Target market analysis
According to Hitt, Ireland, and Hoskisson, establishing a market niche is a vital component that not only helps a company to penetrate the market but also to retain its own market position (81). Subway, a fast-food company in Japan, provides a wide range of salads and sandwiches to its customers. Subway, as such, intends to use this theory as the basis of the position itself in the healthy fast-food market. To attain this, the firm also targets high potential customers, especially individuals with a relatively high level of disposable income. The firm has also realized that this market niche may not offer sustainable business and as such targets customers who have appreciated consumption of fast-food products as well as markets that are characterized by political and economic stability.
Primary target market
Subway’s primary target market is composed of individual customers who are health conscious in their consumption patterns, and mainly represent those that belong to the medium and high social class status. The current success of the firm arises from an increase in consumer demand for healthier fast-food options.
The firm has adopted an efficient expansion strategy that entails franchising. Franchising has contributed towards the firm efficient entry into the market as it is a cost-effective method of market entry. The firm is very effective in establishing franchises. For example, the firm can establish a store from a small space that does not require a fire-facilitated kitchen. The resultant effect is that the firm is able to minimize its start-up costs.
Over the years Subway has been in operation, the company has esteemed to efficiently serve its established market segment and as such established a number of outlets both in its domestic market. Subways have established over 18,000 outlets in the United States. The company also sees this move as a way of surpassing its competition by the number of outlets established by McDonald’s which is one of its competitors in the United States in 2002.
The firm is also committed to expanding its outlets to overseas markets. This arises from the firm’s management team appreciation of the fact that international expansion can culminate in a firm attaining a high competitive advantage relative to its competitors. By 2005, the firm had established outlets in Canada, Australia, and Northern Ireland. Other than helping the firm to outdo its competition in the market, increasing outlets base has lead to an improvement in the firm’s supply, chain, and distribution channel. To enhance its international competitiveness, the firm also targets other markets such as Germany and the United Kingdom.
As a result of venturing into the international market, Subways has managed to develop brand recognition. This has greatly enhanced the firm’s sales revenue. The firm has a well-developed menu that reflects the customer’s demand for fresh and healthier fast-foods. The firm provides its customers a chance to choose from a wide variety of sandwiches such as with regard to size, toppings, salads, and dressings. In addition, every menu gives the customer a description of the product such as with regard to price, price, and calorie content.
For example, a 6-inch ‘Veggie Delite’ sandwich developed by the firm has a calorie content of 218 kilocalories while a ‘Ham &Cheese’ sandwich has a calorie content of 313 kilocalories. To ensure that the sandwiches are healthy, Subways includes other contents such as tomatoes, lettuce, onions and, olives, pickles, green pepper, and onions as toppings. The firms’ ability to develop its menu has contributed towards its effectiveness in customizing its product offering. The resultant effect is that consumers attain a high level of satisfaction hence developing customer loyalty.
The firm has not been effective in managing the franchises established, despite its concerted efforts to establish a successful outlet chain. This has led to an increment in the rate of failure to less than 3 years. For example, out of the 195 outlets established in Japan during the period ranging from 1992 to 2001, 112 of them failed. In addition, the firm had promised its franchise owners that it would provide managerial support to other franchises established which it did not fulfill. The result is that some franchisees are not happy with the trend of the firm.
Subways have also not been effective in its product offering in Japan. This is evident in the fact that the firm has not been effective in offering Japanese products. The resultant effect is that a significant proportion of Japanese customers have not been satisfied.
The firm also lacks control over the activities of other franchises established within the Japanese fast-food market such as Kentucky Fried Chicken, Mister Donut, and Mos Burger.
There is a high probability that the firm will increase its market penetration in Japan by integrating an effective customer service model. For example, the firm’s management team should develop a comprehensive understanding of the customer’s tastes and preferences with regard to food. One of the ways through which the firm can attain this is by incorporating consumer relationship management. To be effective, the firm’s management team should consider integrating emerging technologies such as customer relationship management software. These types of software will help the customers communicate their opinions regarding the firms’ fast-food offerings to the management team. This will enhance the effectiveness with which the firm’s management team develops an understanding of the customer’s needs.
There is a high probability of the firm succeeding by expanding its menu. Additionally, the firm should continuously be innovative in expanding its menu. This will contribute towards the firm addressing diversity amongst the customers with regard to tastes and preferences.
In its effort to penetrate the Japanese market, Subways is considering increasing its market coverage by opening more outlets in the Japanese Capital and Kansai areas. The firm intends to establish outlets in major demographic centers such as downtown areas, amusement centers, in front of rail stations, and office areas. Considering the competitive nature of the Japanese fast-food industry, it is vital for the firm to consider integrating the concept of partnership. The firm should conduct a comprehensive market analysis to identify potential fast-foods within the Japanese fast-food market to enter into a partnership. This will increase the effectiveness with which the Subways penetrate the Japanese market.
The Japanese food service industry is very competitive. As such this competition exposes the firm to a number of challenges. Subways face intense competition from both local and foreign fast food companies operating in Japan. The intensity of competition is affecting the firm negatively as it leads to a decline in the firms’ net sales values and subsequently its net revenue. Some of the firms which pose intense competition to the firm include Kentucky Fried Chicken, Wendys, Bechers, Lotteria, Mos Burger, and Mister Donut. Furthermore, the firms’ profitability potential is challenged by the effects of the current economic crisis.
The 2008 economic recession led to a significant decline in consumers’ disposable income. The resultant effect is that their purchasing power was adversely affected since some of the consumers lost their source of income or experienced a decline in their income. In addition to this, the firm is also faced with the challenge of increasing interest rates. This means that the firm will incur more cost in its effort to source debt finance from financial institutions.
Japanese fast-food industry is very saturated because of the large number of firms that operate within the industry. As such, this market is very competitive. One of the firms that present intense competition to the firm is McDonald’s, which entered the Japanese market in 1971. McDonald’s possesses the most significant market threat due to a number of markets strategy and other factors. McDonald’s has effectively penetrated the Japanese market and established itself as the market leader. For example, McDonald’s has established a network of outlets in Japan. The firm has more than three thousand stores in Japan.
McDonald’s is also very innovative in its product offering. In 2007, the firm introduced a new burger in the market referred to as ‘Mega Mac’ burger. Within the first four days of its introduction, more than 3.32 million burgers were sold. The firm also launches seasonal products with respect to Japanese seasonal culture and tastes. This illustrates the firm’s aggressiveness with regard to marketing. Additionally, the firm has also appreciated the price-conscious nature of the consumers. As a result, the firm has integrated a low pricing strategy. The firm has also integrated a comprehensive advertising strategy thus increasing its effectiveness in attracting customers.
Other firms that pose a threat to the firm include Mos Burger, Yoshinoya, Starbucks, Kentucky Fried Chicken, and Mister Donut. Mos Burger has adopted a similar strategy to McDonald’s. However, its pricing strategy is relatively high. The firm has also heavily invested in advertising in an effort to create market awareness in addition to establishing more outlets. Yoshinoya has also been effective in the Japanese market over the 100 years it has been in existence. In its operation, the firm specializes in ‘traditional Japanese fast food’. Both Star Bucks and Kentucky Friend Chicken have also managed to penetrate the Japanese market.
In addition to the foreign fast-food firms, Subways also faces competition from local firms such as the Ramen Noodle shops that have ventured into the industry. The traditional firms offer a wide range of Japanese fast-foods.
Keys to success
In order to succeed in the long term, Subways must consider a number of success factors. The first success factor that the firm should consider entails ensuring a healthier menu. This arises from the fact that consumers are increasingly becoming health conscious and as such have changed their consumption patterns. This shift in eating habits emanated from an increase in diseases arising from poor eating habits such as obesity. As such, most consumers are shifting from consumption of junk fast-foods to healthier fast foods.
Considering the intensity of competition, it is vital for the firm to consider improving its market penetration strategy. One of the ways through which the firm can attain this is by improving its franchising strategy. For example, the firm should be effective in supporting the franchises in a number of ways such as providing managerial support.
To establish customer loyalty, the firm should also ensure that there is brand consistency. Brand consistency will play a vital role in developing a strong attachment with the customers.
Macro environment analysis
All firms in different economic sectors are affected by local and global economic changes. For example, the 2008 economic recession had adverse effects on Japan’s economy. This is evident in that the consumers’ purchasing power was adversely affected due to a decline in the level of employment. During this period, there was a significant decline in consumer confidence which made them reduce their consumption. However, the trend is reversing due to slow growth in the global economy. The future prospect looks good as the global economy undergoes recovery.
The firm’s activities are also likely to be affected by the effect of the recent Tsunami and earthquakes on the Japanese economy. The situation may be worsened by an increase in oil prices in the international market culminating in inflationary pressure on consumer goods.
Japanese Culture presents a challenge to Subways in an effort to penetrate the market. This arises from the existence of differences with regard to standards for determining what is healthy. For example, what is healthy by western standards may not be considered healthy in Japan. In addition, the consumption of fast-foods is not a dominant culture in Asian countries. Most individuals consider fast-foods as unhealthy and they prefer the consumption of rice.
The firm also has to deal with the concept of ‘healthy and fresh’ foods in accordance with the Japanese interpretations. For example, the firm has to ensure that it includes fresh toppings and other side dishes such as miso soup, pickled vegetables, and rice.
Politics, Rules, and Regulations
The company’s activities are favored by politics and the legal framework in Japan. Japanese are relatively peaceful people, a fact which has set a very good foundation for political stability. This has culminated in the creation of a good business environment hence attracting investors. In addition, the Japanese government ensures the creation of a good relationship with other countries. This greatly motivates firms to undertake foreign direct investment in the country.
However, the government is also committed to controlling firms within the fast-food industry. One of the ways through which the government is attaining this is by instituting legislation aimed at promoting food safety.
Japan is one of the most technologically developed countries in the world. Considering the growth in technology, it is vital for Subways to consider integrating emerging technologies. One of the technologies which the firm should consider is e-commerce. Currently, consumers are increasingly integrating technology into their consumption patterns. For example, some consumers have adopted online shopping in order to attain convenience.
In making their purchase decisions, consumers are also considering searching for product information from the internet. Therefore, it is important for Subways to consider developing a website on which its product information will be posted. This will increase the level of consumer awareness regarding the firm’s products. The firm intends to conduct continuous product innovation in an effort to improve the quality of the fast-foods it offers its customers. The objective is to increase customers’ level of satisfaction. The resultant effect is that the firm will be able to strengthen its customer base in addition to attaining a high competitive edge. The firm also intends to create comprehensive market awareness by undertaking comprehensive market communication.
By marketing its product in Japan, Subways intends to achieve the following objectives.
- To increase the annual sales revenue with a margin of 50%.
- To increase its annual net profit with a margin of 35%.
- To increase its market share within the Japanese market with a margin of 25% within a period of one year.
Considering the intensity of competition within the Japanese fast-food industry, it is vital for firms in the industry to maintain a strong market position in order to survive. Market Positioning acts as a defense mechanism for the product against its competitors. In its operation, Subways should ensure that it positions itself in the market as a firm that offers the healthiest fast-foods such as sandwiches and salads in Japan. The firm should also ensure that it integrates a continuous value addition.
Marketing mix strategies
In an effort to penetrate the market, the firm should conduct consumer market research to understand their fast-food needs. This is due to the fact that failure to understand the changes in consumer consumption patterns can result in a firm losing its market share. The firm should offer fast-food products that are in line with Japanese culture. The firm should also establish continuous value addition to its products through product innovation. This will contribute towards the firm’s effectiveness in dealing with the competitive nature of the industry in addition to aligning itself with changes in consumer lifestyles. In its product innovation strategy, Subways should ensure that it addresses the health-conscious needs of the consumers.
In developing its pricing strategy, Subways’ management team should undertake a consumer and competitor market research. This will contribute towards the firm attaining price competitiveness. Competitor analysis will be aimed at understanding the competitors pricing strategy hence developing an efficient pricing strategy. Currently some of the competitors in the Japanese market have instituted a low pricing strategy. To penetrate in this market, the firm should adopt a penetration pricing strategy. The strategy entails setting the price of a product at a relatively low price compared to the competitors. In addition, the firm should also integrate psychological pricing strategy. This entails setting a price that appeals the consumers’ emotions in their purchasing patterns.
Creating market awareness plays a vital role in ensuring a successful penetration of a product in the market. Considering the competitive nature of the Japanese fast-food industry, Subways’ management team has developed a comprehensive promotion strategy. The strategy has integrated both traditional and emerging marketing communication techniques. Some of the marketing communication techniques that the firm’s management team has considered include sales promotion, public relations, and advertising.
To achieve this, the firm uses different mediums that include radio, television, and print media such as newspapers and magazines. In its sales promotion strategy, the firm will incorporate a customer loyalty program whereby individuals who purchase from the store frequently will be offered a predetermined price discount.
Considering the growth in Information Communication Technology, the firm’s management team has also considered incorporating emerging technologies. For example, the firm will integrate electronic commerce in its advertising strategy. This will enable the firm to post adverts on the internet. The firm’s product information will reach a large number of potential customers. The firm will also consider integrating emerging social communication tools such as Blogs, Wikis, Facebook, and YouTube.
Blogs and Wikis will enable the firm to conduct effective market awareness. This arises from the fact that these tools will act as both informative and interactive tools. For example, customers can post their opinion regarding the quality of the firm’s products. The customer opinions will form the basis upon which the firm undertakes product improvement. The use of social communication tools will increase the firms’ efficiency in creating awareness since a large number of customers have access to these tools daily.
To be effectively penetrating the Japanese market, the firm should integrate a direct distribution strategy. In its direct distribution strategy, the firm should increase the number of outlets within Japan. This can be attained by establishing franchises within the market. However, the firm should ensure that the franchises established are effectively supported so as to safeguard them against collapsing. Through direct distribution, the firm will be in a position to enhance the ease with which customers access its products.
Hitt, Michael, Ireland, Duane, and Hoskisson, Robert. Strategic management: competitiveness and globalization; concepts and cases. Mason, OH: South-Western, 2009. Print.