers and offering customised food rather than prepared food based on fixed menu. Subway has used non-traditional channels to expand and develop awareness about its brand equity among the customers. Its association with several organisations and associations promoting health consciousness is one of its unique strengths.

Weaknesses

The recent past has seen rebranding of Kentucky fried chicken, McDonald’s and several other fast food chains and comparing to them, Subway has an outdated branding concept. Subway has been unable to expand considerably when comparing to the competitors mainly because of the lack of brand awareness among the customers (Lamb, Hair and McDaniel, 2008).

Opportunities

As with any other fast food chain with brand equity, Subway has also opportunities to grow at a global level through the franchising system. The health consciousness’s of consumers are increasing and many are attracted to the nutritional and healthier food offered by Subway. There are opportunities existing in different formats of fast food business such as drive through and full-service.

Threats

Since Subway concentrates on nutrition and health consciousness, any kind of negative news could impact the brand equity. Competition is fierce in the fast food segment and the rivals are having higher brand equity.

Pest analysis

Political factors

The political factors affecting Subway are the health regulations where Subway has an advantage. Many organisations and consumers are deriding the fast food concept and the utilisation of genetically modified food which are of low quality and used by the competitors. Expansion into developing nations with different social and cultural parameters would require altering the menus and catering to the specific customer needs

Economic factors

The low franchising cost comparing to the competitors is an advantage for Subway. However the cost of ingredients and supplies used in the preparation of food is higher than that of the competition due to the need for fresh ingredients. Customers have a perceived value which is higher than that of the product offerings of alternate fast food chains (Friedrich, 2006).

Social factors

The social factors contributing to the growth of fast food chain are the changing lifestyles of the people and shorter timeframes to concentrate on healthy and nutritional food. The changing attitude of customers towards healthy and nutritional food is a positive for Subway. However in the developing nations the food and lifestyle concepts are not same as in the case of developed countries and Subway would have to adopt much more customisation of the food products to expand to these markets.

Technological factors

Information technology can be used to enhance the franchising system and adopt quality monitoring of the franchisees. The movement of advertising towards social networking channels can be used by Subway for the promotion of their unique product offerings to the customers.

Five forces analysis

Threat of new entrants

Subway itself has come up based on an alternative concept of health and nutritional food to that of the conventional fast food restaurants. There is always the threat of new entrants in the fast food restaurant segment. The foot products have a lot of differentiation, Subway is only concentrating on one particular area, and the threat of new entrants is high.

Threat of substitutes

The rise of healthy and nutritional food outlets is on the rise and full-service restaurants are also no offering healthier alternatives. The convenience stores are also able to develop their own small-scale restaurants which are acting as substitutes.

Power of suppliers

As Subway is concentrating on healthy and nutritional ingredients and fresh products, the source of suppliers are limited. Hence the power of suppliers is high for Subway

Power of buyers

Brand loyalty is getting diminished due to the entry of new outlets and alternative brands and the consumers are shifting towards alternative suppliers (Pride and Ferrell, 2010).

Competitive rivalry in the industry

There is high level of competition in the fast food restaurant segment which is branded. There is threat of price wars and the threat of new entrants into the market. However the consumer demand is increasing for healthy and nutritious food products.

Present marketing strategy of Subway

Based on the above swot, pest and five forces analysis it may be said that the marketing strategy adopted by Subway is to provide fresh, customised sandwiches based on consumer’s needs and requirements. The specific and unique product offering of healthier diet and nutritious products is an important aspect in the brand equity of Subway. For several years Subway has advertising themselves based on eating healthier food and by aligning themselves with several organisations and associations promoting health consciousness (Harrell, 2008). Subway has also aligned themselves with several social events and programs promoting health consciousness in the developed countries.



Subway is an example of developing a focus on a specific segment of customers based on demand factors, a developing trend and innovative products. The specific segment of customers is those health-conscious customers and the developing trend is the trend of healthier eating along with fast food concept (Reid and Bojanic, 2009). The innovative products are the customisation off the menu and the ability of Subway to provide several varieties of food products.

When analysing the success factors it can be seen that healthier menu options, consistency of the food quality, convenience provided to the customers (fast food) and the lower capital costs required for franchisees are the important aspects of the marketing strategy of Subway. The unique brand equity of lower levels of fat content in the foot products offered by Subway through the advertising of the weight loss of one of its customers (Jared Fogle) has developed high levels of consumer attraction to the food products offered by Subway.

Segmentation

A unique segmentation method is also adopted by Subway by the developing food products for different segments of the customers based on demography, geography, and behaviour and psychographic. The segmentations are based on age where there are meals for kids, office goers and elderly. The food products are also customised based on income levels and health consciousness. The customisation of the food products can be seen based on the geographic and lifestyle conditions also. An example is the halal sandwiches offered in many of the geographies where the customers insist for only halal food.

Targeting

When analysing from the aspect of targeting of the customers it can be seen that Subway is targeting the younger segment of the population who are health-conscious and the increasing trend of eating healthy food is being utilised by Subway in its marketing and promotional campaigns (Hsu and Powers, 2001). The website of the company includes lot of information about the nutritional aspect of the food products offered by the company.

Positioning and differentiation

Based on the concept of positioning, Subway has positioned itself separately from the other fast food chains by offering nutritious and healthy food products which can be customised based on the requirements of the customers. When analysing from the framework of Porter’s generic strategies, it may be said that Subway has taken a differentiation concept whereby the food products are differentiated from that of the conventional fast food restaurant chains (Rosenbloom, 2011). The pricing of the products are at the higher end of the scale and intended to promote unique value to the customers who are health-conscious and looking for quality service. The brand of Subway is positioned as the healthier option for fast food customers and it can be seen that it is positioned between that of a quick service restaurant and a full-service restaurant.

Unique value proposition

High levels of customer satisfaction through nutritious food products and high quality service are the unique value propositions for the customers. Subway has positioned its products based on the health and nutritional aspects which can be said to be positioned at a different level to that of the competitors (Siegel and Lotenberg, 2007). Subway is able to offer enhanced value proposition to the customers by providing healthier and nutritional food along with quality and similar to the food products offered by other fast food chain such as Burger King, Kentucky fried chicken etc. Customers of these fast food restaurants are getting attracted to Subway because of the unique value proposition. Hence it may be said that the healthier food option along with the service is the unique value proposition for the customers. Moreover the franchisees are trained to provide excellent customer service.

Part two

Strategic approach for expansion into developing geographies

This part of the report aims to develop and enhanced or alternative strategy for improving the market share, profitability, value creation and sustainability of Subway based on theories and concepts relating to marketing. Although from the first part it is seen that Subway has positioned itself with a differentiated focus on health consciousness and nutritious food, in order to expand into the developing nations where the trend of self-consciousness and nutritious food has not yet caught up with the customer’s lifestyle, it is necessary to develop an alternative strategic approach. Moreover the social and cultural factors of the developing nations has be considered in developing innovative products specifically aligned to the customer’s needs and requirements in these markets.



This part of the report is basically formed with recommendations about positioning, targeting and the development of innovative products in the developing countries. Although such recommendations are generated these are generate in nature. Sufficient care has been taken in order to evaluate the measurability, achievability, relevance and tangibility. However the specificity of the recommendations are not defined as they are provided to the company as a generic recommendations to be implemented in several of the developing nations.

Background

Unlike that of the developed countries, the Lifestyle and concept of healthier food have not caught up with the consumers in the developing countries (Harrell, 2008). Moreover many of the multinational fast food chains such as McDonald’s and Kentucky fried chicken have positioned itself as upscale quick service restaurants offering quality food with a high level of differentiation from that of the conventional food products available in these markets. Burgers and sandwiches are not the common food products consumed in developing nations especially in the Southeast Asian region.

Recommended positioning strategy

Even though in the developed countries such as Europe and United States, Subway is positioned between that of the quick service and full-service restaurant, in the developing countries, due to the price differential, the products of Subway would need to be positioned at the higher end of the market segment. In other words due to the pricing of products, Subway has to positioned itself as a niche restaurant rather than offering quick service and nutritious food. However healthy and nutritious concept is the main brand philosophy of Subway and hence this needs to be followed on in any of the markets it enters. The positioning strategy should be based on targeting the young segment of the population and with higher purchasing power.

Recommended targeting

The targeting strategy of Subway in the expansion mode to the developing nations should be different from that of the present targeting strategy. The psychographic segmentation and targeting should be the most appropriate where the customers social class, lifestyle and personality should be the basic elements of targeting. The fast food chains such as Subway offering differentiated products can be developed based on a differentiated focus approach with a target group of higher class of the society, upscale lifestyle and status of customers. Unlike in the developed countries, the stores of Subway in developing nations have to be in the upscale areas rather than distributed in different geographies. The franchisees can be provided to high-quality individuals and groups who have prior experience in providing and developing such retail outlets. The stores have to be located in upscale shopping malls and business areas. The specific target segment of the population would be families and individuals in the upper social classes.

Recommended innovative products

Based on the social and cultural parameters of the developing nations, innovative products have to be developed. Burgers and sandwiches are not the common food consumed by the customers in the developing nations. Particular stress and focus should be provided on geographic locations where vegetarianism and halal food concepts are prevailing. The burgers and sandwiches can be offered as differentiated products for the customers who would like to have some kind of differentiation. Along with burgers and sandwiches, Subway can also develop innovative products based on the social and cultural aspects of the developing nations.

Recommended Marketing mix

Price

The pricing of the product has to be at the upper levels of the spectrum and it should be based on the unique value proposition to the customers.

Promotion

Advertising through television and billboards should be the main method of promotion. A brand ambassador can be considered for promoting the organisation

Product

Innovative products should be developed based on the social and cultural attributes of the developing nations. Sandwiches can be offered to the customers as a differentiated product. The element of nutrition and healthy food should be one of the main elements of the products

Place

The location of the stores should be in upscale shopping malls and business areas.


 

Conclusion

The report is divided into two sections were the first section evaluated the present marketing strategy and the second section developed a strategic approach for expansion into the developing nations. It was seen from the analysis of the present marketing strategy that the unique value proposition to the customers is the healthy diet and nutritious food with an element of quick service. Subway has differentiated itself from the competitors by providing healthy food which is nutritious and custom prepared from fresh ingredients. This is the unique value proposition for the customers who are increasingly getting health-conscious. However in the developing nations such health consciousness and the concept of fast food restaurants have not caught up. Hence Subway can differentiate itself from the quick service restaurants by providing sandwiches which are a differentiated food product along with developing innovative products based on the social and cultural attributes of the different geographies.


References

  1. Boone, L. E. and Kurtz, D. L., (2011), “Contemporary Business”, 14TH edition, John Wiley & Sons publications
  2. Boone, L. E. and Kurtz, D. L., (2011), “Contemporary Marketing”, Cengage Learning
  3. Friedrich, C., (2006), “The Periodical Vehicle Routing Problem: Research Overview and Practical Application to a South German Fast Food Restaurant”, GRIN Verlag
  4. Harrell, G. D., (2008), “Marketing: Connecting with Customers”, 8th edition, Chicago Education Press
  5. Hsu, C. H. and Powers, T. F., (2001), “Marketing Hospitality”, 3rd edition, John Wiley and Sons
  6. Lamb, C. W., Hair, J. F. and McDaniel, C., (2008), “Essentials of Marketing”, 6th edition, Cengage Learning
  7. Pride, W. M. and Ferrell, O. C., (2010), “Foundations of Marketing”, 4th edition, Cengage Learning
  8. Reid, R. D. and Bojanic, D. C., (2009), “Hospitality Marketing Management”, 5th edition, John Wiley and Sons
  9. Rosenbloom, B., (2011), “Marketing Channels”, 8th edition, Cengage Learning
  10. Siegel, M. and Lotenberg, L. D., (2007), “Marketing public health: strategies to promote social change”, 2nd edition, Jones & Bartlett Learning
  11. Subway, (2011), “About subway”, Available online at http://www.subway.com/subwayroot/default.aspx

 



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