Subway Innovation Report

Subway Innovation Report

Subway is the name of a franchise fast food restaurant that mainly sells sandwiches and salads. It was founded in 1965 by Fred De Luca and Peter Buck. The corporation that owns the trademarked name of Subway is Doctor's Associates, Inc. (DAI). The company has over 28,400 franchised units in 87 countries as of September 2007 and is the fastest growing franchise in the world. It is currently the third largest fast food chain globally after YUM! Brands (34,000 sites) and McDonalds (31,000 sites).

In this Essay I will be generating my argument that Subway is an example of innovation in action through its products, processes and growth.

Subways strategy for growth lends itself to the cooperative nature of innovation. Subway has no company owned outlets, they are 100% franchised. This has allowed Subway to be a very good example of diffusion of innovation with the company being placed in the model rather than the consumers. Each subway franchise acts as its own business or is part of a mini chain of franchises; nonetheless this allows a large degree of innovation to occur since individual stores will become increasingly creative to meet the needs of their individual markets. This then allows the company as a whole to fit in to the diffusion of innovation model as innovators, early adopters and early majority. Below I will provide examples to clarify my argument.

In October 2007 Subway launched a Mobile/SMS back to school marketing campaign which allowed customers to receive coupons and product offers via text and redeem them at the till using codes they have been sent by subway to their mobile phones. The innovators were a group of 12 Subway stores in New York, as innovators they were part of a small group whom acted as risk takers were willing to invest early and were confident with enough financial clout to cover their prospective losses, the risk ended up being worthwhile with 13,000 SMS messages sent out 8.8% were redeemed out doing previous direct mail campaigns 200%. Over 400 franchisees across Seattle then adopted the campaign following its success, these 400 stores act as the early adopters in my interpretation of the model they launched the campaign very soon after the innovators achieved success, early adopters tend to be opinion leaders following usual trends, so with 400 more influential franchisees then taking on the new campaign it led to the early majority acting, which in subways case were the remaining majority of franchisees through out the US and became a Nationwide operation, these franchisees represent a group which are more risk averse than previous groups and want some reassurance that the product is tried and tested before they will commit themselves to it.

Further examples of Subways ability to diffuse innovation can be seen with the Ð''Turbo Chef Toaster' the afore mentioned device was developed by subway to beat out competition in the Australian market and gain the market share from Quizno's ( A rival sandwich fast food chain). The Ð''Turbo Chef Toaster' which gave customers the option of having a toasted sub translated to all Subway outlets conducting business today.

Subway's ability to innovate so freely and quickly lends to its tight-knit franchising group which allows for increased communication channels and decreases the time taken to implement new products or processes. Subways franchisees have no official power in how Subway is run and the decisions that are made. But since the company is completely franchised in effect franchisees wield enormous power, since the chain depends on their device to make decisions. Thus it is quite uncommon for Subway to mandate changes with which the franchisees are unhappy. By contrast rival food chain, KFC which is made up of both company owned stores and franchisees, uses persuasion as a tactic to be in control of major decisions over franchisees, they use this method as to not upset franchisees but at the same time contractually the KFC franchisees have no real decision making power. This situation annuls creativity and stops the diffusion of innovation occurring through the chain since the company mandates all the decisions in promotion and advertising rather than allowing the franchisees to be creative. This also leaves chains such as KFC being the late majority and late adopters when placed in to the diffusion of innovation model as I did with Subway, since most of the day to day business situations can be seen by franchisees who are very hands on KFC have put them self at a loss by not listening to their franchisees. Being the late majority and late adopters they represent a group which are slower and more content to see how the market develops, they want more reassurance about the benefits and worth of making changes, they can in some cases be very averse to change and have therefore resisted adopting new techniques in marketing, promotion and development. On the flip side KFC's more sceptical out look has allowed them to maintain their market position, by being more traditional in their approach they don't stand risking failure and financial losses which can sometimes occur from innovation when a lot is invested on research of development which don't then translate in to profits for the chain.

Fig.1

Above fig1 shows how Subways products and services fit in to the Ansoff Matrix. The Ansoff Matrix is a framework for considering the relationship between general strategic direction and marketing strategies.

The cell which is most important in representing the simplicity Subway use to innovate is in the bottom right the new products to new markets cell also, this represents diversification. In subways case they have diversified without straying too far from their current products. By opening both Halal and Kosher Subway franchises they have gained completely new markets that were unable to be considered previously due to their religious beliefs. All the new products and services offered by subway at their Halal and Kosher outlets have related with all of their existing product lines. The products on offer are the same but the suppliers and preparation used has been changed to fit the specifications of both the Muslim and Jewish faiths. This is concentric diversification being exercised, resulting in new product and service lines that have direct marketing synergies with existing product lines, even though they appeal to a new customer group. The use of concentric diversification has allowed subway to not adopt any new campaigns to reach the new markets.

Subway has used product platforms in an attempt at lowering internal costs again showing simplicity in their use of innovation. They