Subway is a Renowned Franchising Company - Research Paper Example

Subway is a Renowned Franchising Company Abstract Subway is a renowned franchising company with outlets across the globe. The firm deals in preparing and selling foot-long, sub sandwiches, soups, salads, in combination with other food items. The Subway trademark, patents, copyrights and proprietary information are the key legal possessions that have helped the company develop at such tremendous rates. Subway franchisees have a legal right to use these possessions. Becoming a Subway franchisee demands one to comply with the company’s regulations and have a substantial investment fee. The company has aggressive marketing strategies that have made it to penetrate different markets while also diversifying its products. This paper will discuss the legal rights of franchisees while critically analyzing their financial obligations. Marketing strategies together with factors that determine the franchise location will be discussed. Consequently, the franchisor-franchisee relationship will not be left out. Importance of Franchisee Legal Rights Subway Franchisees specialize in preparing and selling foot-long, sandwiches, salads, together with other food items in their restaurants. According to the Subway Franchise offer, qualified franchisees are offered rights to establish and undertake their business operations from a single location. This retail establishment is given and opportunity to prepare and sell foot-long, specialty sandwiches, salads in combination with other food stuffs. Accordingly, other Subway franchise operations comprise of satellite locations, community development program locations, non-traditional locations, school lunch program locations, national park locations, airport terminal locations, and theme park locations. When determining the best franchise opportunities for any franchisee, it is essential that the franchisor’s trademarks, patents and other proprietary techniques and trade secrets are made available (Caffey, 2012). In the same line of argument, in order for Subway franchisees to operate fully and profitably the following legal rights must be granted by the franchisor: Trademarks A trademark is a phrase, word, symbol, sound or color that uniquely identifies goods or services from those sold or manufactured by others while also indicating the source of the goods (Caffey, 2012). Franchisees have the right to own and use the trademark of the franchisor; it is the initial grant under the franchise agreement (Caffey, 2012). The franchise outlets uses the trademark either painted over the business premise, designed on uniforms, and/or on product packaging. It should be noted that whenever the trademark symbol is seen, it gives notice that the owner claims rights in it. Across US trademarks are regulated by and registered under federal and state laws; the Lanham Act of 1946 regulates how trademarks are created, owned and utilized (Caffey, 2012). Subway Franchisor is in this regard the owner of the licensed trademark and has obligation under the law to ensure that the mark is well designed and displayed by all its franchisees. Consequently, no variations in design, color, size or products/services identified with the mark are tolerated and franchise outlets who operate contrary to this restrictions risk loosing their operating license (Caffey, 2012). The valuable asset of the franchisor is its trademark; hence using it properly is undoubtedly the most legally protected right among all the rights granted to franchisees. Subway franchisees will benefit from the trademark as it gives the consumers an assurance of consistent quality of goods and services. Nevertheless, the mark will make the franchisee be uniquely identified thus attracting more customers (Caffey, 2012). Patents, Copyrights and Proprietary Information Like trademarks, company copyrighted materials like manuals, websites, marketing or promotional materials, recipes and drawings including architectural drawings of stores, interior and exterior layouts, menus and labels should only be used by the franchisee for franchise business purposes (Caffey, 2012). In accordance with the above explanation, Subway has copyrighted training films, operating manuals, kitchen and recipe manuals, interior and exterior designs, menu and any other items relating to the operation of Subway. The Subway franchisees are obligated by law to confidentially keep the mentioned documents as they contain all information regarding Subway Business System. In order to maintain exclusive experience within Subway Restaurants, the franchisees must adhere to Patent, Copyright and Proprietary Information constrains as stated in the franchise agreement. Territory Subway does not offer exclusive territory to the franchisee unless the franchisee signed an agreement for an exclusive area development program. In regard to this, more than one Subway franchisees can be established within a single location. Although this might be beneficial to the franchisor, franchisees will experience stiff competitions amongst themselves something that is not favorable for healthy business (Caffey, 2012). Financial obligations of Franchisees The initial cost for establishing a Subway store is exceptionally favorable. A franchise of a commendable size and stature can be started by qualified franchisee using a minimum franchise fee of $15,000 for twenty years (Subway Development, 2011). The initial total investment for Subway Restaurant ranges from $114,800 to $258,300 for traditional locations, while investment for non-traditional locations ranges from $84,300 to $200,100 (Subway Development, 2011). This investment comprises of the franchise fee, operating capital, and construction and equipment costs. They also represent the total net investment required for eligible company equipment’s leasing (Subway Development, 2011). However, extensive exterior and interior improvement costs are not included. Subway provides its franchisees with an opportunity to buy dependable outlet equipments through its brand’s purchasing power (Subway Development, 2011). For instance, Subway presents the franchisees with a list of experienced lenders with their lending requirements. Similarly, eligible franchisees can use their personal savings, investment savings, financial assistance from family and friends, and home equity loans to finance their initial investment. Prospective Subway franchisees when purchasing their first Subway outlet must significantly consider how to finance their investment. It is important that they have at least 50% of the total investment capital in cash together with collaterals that will enable them secure funding for the remaining balance (Subway Development, 2011). Fees and royalties paid to the Subway brand are mainly founded on gross sales minus sales tax. Franchisees pay 8% royalties to the brand, and an additional 4.5% advertising fee is paid to the Franchise Advertising Fund (Subway Development, 2011). Accordingly, franchisees in specific markets may decide to increase their marketing fee particularly for local market advertising. Franchise Marketing Subway marketing strategies are geared towards attracting consumers from different walks of the world. Their strategies focus on market demands, innovation, customer trends and product leveraging. Furthermore, they provide clear brand recognition and product association thus positioning Subway strategically to advance its market share (Siriwardena, 2009). The Subway has market segmentation strategies that have grouped different consumers into different categories depending on the products and services that they share. There are demographic, geographic, psychographic and behavioral segments (Siriwardena, 2009). In order to meet the needs and requirements of the above mentioned segments, Subways use two key marketing strategies to maximize the sales of their products and services. These are the Ansoff Matrix and the 4P marketing mix strategies. The Ansoff Matrix Existing Products New Market Penetration Product Development Market development Diversification (Siriwardena, 2009) Market Penetration Subway has an operating department that is tasked with penetrating the markets that they are already operating in. The Franchise Sales department is focused on finding new individuals with entrepreneurial spirits and desires to open their own Subway Franchise (Siriwardena, 2009). Due to these dedicated efforts they manage to find new franchisees and hence market penetration is made easier. Furthermore, the Profit Building and Local Marketing department uses the existing franchisees to penetrate the same market by helping them with a designed initiative for increasing restaurant sales. Market Development This strategy helps a company find new markets for its products. For this matter, Subway has a dedicated team tasked with developing new markets. The New Business Development department works hand in hand with existing franchisees who wish to start a new subway restaurant in a non-traditional market like in a gas station, movie theatre or in a supermarket (Siriwardena, 2009). Consequently, the simplicity of the Subway Restaurant operation coupled with the capability to operate in locations where competitors cannot threaten them has enabled the firm to develop new markets. Diversification This strategy entails a company entering new markets that are different from these targeted by existing company operations. Subway has diversified its markets, for instance, it is in mobile phone markets, real estate markets and financial markets with a singular aim of reducing their business risk. To affirm this, the company has Real Estate Corp division which is tasked with assisting franchisees with negotiations in real estate leasing (Siriwardena, 2009). Product Development According to this strategy, companies must improve their products from time to time in order to maintain their competitive position. Subway has taken this strategy as one of its core marketing strategies especially by introducing integrated and healthier menus to its customers. The Research and Development team is commissioned to develop and test marketing foods served and equipment used in Subway Restaurants (Siriwardena, 2009). Examples of products that this department has launched over time include Fresh Fit and Fresh Fit for Kids Meals, Plump Raisins, Apple slices and low fat milk (Siriwardena, 2009). 4P Marketing Mix This consists of Product, Price, Place and Promotion Product Customers always view marketing in terms of tangible products or services (Siriwardena, 2009). In this regard Subway restaurant menu offer diverse variety of products including dinners, soups, salads, pasta and desserts. They offer customers healthier and quality fresh products. Subway is regarded as always having freshest quality ingredients and offers everything to customers. For instance, for all products sold in Subways, are made on the spot and the customer chooses the type of toppings contrary to other fast food franchises (Siriwardena, 2009). Price Price has a direct impact on customers, the company and the economy at large. Subway prices its products higher than its competitors in the market. A differential pricing strategy with value pricing is offered by the firm. The high quality products and services match their prices and hence customers go for quality (Siriwardena, 2009). Place This strategy is concerned with all activities essential for moving products and services to the buyer from the seller. Subway has their major trade locations as franchises coupled with new market development in non-traditional places like, colleges and universities, amusement parks, airports, hospitals, military bases elementary and secondary schools, convenience stores, convention centers, supermarkets, and travel centers (Siriwardena, 2009). Subway employees make sure that customer experience in each Subway is satisfactory. This diversification has helped the firm to reach many customers and hence increasing the market share in the industry. Promotion Promotion can be discussed in four main categories, that is, Personal selling, Sales Promotion, Advertising and Public relations. The majority of Subway promotion is advertising that is mainly done via the national television particularly during prime time and sports on major TV broadcasting cable networks. Local markets promotion is also via TV stations, radio and in print. Consequently, Subway restaurants use in-store advertisement like point of sale purchase materials like menu translates and posters (Siriwardena, 2009). Factors that determine the location/site of a Subway franchise The location is absolutely one of the most vital factors that determine the success of any business; for instance, a strategically located business is bound to earn profits while a business in a poor location will always incur loses. When choosing the site for a Subway Restaurant one should consider the following factors: the size of the city; if the city is small and there no prospects of expanding then your business venture will fail terribly. However, big cities provide ready customers and hence ideal for Subway franchising (Siriwardena, 2009). Consequently, the size of your customer base is another critical factor; as already mentioned big and exponentially growing cities offer wider customer base. Accessibility of the Subway is equally important, for instance, stores located along routes that your target customers use are ideal. For non-traditional Subways for example, Subways located at Airports have a ready market. Additionally, the demographics of target customers; in this regard, if your target customers come from wealthy upper-class individuals then the location of you Subway should be within the targeted demographics. Competition; the store should not be located directly near the competitors (Siriwardena, 2009). Franchisor-Franchisee Relationship, its Importance and Challenges Open communication between the Franchisor and franchisees is a significant factor that determines the relationship in franchising (Whiteside, 2010). Across franchising, the major factors that affect the quality of association between the franchisor and the franchisees are explained below. Expectations versus perception of the franchisor and franchisees: in this regard, if franchisor’s and franchisee’s goals and objectives are not the same, each will work differently and pursuing different courses. Franchisees are obligated to operate within specific regulations as stated in the franchise agreement (Whiteside, 2010). Subway ensures that all its outlets operate similarly and according to the company requirements; for instance, the franchisee is not allowed to supervise the Subway restaurant, however they must attend to completion the training program. Collaborative communication: poor communication between the franchisor and franchisees results into huge problems. Collaborative, honest, and open communication puts problems at bay and anchors the franchisor-franchisee relationship (Whiteside, 2010). Subway has a system that ensures free and open collaborative communication. Through, operation manuals, newsletters and frequent training the firm has managed to achieve this objective. Communication Barriers: this reduces the ability of the franchisor and franchisee to work together efficiently and effectively. In most cases, communication breakdown occurs when the two entities have misaligned goals and objectives. Collaborative communication is only possible if there is no communication barriers (Whiteside, 2010). As mentioned earlier Subway has a system in place that encourages and ensures free and open communication with its franchisees. Trust: in franchising, trust is a significant element that builds positive relationship between the Franchisor and franchisee and without it, everything crumbles. Accordingly, without trust, there will be neither effective collaboration nor effective communication (Whiteside, 2010). The use of Technology and Information in Chain Management and Franchising Technology and information has become the backbone of business operations across the globe; many businesses use information technology systems to increase their efficiency through elimination or reduction of inventory. The crucial role of the supply chain is to integrate suppliers, distributors and customer logistic requirements into one system. Supply chain management main objective is to come up with a service network that is aimed at decreasing operating costs. Franchises use supply chain management to enhance their operations at a reduced cost. The use of information technology systems in supply chain management increases the firm’s flexibility (Siriwardena, 2009). References Caffey, A. (2012). Trademarks: The Legal Power Behind the Franchise Throne. Retrieved on 4/09/2012, from: http://www.allbusiness.com/company-activities-management/company-structures-ownership/13332095-1.html#axzz25JFxSzMo Siriwardena, T. (2009) Marketing Plan for Subway.New York; Oxford University Printing Press Whiteside, S. (2010) What Affects the Quality of a Franchise Relationship? Retrieved on 4/09/2012, from: http://www.eonetwork.org/knowledgebase/overdrive/january2010/Pages/WhatAffectstheQualityofaFranchiseRelationship.aspx Subway Development (2011) Frequent Asked Questions. 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