MBA 544
Case Study 10 Firehouse Subs
Jack James
10/14/12

1. Franchisees gain numerous advantage when they purchase a franchise. First, while a franchisee may be opening a new store, it is part of an already established business and system. This means a franchisee has access to turnkey operations, allowing an increased speed to establishing and growing the business. Franchisees also get support for management and training activities, as well as financial assistance. Going hand in hand with this, a franchise already has an established brand name, quality of goods and service which have been standardized across the franchisor’s larger company, and national advertising programs from franchisors. Franchises also have large-volume, centralized buying power. A franchise has proven products, and successful business format. Finally, site selection and territorial protection is offered for franchises. All of these advantages increase the chance for a new business in a franchise to be successful. While there are many advantages to a franchise, there are disadvantages as well. First and foremost, in order to own a franchise and take advantage of all the benefits of owning a franchise, there are fees and royalties which are ongoing for advertising, use of the franchise name, products and services, and for use of the business system. A franchisee must also adhere strictly to regulations and standards imposed by franchisors. Franchisors also require the purchase of supplies and equipment from approved suppliers. Franchisors can also restrict what products can be offered in a store, which limits the product line as a whole. This results in an overall limit of freedom which entrepreneurs who start their own business do not have to deal with. Finally, and possibly most relevant from a business standpoint is market saturation. Franchisees have grown tremendously fast in recent years, resulting in an overwhelming number of franchises in the market place. 2. Option 1: Continue their current marketing efforts

Advantages:

* Will not increase current advertising costs * It is a familiar strategy with limited unknown factors * Will not require changes to pricing and costs of goods sold * Will not require changes in fees or business plans of current franchisees * Requires no extra actions or time to implement * Gives franchisees more freedom than they usually have
Disadvantage:
* The current marketing campaign is not working * Sales are declining at a faster rate than before the current marketing plan * Could result in continued losses as well as costs of new plan if revenues do not increase
Option 2: Begin Discounting Sandwiches
Advantages:
* Could increase sales * Could increase competitive edge over competing companies * Could draw in new markets and demographics
Disadvantages:
* Decreases profit margins, possibly driving costs of goods higher than sale prices * Could result in drastically greater losses, especially if sales do not increase * Damages reputation of quality ingredients
Option 3: Launch new marketing campaign
Advantages:
* Franchisor will be collecting advertising fees from franchisees again * Chance to draw in new customers and penetrate new markets and demographics * Chance to increase sales without costs to the franchisor * Does not damage profit margin to increase sales
Disadvantages:
* Franchisees could be hesitant to pay higher advertising fees causing difficulties in implementation * Limits freedom to advertise in local markets * “Blanket” marketing plan across the entire franchisor may not appeal to possible consumers in all areas

3. The best option is the one which has the highest chance of success. To me, the choice is simple. Option 1, sticking it out with the current marketing campaign, is a bad idea. It has been six months since franchisees were given the freedom to advertise in their local markets. The results of this six month period have been catastrophic, as sales have declined even more since this action was taken. This is ample time to see this is a losing strategy, and a different move is necessary. Option 2, lowering sandwich prices through discounts is also, a bad idea. While this could boost sales, it will cut into an already small profit margin. The result would be a need for sales to increase drastically in order to generate a profit. This could also have a negative effect on the brand name of the franchise. By taking a reputation hit and lowering quality of ingredients in order to make sandwiches at lower prices to maintain the current profit margin could put many consumers off the franchise. This could have an even more catastrophic result, and damage done to a company’s reputation can take years to recover from. This leave option 3, launching a new marketing campaign. While this may encounter some resistance from franchisees who want the freedom to control their own advertising and to not have to pay advertising fees, it also has the best chance of success without damaging the company’s reputation and profit margin. There is also some risk involved in launching a new campaign, however the risk is lower than sticking with a marketing campaign which has been nothing but a disaster for the previous six month period. 4. Firehouse is in the same market as giants like Subway and Quiznos. It needs to set itself apart from these two companies with this campaign, which is where the unique selling proposition comes in. Quiznos advertises about freshness, while Subway focuses on having a sub custom made for their customer base. Firehouse should use a combination of its unique atmosphere, subs, and price as its unique selling proposition. Firehouse, on the other hand, is a theme restaurant. They could capitalize on this tie to firemen, and emphasize the origins of the founders being former fire fighters. They also offer subs which can not be purchased at Subway or at Quiznos, which have similar if not the same templates for the subs they make. Firehouse also has lower prices than those of its larger competitors. This uniqueness and low prices present a wealth of opportunity for advertising. They can push high quality at a low price, while maintaining their roots as a company built by fire fighters, with a unique menu which can not be matched by other sub sandwich shops.

Supplemental Question: Case 10 Firehouse Subs

1. Referencing the attached website http://www.firehousesubs.com/Franchise-Opportunities.aspx develop a strategy that would enable Firehouse Subs to gain a larger foothold in the heavily populate northeastern part of the United States. Thoroughly explain your strategy and why you believe it will succeed.

While this region’s high population offers a great deal of potential for Firehouse subs, it will also be difficult to penetrate the market. This is because with a heavily populated area, such as one of the numerous cities in this region, has been saturated with restaurants. Many would think of direct competition from Subway or Quiznos, but there are other forms of competition within the restaurant industry. To gain a foothold in this region, the company will have to differentiate itself from the competition. The most relevant piece of information from the provided reference which could be capitalized is the founders. The two founders are both former firefighters. A marketing campaign with this at its foundation could be very successful in penetrating the market. The first step is to advertise with the founders, giving a brief background, and why they started the company. This can then be paired with a promotional campaign to aid firefighters and their families by donating a portion of sales to local fire houses. While this is a truly worthy cause, it does project s sense of community spirit, as well as the values, and principals the company was founded on. I believe this is a necessary because it will build the company’s reputation, which will be lower than its larger competition. It also will help promote customer loyalty, and positive word of mouth. Winning loyal customers is crucial to success in any market. This promotion could also be paired with a policy to discount orders from fire fighters and local law enforcement. In highly populated areas, such as New York city, within this region, this is a demographic which other restaurants will not be able to tap as easily as Firehouse, a protected market. I believe this will be success because of the positive image of the company it projects, as well as the potential loyalty from these customers. It gives a sense of community which other franchises, such as Subway, or other types of fast food such as McDonald’s do not offer.

2. You are a consultant hired by Chris Sorenson to help Firehouse Subs differentiate itself from Subway. What strategy would you suggest to accomplish this task? Thoroughly explain your strategy and why you believe it will succeed.

Subway is seen by the public as the big kahuna of submarine sandwich restaurants. They have built a reputation with customers through various marketing techniques from allowing the consumer to customize their own subs to their newer $5 foot-long campaign. While being a huge company can be beneficial to Subway, Firehouse can also use this to their advantage. Firehouse being smaller can generate an atmosphere of a local shop rather than a franchise. This could be done, as I mentioned in the previous question, by making the roots of the company public. The company being started in a local community by brothers, both former fire fighters, is something Subway can not boast. Using this as the foundation of a campaign to differentiate itself from competition will give Firehouse a community friendly, home town blue collar worker feel, rather than the large corporation, nationwide chain feel Subway has. The strategy would have a few phases. The first of which would be educating local areas around the franchise stores of the origins of the chain. Once this is done, promotions focused on giving back to the community would follow. Portions of sales could be donated to local firehouses or police stations. Giving back to the local community is not done very often by larger chains, especially by Subway. While there are numerous causes which large chains collect money for, these promotions are rarely focused on the local community. The final phase would be to offer discount to local fire fighters and law enforcement officers. This would give a sense of appreciation for those willing to protect and serve the average local citizen, and project core values and ideologies of the company. I believe this will be successful because penetrating local markets is necessary for smaller franchises to survive. They do not have the nation wide strength of a Subway which can collect sales from anybody on the road. Therefore the company would best differentiate itself from competition by making itself a part of the local community instead of just serving the local community food.