Marketing and Corporate Initiatives that Build a Better World - Case Study Example

?International Fast Food Company “Subway” and its products A brief intro about company and its products: Subway Subway brand of restaurants is owned and operated by Doctor’s Associates Inc. (DAI). The company was founded in 1965 with locating headquarter in Milford, CT. After opening up 16 individual Subway shops on its own, DAI began franchising its shops in 1974. Since that period, Subway has expanded its business up to 40,975 restaurants in 103 different countries. Such a global expansion has resulted in the estimated market share of 3.5%, and over 250,000 people working globally in Subway restaurants. The key products offered in Subway include: custom sub sandwiches, salads, soft drinks and some other food items (Ibis Report 2013). Company’s rational behind internationalization The company’s strategy is based on the aggressive international expansion worldwide. Internationalization decision is mainly based on the business growth opportunities offered by rapidly growing markets. Subway will continue to expand internationally, especially in emerging economies as it is likely to be the largest source of profit and revenue growth (Ibis Report 2013). Today, these markets include markets not yet saturated with fast food brands (Russia, the United Arab Emirates, Brazil, China, India (Fertman n.d.). Mode of entry-selection of market entry strategy to enter into various countries Subway restaurants chain has chosen franchising option as a mode of entry strategy for starting business in various countries. Initially, the Subway chain did not even select new countries to expand into, as entrepreneurs from these countries contacted Subway (Welch et al, 2008). The original foreign entry in 1986 had a following typical format: individual entrepreneurs contacted the restaurants chain from a country where there were no Subway locations, and then the development team worked together with the entrepreneur, providing assistance in opening a franchise restaurant under Subway brand (Welch et al, 2008, 61). Thus, the company transferred the method of operation to the franchisee and had a much greater degree of control over its marketing efforts in a foreign market (Lecture notes). However, nowadays, Subway is also searching actively for new markets. Business Development department of Subway determines which markets would be appropriate to entry by evaluating a number of factors, including: the cost of doing business, the GDP, fast-food development and some others, etc. By operating as a franchising chain, Subway as a franchisor experiences less risks and is capable to penetrate various markets very rapidly. Besides the obvious benefits and advantages of the franchise concept, Subway is imposed to certain risks as well. The value of the brand, either increasing or decreasing will have effect on the franchisee competitiveness. Franchisee of Subway has a number of responsibilities, including: initial franchising fee, finding locations, hiring employees and operating restaurants, leasehold improvements and equipment and paying a fee into the advertising fund and 8% royalty to the company (Subway Global Brochure 2013, 4). Subway also has certain responsibilities, such as: providing access to operational systems, guidance on store design and equipment ordering, operations manual, training program, R&D, ongoing support and periodic audits, and informative publications (Subway Global Brochure 2013, 4). The marketing mix strategies adopted by the company There are recognized several key elements of international marketing mix, including: product support, price support, promotion/selling support, inventory support, distribution support, service support, and financial support (Lecture notes). Below are briefly evaluated all these elements with a reference to Subway restaurants chain. Product support. Even though the product line and customer service are standardized among all Subway restaurants as it is common for any franchising chain, there are cultural and local eating habits in particular country that require adaptation and local adjustment. Varying by country, Subway still offers sandwiches but they are very much changed from what was originally intended. There are store option programs which enable the store itself offer a local sandwich (Fertman n.d.). Thus, despite the standardization approach, a store owner can offer something special as long as it is made of appropriate ingredients and works positively for the company’s image (Fertman n.d.). Sometimes even the entire markets promote something special to the country in which the franchises operate (for example, pastrami with potato and salad) making thus Subway products demanded among local citizens (Fertman n.d.). Promotion/selling support. The company operates through franchising outlets, and is selling its products through the franchisees. Inventory support. The company has achieved economies of scales in such regions as Europe, as it is relatively easy to ensure inventory support from border to border within the European Union (Fertman n.d.). Thus, for example, the company has one or two suppliers for a number of countries (Fertman n.d.). In case, the company is not able to get something locally, they import either from the United States or from another country through a purchasing co-op that works with vendors (Fertman n.d.). If there is no purchasing co-op in certain countries, inventory support is provided through the regional office (Fertman n.d.). Distribution support. Subway operates through franchising and is continuously looking for local entrepreneurs and developers (Fertman n.d.). Service support. Subway provides significant support to its franchisees, by training its employees. Financial support. The company’s financial support comes from a fee made by franchisees and 8% royalty to the company. Product. Subway has product adaptation strategy, as there are cultural and local eating habits in almost every country and some products/ingredients require adaptation and local adjustment. Price. Subway has follows price skimming strategy, as it features items that are five times the cost of dollar-menu entrees, such as McDonald’s McDouble and Burger King’s Junior Whopper (Smith,.n.p.). However, later the company tends to lower its prices. Place. The company operates in 103 countries worldwide. Subway franchisee owned Independent Purchasing Cooperatives or Companies (IPCs) are responsible for procuring the products, ingredients, equipment, supplies and services used in the Subway restaurants (Subway website, n.p.). Promotion – healthy products alternative to typical fast food, Jared Fogle image, Five Dollar Footlong promotion, etc. Brand positioning and advertising strategy Even though Subway Restaurants Brand is referred to the Fast Food industry, the company markets itself as a provider of healthy products alternative to typical fast food (Ibis Report 2013). With the international growth, Subway has increased notably its marketing campaigns focused on healthier demographic. In 2002, the company has introduced its current slogan “Eat Fresh”, and by this, has highlighted its use of fresh ingredients and freshly baked breads in sandwiches (Ibis Report 2013). Thus, Subway has differentiated itself and its brand from other fast food establishments and gained significant competitive advantage among others. In order to capitalize on this characteristic, in 2000, Subway launched its advertising campaign with Jared Fogle, who has connected weight-loss success with a diet of Subway sandwiches (Ibis Report 2013). During 2000s, the ad campaigns with this spokesman caused immense growth and popularity of Subway. However, in 2008, sandwich franchiser shifted to Five Dollar Footlong promotion (number of variations of this theme were adjusted to different countries) (Ibis Report 2013). Due to this campaign, Subway has managed to attract new customers and to increase its sales significantly. Till today Subway positions itself as a healthy and fit fast food company. Some other advertising and promotional strategies include: Subway Fresh Fit and Subway Fresh Fit for Kids meals(six-inch sandwichesd low in fat or saturated fat and cholesterol, and with low calories) (Kotler et al 2012). The company has made specific focus on calories ensuring that none of its core six-inch sandwichies exceeds a limit of 600 calories. With its nutrition-focused positioning, Subway have launched nutrition calculator on its website, and was the first among the fast food operators, who posted calories on New York City menu boards (Kotler et al 2012). In 2011, the company has become a national sponsor of the American Heart Association’s Start Working initiative. Subway promoted itself as a socially responsible company, focused on sustainable development (Subway Global Brochure 2013). Advertising strategy. Target audience of the Subway is young generation focused on proper nutrition and conscious on their health. These include: both single and married people, families with children and adolescents. As Yeshin (2005) states, Subway follows a psychographic segmentation strategy with a clear focus on attitudes, interests and opinions as well as ligestyles. The company focuses on the soft sell aproach towards the nutritional value but on the hard sell approach towards the functional benefits and attributes of the menu (Moeen, n.d.). How social and cultural factors have significant impact on target market in an International environment Social and cultural factors have a critical impact on target market in an international environment for practically any company, and Subway is not an exception. While some of these factors have indirect impact, others might result in company’s failure. These might include: failure to adopt the product/service in accordance with the culture and traditions, lifestyle, health awareness, and/or eating habits. Social factors Subway, operating in food industry, automatically faces the challenge of national food/products preferences and even stereotypes. As Subway’s director of development, Don Fertman, has explained, “sometimes people are almost afraid to ask”. But what is even more important that sometimes employees were shy to offer the company’s products. These social barriers have been removed or loosened by extensive training and coaching programs for the Subway workers. As not always customers know about Subway, the company also puts some efforts to educate people on the benefits of eating sandwiches (Fertman n.d.). Actually, Fertman explains: “It’s kind of starting from the ground up to provide the idea of putting meat between two pieces of bread and making a meal out of it” (Fertman n.d.). Cultural factors Food habits vary from country to country and are critical to the success of any food company. Food is a culture, and it relates not only to the ingredients and products menu assortment but also to the way food is consumed, in what manner, what time people prefer to eat and where. All these factors are part of any culture and should always be taken into consideration by Subway. (For example, halal food in Muslim countries). Factors, which influence the decision in developing distribution channel internationally The decision in developing distribution channel internationally is influenced by the opportunities of revenue growth from international locations (Ibis Report 2013). Some other factors influencing decision of fast food operator to develop distribution channel internationally include: the potential market size, industry size and growth (shift to household outsourcing of home meals and cooking), demographic factors (particularly the share of younger age groups), economic factors affecting growth in household disposable income (unemployment rate, growth of labor market, changes in interest rates and taxes). Thus, by evaluating all these factors and trends in particularly country, business development managers consider options for entering it. Subway’s marketing strategy in China Subway entered China in 1995, when the demand for fast food business in this Asian country was growing. By today, Subway has managed to build a foundation in big cities such as Shanghai and Beijing and now is looking at second-tier Chinese cities (Haiyan 2011). When the company was entering the market, the Chinese were alien to the American way of ordering and eating a sandwich and at the same time were aware of the rising obesity concerns in the country due to high calorie Western fast foods (Sujatha 2005). Before the company has established firmly its brand in China, Subway had to alter its menus to the Chinese palate as did any other international company operating on the mainland. As Luo Bingling, who operate a Subway in Beijing said: “Subway should have at least one item tailored to Chinese tastes to show that they are respecting the local culture” (Haiyan 2011). Thus, for example, Subway was experimenting with various sauces like a spicy Sichuan sauce and Beijing roast duck sandwiches. In addition to menu adaptation in accordance to the local tastes, Subway also was considering slashing prices for its sandwiches, providing printed signs to explain the processes of ordering a Subway sandwich, etc. (Haiyan 2011, Sujatha 2005). Conclusion Subway restaurants chain has chosen franchising option as a mode of entry strategy for starting business in various countries. This strategy can be ranked as “successful” as today the company’s 40,975 restaurants are open in 103 countries worldwide. By operating as a franchising chain, Subway as a franchisor experiences less risks and is capable to penetrate various markets very rapidly. Besides the obvious benefits and advantages of the franchise concept, Subway is imposed to certain risks as well. The company overcomes various international risks having enough flexibility to adopt its marketing strategies to specific country or culture. Subway has product adaptation strategy, as there are cultural and local eating habits in almost every country and some products/ingredients require adaptation and local adjustment. The fast food retailer follows price skimming strategy and offers healthy products alternatives to the typical fast food. Target audience of the Subway is young generation focused on proper nutrition and conscious on their health. The case study of Subway in China has revealed some of the key marketing principles that are continuously applied in many other countries, the key of which is localization of menues. References: Fertman D., interviewed by Chancey B. , n.d. “How Subway went global”, http://www2.qsrmagazine.com/articles/interview/138/don_fertman-1.phtml Ibis Report, 2013. “Global Fast Food Restaurants”, Ibis World Industry Report G46210GL. Kotler, P., Hessekiel, D., Lee, N. 2012. Good Works! : Marketing and Corporate Initiatives that Build a Better World...and the Bottom Line, e-book, accessed 21 December 2013. Lecture Notes 2013 Moeen, H. “Marketing Maniacs.” Marketing Strategy in Subway. N.p., n.d. Web. 05 Jan. 2014. . Sijuatha, Phani 2005 "Subway in China." 2005. Web. 05 Jan. 2014. . Smith, Daniel P. "Wendy's, Subway Slash Prices." New Fast Food Pricing Adds More Value Options. N.p., n.d. Web. 05 Jan. 2014. http://www.qsrmagazine.com/exclusives/wendy-s-subway-slash-prices Subway Global Brochure. 2013. [e-book] n/a: Subway. p. 4. Accessed: 21 Dec 2013, http://www.subway.com/subwayroot/own_a_franchise/brochure/docs/english-global.pdf Subway Website." Sustainable Sourcing. N.p., n.d. Web. 05 Jan. 2014. http://www.subway.com/subwayroot/about_us/Social_Responsibility/SustainableSourcing.aspx Welch, L., Benito, G. and Petersen, B. 2007. Foreign operation methods. Cheltenham, UK: Edward Elgar. Yeshin. T., 2005, ‘Advertising’, Cengage Learning EMEA, pp. 112 – 140. Read More