Spokane Area Professional Networking, Events and Business Development
Attention Franchise Owners: You have power too!
Amongst a sea of numerous substitutes and within an economy that has forced many Americans to rethink their purchasing decisions, Subway found themselves between a rock and a hard place. Subway is a national franchise that offers consumers a healthier choice for a beefier price. This is not always the winning equation in a price sensitive position. Consumers were not willing to part with an extra $2.50 for a healthier choice when they could purchase unhealthier food for less money. What Subway needed was a marketing campaign that rekindled the love for the All-American sandwich at the same time built the relationship to last beyond the promotional push.
The national movement began with a single alteration, in South Florida, where an individual franchisee owner who noticed that weekend sales at his two Subways were dreary. With that Stuart Frankel recalibrated one of the 4 P’s: Price. On Saturday and Sundays at his franchise locations foot long sandwiches would be sold for $5, a buck lower than the Monday thru Friday price, in hopes to boost sales.
The thought that occurs to me when shifting the price is overhead. One has to make sure that overhead is covered and a profit can still be rendered. Sandwiches are costly to produce and sell. Subway sandwiches are labor intensive; newly baked bread, fresh chopped ingredients and made to order. Traditional pricing promotions are loss leaders, owners will take a loss of the feature item’s price in hopes that consumer will purchase high margin items to gain a profit.
However, Frankel reported that with the original lowering of the price he was still able to cover his expenses and yield a profit. The key to this success is the increase in sales volume. Additional volume meaning more customers purchasing sandwiches, maybe even more “sandwich” (6 inch vs. foot long), than before the promotional campaign. With the additional sales volume due to the acceptance of the price pitch Frankel was able to higher two additional associates and still cover costs.
Customers responded astoundingly. The price tag of $5.00 fell within consumer’s psychological price point. Though in all truth the sandwich was in fact marked down roughly $1 the price tag of $5.00 was what the customer felt comfortable paying for a sandwich. At this time competitors such as KFC, Arby’s and Wendy’s did not have a “value menu” or a price sensitive option. McDonald’s, the reigning king of fast food, had their $1 Menu. Nonetheless, Subway did not see themselves in the same realm of McDonalds because of the product they sold; therefore McDonald’s pricing strategy was irrelevant. In my purchasing situation, if I have to need for a quick bite to eat, McDonalds and Subway normally don’t compete. If I am in the mood for something healthy I will prefer Subway. If I require something quickly or I feel like an unhealthy choice then my alternative will be McDonalds. Price points due pay a roll in the decision making. For example, Quizno’s is also a sandwich establishment where the total purchase ranges from $8.00-$10.00. However at Wendy’s you can purchase a combo meal for around $5.00. Depending on the circumstances and the mood, the price can make the verdict for me. Subway launching the “$5 footlong” campaign injected their restaurant name, logo, and stupid annoying jingle, into my consideration set when searching for a place to eat on a price-sensitive budget.
Due to the success of the campaign the top management in the Subway Franchise was notified. Yes, the promotion was lucrative in two small Subways in South Florida, but how would the campaign be accepted nationally? Subway’s top management still was not convinced and due to cynics Subway was forced to roll-out in the same geographical market, however now within 50 stores. The second P, Promotion, is what is awfully bizarre in the test market. One owner, Charlie Serabian, of 50 Subway restaurants in South Florida prepared homemade signs reading “ALL FOOTLONGS $5”. Seem outlandish? I would expect a franchise like Subway to properly roll out of test market equipped with proper promotion, decision criteria, controls, standards, and a time line. But no, makeshift signs hung by clear tape in 50 stores across Florida. The statistics did not lye though, sales in those 50 stores rose by 35%.
Most of the public credits Subway’s “$5 Footlong Song” to the success of the promotional push. However in the first 50 restaurants across Southern Florida they did not have a jingle. They did not have any form of formal advertising, just homemade signs in the windows. So the question I pose is; “would the $5 promotion be as much of a marketing phenomenon as it is today without the jingle and advertising?” One aspect of a great marketing mix is an exceptional product. Subway has a unique market niche with very few similar sandwich competitors. And the quality and value of their sandwiches is consistent across the board. However as we have learned in marketing all 4 P’s have to be in place for a successful campaign. Product, check. Price, check. Promotion, well we can all sing the song and do the hand motions. Place; do to the sensation of the marketing Subway opens up 40 new restaurants a week across the nation. This makes Subways almost as convenient as finding a Starbucks. So in the end it wasn’t just the promotion that set Subway apart from the rest of the market but all the P’s working together.
A reoccurring theme to this article was the importance of price. Above product, promotion and place; price has been crowned king in this economy. A company can spend ridiculous amounts of money promoting a fabulous product but if the price tag is extremely skimming then the campaign will never take off. A trend that I’ve noticed, that started with Subway and has continued into any product that is ‘low involvement’ purchasing is the inclination towards even pricing. Even pricing is when something is $5 or $8, odd pricing being $19.99 or $3.99 in hopes that the consumer reads the number from left to right and assumes the purchase is $3. In a price sensitive economy people are reading the whole price tag and are not swindled by odd pricing. Therefore marketers do not have to fidget with odd pricing and outlandish cost gimmicks. When consumers have less disposable income every purchase become high involvement and the fact that something is $5.99 and not $5.00 could make or break the purchase in some cases.
I do not believe that this practice demonstrated by Subway hinders or helps the marketing system, it merely changes the rules. Like fashion, trends rise and they fall. Trends such as odd pricing I suppose are on their decent as whole even pricing is rising. People are looking at the whole price tag, therefore odd pricing is losing its deception. I also trust that advertising of price is the most powerful promotion in the economy today. Purchases are ‘made and broken’ on the price factor due to skinnier margins in disposable income. True, is communicating the benefits of a product valuable? Yes. However if price is the company’s competitive advantage I would pick that as the strong suit to promote. I also have faith that price promotes itself. When a consumer finds an excellent value for a terrific price they are going to tell everyone they know. Therefore a hefty sum of the marketing budget can be saved due to word of mouth advertisement.
The national movement began with a single alteration, in South Florida, where an individual franchisee owner who noticed that weekend sales at his two Subways were dreary. With that Stuart Frankel recalibrated one of the 4 P’s: Price. On Saturday and Sundays at his franchise locations foot long sandwiches would be sold for $5, a buck lower than the Monday thru Friday price, in hopes to boost sales.
The thought that occurs to me when shifting the price is overhead. One has to make sure that overhead is covered and a profit can still be rendered. Sandwiches are costly to produce and sell. Subway sandwiches are labor intensive; newly baked bread, fresh chopped ingredients and made to order. Traditional pricing promotions are loss leaders, owners will take a loss of the feature item’s price in hopes that consumer will purchase high margin items to gain a profit.
However, Frankel reported that with the original lowering of the price he was still able to cover his expenses and yield a profit. The key to this success is the increase in sales volume. Additional volume meaning more customers purchasing sandwiches, maybe even more “sandwich” (6 inch vs. foot long), than before the promotional campaign. With the additional sales volume due to the acceptance of the price pitch Frankel was able to higher two additional associates and still cover costs.
Customers responded astoundingly. The price tag of $5.00 fell within consumer’s psychological price point. Though in all truth the sandwich was in fact marked down roughly $1 the price tag of $5.00 was what the customer felt comfortable paying for a sandwich. At this time competitors such as KFC, Arby’s and Wendy’s did not have a “value menu” or a price sensitive option. McDonald’s, the reigning king of fast food, had their $1 Menu. Nonetheless, Subway did not see themselves in the same realm of McDonalds because of the product they sold; therefore McDonald’s pricing strategy was irrelevant. In my purchasing situation, if I have to need for a quick bite to eat, McDonalds and Subway normally don’t compete. If I am in the mood for something healthy I will prefer Subway. If I require something quickly or I feel like an unhealthy choice then my alternative will be McDonalds. Price points due pay a roll in the decision making. For example, Quizno’s is also a sandwich establishment where the total purchase ranges from $8.00-$10.00. However at Wendy’s you can purchase a combo meal for around $5.00. Depending on the circumstances and the mood, the price can make the verdict for me. Subway launching the “$5 footlong” campaign injected their restaurant name, logo, and stupid annoying jingle, into my consideration set when searching for a place to eat on a price-sensitive budget.
Due to the success of the campaign the top management in the Subway Franchise was notified. Yes, the promotion was lucrative in two small Subways in South Florida, but how would the campaign be accepted nationally? Subway’s top management still was not convinced and due to cynics Subway was forced to roll-out in the same geographical market, however now within 50 stores. The second P, Promotion, is what is awfully bizarre in the test market. One owner, Charlie Serabian, of 50 Subway restaurants in South Florida prepared homemade signs reading “ALL FOOTLONGS $5”. Seem outlandish? I would expect a franchise like Subway to properly roll out of test market equipped with proper promotion, decision criteria, controls, standards, and a time line. But no, makeshift signs hung by clear tape in 50 stores across Florida. The statistics did not lye though, sales in those 50 stores rose by 35%.
Most of the public credits Subway’s “$5 Footlong Song” to the success of the promotional push. However in the first 50 restaurants across Southern Florida they did not have a jingle. They did not have any form of formal advertising, just homemade signs in the windows. So the question I pose is; “would the $5 promotion be as much of a marketing phenomenon as it is today without the jingle and advertising?” One aspect of a great marketing mix is an exceptional product. Subway has a unique market niche with very few similar sandwich competitors. And the quality and value of their sandwiches is consistent across the board. However as we have learned in marketing all 4 P’s have to be in place for a successful campaign. Product, check. Price, check. Promotion, well we can all sing the song and do the hand motions. Place; do to the sensation of the marketing Subway opens up 40 new restaurants a week across the nation. This makes Subways almost as convenient as finding a Starbucks. So in the end it wasn’t just the promotion that set Subway apart from the rest of the market but all the P’s working together.
A reoccurring theme to this article was the importance of price. Above product, promotion and place; price has been crowned king in this economy. A company can spend ridiculous amounts of money promoting a fabulous product but if the price tag is extremely skimming then the campaign will never take off. A trend that I’ve noticed, that started with Subway and has continued into any product that is ‘low involvement’ purchasing is the inclination towards even pricing. Even pricing is when something is $5 or $8, odd pricing being $19.99 or $3.99 in hopes that the consumer reads the number from left to right and assumes the purchase is $3. In a price sensitive economy people are reading the whole price tag and are not swindled by odd pricing. Therefore marketers do not have to fidget with odd pricing and outlandish cost gimmicks. When consumers have less disposable income every purchase become high involvement and the fact that something is $5.99 and not $5.00 could make or break the purchase in some cases.
I do not believe that this practice demonstrated by Subway hinders or helps the marketing system, it merely changes the rules. Like fashion, trends rise and they fall. Trends such as odd pricing I suppose are on their decent as whole even pricing is rising. People are looking at the whole price tag, therefore odd pricing is losing its deception. I also trust that advertising of price is the most powerful promotion in the economy today. Purchases are ‘made and broken’ on the price factor due to skinnier margins in disposable income. True, is communicating the benefits of a product valuable? Yes. However if price is the company’s competitive advantage I would pick that as the strong suit to promote. I also have faith that price promotes itself. When a consumer finds an excellent value for a terrific price they are going to tell everyone they know. Therefore a hefty sum of the marketing budget can be saved due to word of mouth advertisement.
© LaunchPadINW.com is owned and operated by LaunchPad Inland Northwest, LLC
