CHAPTER II: A FRAMEWORK FOR CONSUMER ANALYSIS

CONSUMER BEHAVIOUR AND MARKETING STRATEGY

by

J. Paul Peter & Jerry C. Olson

Fifth Edition

Irwin McGrawhill Companies

Copyright 1999

United States

CHAPTER II: A FRAMEWORK FOR CONSUMER ANALYSIS

Buying a Smith & Wesson

Barbara Linton is 37, divorced and the mother of two daughters Joanne and Jenny ages 7 and 9 she is a successful doctor and makes over $ 90,000 annually. She lives in her own home in a Chicago suburb with her children, who go to private schools. Recently a number of robberies and burglaries have occurred close to her neighbor hood. One of her friends was attacked in a mall parking lot and robbed. Barbara is concerned about her safety and that her children and is considering buying a gun for home protection. However, she is worried about the safety of having a loaded gun in her home with the kids around.

Barbara’s uncle owns a gun store and shooting club in her hometown near Minneapolis. She decides to visit him at the store and evaluate further the pros and cons of getting a gun on her next trio home.

After the 10 o’clock news report on another robbery in her area, Barbara decides to take the kids and fly home to see her family the following weekend. While there she goes to see her uncle at his shop.

“Hi Uncle Al,” she greets him, “How is the gun business?”

Uncle Al replies that the gun business is doing fine. He says the shooting club is also doing well and has lots of new members.

Barbara explains that she is thinking about buying a gun because of all the crime recently in her area. She also explains her concerns with the safety of having a gun around the house.

Uncle Al tells her he does not want to try to influence her decision. He believes people have to decide for themselves whether owning a gun is right for them. However, if they do choose to buy one they need to learn how to load and fire it safely and effectively. He also says a gun lock that can be put on the trigger housing can be used to avoid problems with the children.

Barbara decides to buy a gun for her home. She asks her uncle to recommend the best model for her needs.

Uncle Al tells her he thinks a revolver is much simpler to operate and safer to handle than an automatic. He recommends a smith & Wesson Model 686 stainless steel revolver with a 4 inch barred and black rubber Pachmeyer grips for better handling.

Although the Model 686 handless 357 caliber ammunition, 38 special cartridges can also be used in it. He recommends using the 38s at first because they produce less recoil when fired and then stepping up to the 357s when her skills develop because they have more stopping power.

Barbara and her uncle walk over to the shooting range with his Model 686. He explains how to load the revolver and how to shoot it in both single and double action. He also shows her a trigger lock and how to put it on the gun. Barbara loads the gun and tries it out at the range. She is surprised how easy it is to shoot and hit a silhouette target at 25 feet. She thinks the gun looks and feels good and would be right for her needs.

Her uncle cannot sell her are because she is no longer a resident of Minnesota, so she purchases a Model 686 when she returns to Chicago. She also buys rubber grips, two boxes of 38 special cartridges a Kolpin gun case and a trigger lock for the gun. She joins an upscale shooting club to improve her skills and to meet other people who face the same problems she does. She feeis safer in her home.

What factors are involved in the purchases made by Barbara Linton? Many theories, models and concepts have been borrowed from other fields and developed by marketing researches in attempts to understand consumer behavior. In many cases, these ideas overlap and even compete with each other as useful descriptions of consumers. To date, no one approach is fully accepted nor it is likely that a single, grand theory of consumer behavior can be devised that all researches would agree on.

However, in this chapter we present a framework for researching, analyzing and understanding consumers to help marketers develop more effective strategies. The framework is a general one that cab used to analyze any consumer behavior issue facing marketers, from developing new products and services to improving strategies for existing products and services. It can be used to aid nonprofit organizations in developing exchanges with consumers, including donations and use of nonprofit services, such as museums and libraries. The framework also provides the organizational structure for this book.

The chapter begins by introducing three elements that should be researched and analyzed to develop effective marketing strategies. There are (1) consumer affect and cognition, (2) consumer behavior and (3) consumer environments. The special relationships among these and the role of consumer research and analysis in developing marketing strategies is then discussed. This is followed by a discussion of marketing strategy the stimuli placed in the environment to influence consumers. The chapter concludes with a discussion of four levels of consumer analysis.

Exhibit 2.1

Three Elements for Consumer Analysis

Three Elements for Consumer Analysis

Exhibit 2.1 presents three elements for consumer analysis and relationships among them. Each of the three elements is critical for developing a complete understanding of consumers and selecting of consumers and selecting strategies to influence them.

Consumer Affect and Cognition

Consumer affect and cognition refer to two types of mental response consumers have to stimuli and events in their environment. Affect refers to their feelings about stimuli and events, such as their beliefs about a particular product.

Affective responses can be favorable or unfavorable and vary in intensity. For instance, affect includes relatively intense emotions such as love or anger, less strong feeling states such as satisfaction or frustration, moods such as boredom or relaxation and milder overall attitudes such as liking Mc Donald’s French fries or disliking Bic pens. Marketers typically develop strategies to create positive affect for their products and brands to increase the chances that consumers will buy them.

Cognition refers to the mental structures and processes involved in thinking understanding and interpreting stimuli and events. It includes the knowledge meaning and beliefs that consumers have developed from their experiences and have stored in their memories. It also includes the processes associated with paying attention to understanding stimuli and events, remembering past event, forming evaluation and making purchasing decisions and choices. Although many aspects of cognition are conscious thinking process, others are essentially automatic. Marketers often try increase consumers attention to products and their knowledge about them. For example, Volvo ads often feature detailed information about the construction of the cars to make them safer in order to increase consumer’s knowledge and the chances that they will buy them.

Section 2 of this text offers a detailed treatment of consumer affect and cognition and explains the importance of understanding them for developing marketing strategies. Highlight 2.1 offers a sample of the types of questions section 2 is designed to answer.

Consumer Behavior

In this text, behavior refers to the physical actions of consumers that can be directly observed and measured by others. It is called overt behavior to distinguish it from mental activities, such as that cannot be observed directly. Thus, a trip to the Gap at the mall involves behavior; deciding whether to go there is not an overt behavior because it cannot be observed by others. Examples of behaviors include shopping at stores or an Internet, buying products, or using credit cards.

Highlight 2.1

Some Basic Questions about Consumer Affect and Cognition

Although many competing theories and ideas about consumer affect and cognition have been proposed, no single theory completely describes the workings of the consumer’s mind. However, carefully studying and thinking about the information in Section 2 of this text should help you develop informed answers to questions about affect and cognition such as the following:

1.      How do consumers interpret information about marketing stimuli such as products, stores and advertising?

2.      How do consumers choose from among alternative products classes, product and brands?

3.      How do consumers form evaluations of products and brands?

4.      How does memory affect consumer decision making?

5.      How do affect and cognition influence behavior and environments?

6.      How do behavior and environments influence affect and cognition?

7.      How do consumers interpret the benefits of marketing offerings?

8.      Why consumers are more interested or involved in some products or brands than others?

9.      How do marketing strategies influence consumers’ affective and cognitive responses?

10.  How do affective and cognitive responses influence each other?

Behavior is critical for marketing strategy because it is only through behavior that sales can be made and profit can be earned. Although many marketing strategies are designed to influence consumers affect and cognition these strategies must ultimately result in overt consumer behavior for them to have value for the company. Thus it is critical for marketers to analyze, understand and influence overt behavior. This can be done in many ways including offering superior quality (Toyota), lower prices (Circuit City), greater convenience (Peapod online groceries), easier availability (Coke is sold in millions of stores and vending machines) and better service (Briggs & Stratton lawnmower engines are serviced at 25,000 locations). Marketers can also influence overt behavior by offering products, stores and brands that are trendier (The Gap), sexier (Calvin Klein jeans), more popular (Nike) and prestigious (Mont Blance pens) than competitive offerings.

Section 3 of this text is devoted to a discussion of overt consumer behavior. Highlight 2.2 offers a sample of the types of questions Section 3 is designed to answer to aid in developing successful marketing strategies.

Consumer Environment

The consumer environment refers to everything external to consumers that influence what they think, feel and do. It includes social stimuli, such as the actions of others in cultures, subcultures, social classes, reference groups and families that influence consumers. It also includes other physical stimuli, such as stores, products, advertisement and signs that can change consumers thought feeling and actions.

The consumer environment is important to marketing strategy because it is the medium in which stimuli are placed to influence consumers. For example, marketers run commercials during shows that their target markets watch in order to inform, persuade and remind them to buy certain products and brands. Marketers can send free samples, coupons, catalogs and advertisement by mail to get them in the proximity of consumers. Web sites become part of a consumer’s environment if they are contacted.

Section 4 of this text discusses the environment and its influence on consumers. Highlight 2.3 offers a sample of the types of questions. Section 4 is designed to answer.

Highlight 2.2

Some Basic Questions about Consumers Behaviors

Although little attention has been given to studying the overt behavior of consumers, many behavior influence techniques seem to be commonly used by marketing practitioners. Carefully studying and thinking about the information in Section 3 of this text should help you develop informed answers to questions about behavior such as these:

1.      How do behavior approaches differ from affective and cognitive approaches to studying consumer behavior?

2.      What is classical conditioning and how it used by marketers to influence consumer behavior?

3.      What is operant conditioning and how it is used by marketers to influence consumer behavior?

4.      What is vicarious learning and how is it used by marketers to influence consumer behavior?

5.      What consumer behaviors are of interest to marketing management?

6.      How much control does marketing have over consumer behavior?

7.      How do and affect and cognition and environments affect behavior?

8.      How does behavior influence affect ,cognition and environment?

9.      How can behavior theory be used by marketing managers?

10.  Does the frequency and quality of consumer behavior vary by individuals, products and situations?

Relationships among Affect, Cognition, Behavior and the Environment

In Exhibit 2.1 each of the three elements is conducted by a two headed arrow signifying that any of them can be either a cause or an effect of a change in the either element. For Example, a consumer might see an ad for a new laundry detergent that promises to clean clothes better than Tide. This ad might change what the consumer thinks about the new brand and lead to a purchase of it. In this case a change in the consumer’s environment (the ad for new detergent) led to a change in cognition (the consumer believed the new detergent was better), which led to a change in behavior (the consumer bought the new brand).

A change in laundry detergent purchase and use could come about in other ways, however. For example, a consumer could receive a free sample of a new liquid detergent in the mail, try it out, like it and purchase it after that. In this case a change in the consumer’s environment (the free sample) led to a change in behavior (use and purchase), which led to a change in the consumers affect and cognition (liking the new brand).

Another possibility is that a consumer might be dissatisfied with his/her current brand of laundry detergent. On the next trip to the grocery store, the consumer inspects other brands and selects one that promises to get white clothes whiter. In this example, a change in affect and cognition (dissatisfaction) led to a change in the consumers environment (inspecting other brands), which led to a change in behavior (purchase of a different brand).

Although changes can occur in other ways, these examples serve to illustrate our view of consumers. Namely, that consumer processes not only involve a dynamic and interactive system, but also represent a reciprocal system. A reciprocal system is one in which any of the elements could be either a cause or an effect of a change at any particular time. Affect and cognition can change consumers affect, cognition and environments. Environments can change consumer’s affect, cognition and behavior.

There are five implications to viewing consumer processes as reciprocal system involving affect and cognition, behavior and the environment. First, any comprehensive analysis of consumers must consider three elements and the relationships among them. Descriptions of consumers in terms of only one or two of the elements are incomplete. For example to assume that affect and cognition always cause behavior and ignore the impact of environment underestimates the dynamic nature of consumption processes. Similarly to assume that the environment controls behavior without consideration of affect and cognition also gives an incomplete description. The development of marketing strategies should include an analysis of all three elements, their relationship and the direction of causal change at particular times.

Second, it is important to recognize that any of the three elements may be the starting point for consumer analysis. Although we think that marketing strategist should start with an analysis of the specific overt behaviors consumers must perform to achieve marketing objectives, useful analyses could start with affect and cognition by searching think and feel about such things as the various brands of a product. Alternatively the analysis could start with consumer’s environments by examining changes in their world that could change their affect, cognition and behavior. However regardless of the starting point all three elements and their relationships should be analyzed.

Third because this view is dynamic, it recognizes that consumers can continuously change. Although some consumers may change little during a particular time period, others may frequently change their affect, cognition, behavior and environments. Thus keeping abreast of consumers involve continues research to detect changes that could influence marketing strategies.

Fourth although our example focused on a single consumer, consumer analysis can be applied at several levels. It can be used to analyze not only a single consumer, but also groups of consumers that make up a target market a larger group of consumers made up of all the purchasers of a product in an industry or an entire society. Because marketing strategies can be applied at all of these levels, this approach is useful for all types of marketing issues, as discussed at the end of this chapter.

Finally this framework for analyzing consumers highlights the importance of consumer research and analysis in developing marketing strategies. As shown in Exhibit 2.2, consumer research and analysis should be key activities for developing marketing strategies. Consumer research includes many types of studies such as test marketing, advertising pretest, sales promotion effects, analysis of sales and market share data, pricing experiments, traffic & shopping patterns, brand attitude & intentions and many others.

Highlight 2.3

Some Basic Questions about Consumer Environments

Environmental psychology seeks to extend knowledge about the relationships between environmental stimuli and human behavior. In consumer research the major environmental factors examined have been concerned with the impact of various societal aspects. Carefully studying and thinking about the information in Section 4 of this text should help you develop informed answers to these questions about the environment:

1.      In what physical environments do consumer behavior occurs?

2.      How do environments affect consumers affect, cognition and behavior?

3.      How do consumer affect, cognition and behavior affect the environment?

4.      What effect does culture have on consumers?

5.      What effect does subculture have on consumers?

6.      What effect does social class have on consumers?

7.      What effect do reference groups have on consumers?

8.      What effect do families have on consumers?

9.      In what ways do consumers influence each other concerning marketing offerings?

10.  How powerful are interpersonal influences on consumer behavior?

Exhibit 2.2

The Role of Consumer Research and Analysis in Marketing Strategy

Exhibit 2.3

The Wheel of Consumer Analysis

 

A logical sequence is to first research and analyzes what consumer think, feel and does relative to a company’s offerings and those of competitors. In addition an analysis of consumers’ environments is called for to see what factors are currently influencing them and what changes are occurring. Based on this research and analysis a marketing strategy is developed, which involves setting objective, specifying an appropriate target market and developing a marketing mix (product, promotion, price, place) to influence it. After the target market has been selected based on careful analysis of key differences in groups of consumers, marketing strategies involve placing stimuli in the environment that will hopefully become part of the target markets environment and ultimately influence it members behavior.

Consumer research and analysis should not end when a strategy has been implemented, however. Rather research should continue to investigate the effects of the strategy and whether it could be changed to be more effective. For example, although Arizona Beverages implemented a successful strategy for its selling products, it tried to increase its market share by using squeezable sports bottles with a nozzle just like that one athletes use to guzzle on the run. Thus marketing strategy should involve a continuous process of researching and analyzing consumers and developing, implementing and continuously improving strategies.

Marketing Strategy

From a consumer analysis point of view, a marketing strategy is a set of stimuli placed in consumers environments designed to influence their affect, cognition and behavior. These stimuli include such things as products, brands, packaging, advertisements, coupons, stores, credit cards, price tags, and sales people’s communication and in some cases, sounds (music), smells (perfume) and other sensory cues.

Exhibit 2.3 presents our complete framework, which we call the Wheel of consumer analysis. It is a wheel because it is constantly rotating with changes in consumers and in marketing strategy. Marketing strategy is treated as the hub of the wheel because it is a central marketing activity and is designed by marketing organizations to influence consumers.

Clearly marketing strategies should be designed not only to influence consumers but also to be influenced by them. For example, if research shows that consumers are disgusted (affect and cognition) with the advertisements for Calvin Klein jeans, the company may want to change its ads to better appeal to the market. If research shows that consumers in the target market do not shop (behavior) in stores where a company’s product is featured, then the distribution strategy may have to be changed. If research shows that consumers want to able to get information from a company’s web page (environment) and none exist, the company may want to create one. Thus marketing strategies should be developed, implemented and changed based on consumer research and analysis.

Section 5 of this text is devoted to a discussion of marketing strategy. Although the entire text focuses on applying consumer analysis to marketing strategy issues, section 5 focuses specifically on market segmentation and each of the elements of the marketing mix product, promotion and place (channels of distribution). Highlight 2.4 offers a sample of the types of questions Section 5 is designed to answer.

Highlight 2.4

Some Basic Questions about Marketing Strategy and Consumers

Consumers are the focal point in the development of successfulness marketing strategies. Marketing strategies both influence and are influenced by consumers affect and cognition, behavior and environment. Carefully studying and thinking about the information in section 5 of this text should help you developed informed answers to questions about marketing strategies such as the following:

1. What are some effective ways to segment markets?

2. How can products be effectively positioned?

3. What are the relationships between product strategies and consumers?

4. What are the relationships between promotion strategies and consumers?

5. What are the relationships between channels of distribution and consumers?

6. What are the relationships between pricing strategies and consumers?

7. What consumer variables affect the success of a marketing strategy?

8. How can a firm develop brand loyal consumers?

9. What is the role of consumer role satisfaction in developing successful market offerings?

10. How does non store consumer behavior differ from that in stores?

Levels of Consumer Analysis

As noted, consumer research and analysis can be conducted at several different levels. The wheel of consumer analysis is a flexible tool that can aid in understanding different societies, industries, market segments or individual consumers. It can be used fruitfully by both marketing strategist and public policy officials to understand the dynamics that shape each of these levels.

Societies

Changes in what a society believe and how its members behave can be analyzed with the wheel of Consumer Analysis. For example, a recent change in our society involves greater concern with health and fitness. How did this change occur? Surely, consumers were always concerned with living long happy lives. A growing body of medical research indicated people could be healthier and live longer if they ate properly and exercised regularly. This research may have changed attitude of some consumers about their eating and exercise habits. As these consumers, particularly on the West Coast, changed their attitudes and began living more healthful lifestyles, many the other consumers copied these beliefs and behavior patterns. In addition healthy well shaped people are considered more attractive in our society. This belief may have accelerated the health and fitness movement. Also, because a variety of health related industries, such as health foods, exercise equipment and sports apparel, developed and promoted proper eating habits and regular exercise, consumers were increasingly exposed to the concept and effects of an active lifestyle.’

Of course, not everyone in society has changed his or her lifestyle and some who did reverted to less healthful habits. However the brief discussion here shows changes in the environment (medical research reports), cognition and affect (beliefs about how to live longer and healthier), behavior (eating healthful foods and exercising) and marketing strategies (development and promotion of health food, exercise equipment and apparel products) that interacted to create this change in society in general. The Wheel of Consumer Analysis can account for these changes in our society and can also be applied to other societies to help explain their structures and practices.

Industries

The Wheel of consumer Analysis can be used to analyze the relationships of a company and its competitors with consumers in specific industries. For example, consider the effect of health concerns on the beer industry. Lite beer from Miller took advantage of the health movement and created the market for reduced calorie beer. Miller Brewing Co. became the light beer market leader by being the first to offer a product that was more consistent with a change occurring in society and it also through developing and marketing the product, helped accelerate the change. Thus, a change in consumer beliefs and behavior concerning calorie intake influenced a marketing strategy to introduce and spread the change in consumer beliefs and behaviors. The success of the product influenced competitors to also offer light beers, further changing demand for this product category.

However another change in this industry is the concern with responsible drinking, which decreases demand alcohol products in general. This change has led to the development and marketing of nonalcoholic beers and for many consumers, abstinence from any alcoholic beverages. Consumer groups, such as Mothers against Drunk Driving and students against drunk driving, have also influenced many members of society to reduce their alcohol consumption. Although being drunk and boisterous was considered acceptable behavior a few years ago, many consumers no longer find it so. Similarly, smoking was at one time considered a sign of maturity and being cool, whereas today fewer and fewer public places tolerate smoking.

At the end industry level, changes in consumer cognition, affect and behavior can threaten existing products and can also offer opportunities to develop products more consistent with new values and behaviors can threaten existing products and can also offer opportunities to develop products more consistent with new values and behaviors. Successful marketing strategies depend on analyzing consumer product relationships not only for the company’s products, but also for those of competitors and creating an advantage over competitive offerings.

Market Segments

The Wheel of Consumer Analysis can be used to analyze groups of consumers who have some similarly in cognition, affect, behavior and environment. Successful firms in an industry usually divide the total market into segments and try to appeal most strongly to one or more of them.  For example, the emphasis on health encouraged many consumers to become involved in sports. However, specific shoes designed to play each sport effectively were not always available. Today, consumers can find many varieties and styles of shoes for running, bicycling, soccer, basketball and other sports. These shoes vary in design, features and price ranges to appeal to groups of consumers that are similar in some ways.

Reebok for example developed its Blacktop shoe for young basketball players on urban outdoors courts. The shoe is a few ounces heavier than those of competitors, moderately priced and designed for performance on asphalt and concrete. The shoe looks good so it appeals to the 80 percent of consumers who buy athletic shoes solely for fashion, but it also is tough enough to stand up to rugged outdoor play. The shoe was sold out in many stores in its first two months and was expected to sell over 2.2 million pairs in its first year, a smashing marketing success. Thus by understanding the wants and preferences (cognition and affect) of urban youths (target market) for a good looking, moderately priced, long wearing shoe, promoted regular guys who play basketball (behavior) on outdoors courts (environment), Reebok developed a successful marketing strategy.

Individual Consumers

Finally, the Wheel of Consumer Analysis can be used to analyze consumption history, a single purchase, or some aspect of a purchase for a specific consumer. Lands End a catalog marketer carefully analyzes individual consumers in terms of their previous purchasing history. The company can then target individual consumers with specialty catalogs of the types of merchandise previously bought. To understand Barbara Linton’s purchase of a Smith & Wesson handgun, we need to consider her affect, behavior, cognition and environment.

Buying a Smith & Wesson

This case provides a simple description of the purchase of a gun and accessories. We hope it is written in such a manner that you can easily understand the sequence of events. However, imagine how difficult it would be to try to describe these events by considering only cognitive and affective or behavioral or environmental factors.

Cognitive and affective factors, such as Barbara concerns for her family’s safety, her information processing and decision making to buy a gun and her feelings of greater safety, are useful but they alone could not explain what Barbara did and environmental factors that influenced these thought and actions. Her overt behavior, such as visiting her uncle, trying the gun and purchasing the gun and equipment, is also helpful but is incomplete for capturing the meaning of the behavior and context it, which these actions occurred. Environmental factors such as the news reports on crimes, the proximity of the crimes to her neighborhood, the information from her uncle, the look and feel of the gun, the feedback from the environment from her shots hitting the target, and the time lapses and place changes between the events described, are necessary for understanding the case but are quite sterile when discussed independently of Barbara’s cognitive, affective and behavioral events.

Thus, even for a simple description of a consumer purchase, all three elements affect and cognition, behavior and environment work together to provide efficient, useful knowledge of consumer behavior. All three are also necessary for academic attempts to understand consumers and for managerial attempts to develop successful marketing strategies. Analyses of all three elements are superior to any one or two of the elements taken in isolation.

Finally all three elements of the wheel are needed to understand not just a gun purchase by an individual consumer, but also society’s views and uses of guns, the gun industry and various target markets for guns and various brands and models. Whether one is developing a marketing strategy to sell guns or legislation to stop the sale of guns, analysis of consumer affect and cognition, behavior and environments is required for effective action.

Summary

In this chapter, we presented our overall framework for the analysis of consumer behavior. We also described a general approach to developing marketing strategies intended to influence consumers affect and cognition, behavior and environments. We believe this framework can help you understand many of the complexities of consumer behavior. However other concepts related to consumer behavior must be considered. Later in this text, we will present many of these concepts and discus how they can be used to develop, select and marketing strategies.

Key Terms and Concepts

Affect

Behavior

Cognition

Environment

Marketing strategy

Reciprocal system

Review and Discussion Questions

1.      Explain consumer affect and cognition, behavior and environment. Why do marketers need to consider all three in developing strategies?

2.      Explain the relationship between consumer environments and marketing strategy?

3.      Why marketing strategies ultimately influence overt consumer behavior in order to be successful?

4.      What are the implications of viewing consumer processes as a reciprocal system?

5.      Explain four levels at which consumer analysis can be conducted. Offer one example of how consumer analysis could aid marketers at each level?

6.      Offer three examples of how a change in a marketing strategy led to changes in your affect, cognition, behavior and environment?

7.      In considering answer to Question 6, do you think there was anything unethical in the marketing strategies?

8.      Look up information on aging in the United States at the census Web site, http://www.census.gov. What changes are taking place in the age of the population in general and in racial, ethnic and gender groups? For what levels of consumer analysis would this information be useful?

Marketing Strategy in Action

Subway Sandwich Shops

FredDeLuca was looking for a way to earn enough money to pay his tuition at the University of Bridgeport, where he was majoring psychology. Backed by a partner and a check for $1,000 the 17 year old rented a small store in downtown Bridgeport, Connecticut, for $ 165 a month. He built a small take out counter and began selling what he called “subs” those tunnel shaped sandwiches, also known as heroes, grinders, poor boys, hoagies, depending on what part of the country you are from. The first subway store got off to a flying start. So many people showed up on opening day that DeLuca had to hire people waiting in line for subs to help him make the Sandwiches. The store sold out its provisions within hours.

After sixth months, however the store was losing money. Instead of closing, DeLuca and his partner opened a second store to create the illusion of success. Within a year there was three stores and business started to pick up.

By 1973 there were 16 stores. At this point DeLuca and his partner decided to sell Subway franchises: by 1978 there were 100 stores. By 1982 there were 200 stores and DeLuca set a goal of 5000 stores by 1994 he achieved this goal by 1990. By June 8 1993, Subway operated 7,825 stores and was rapidly becoming the largest chain in the world behind McDonalds. Subway management believes that the franchise can expand to 12,000 to 15,000 stores worldwide.

Subway’s rapid growth has not been without problems. Some Subway franchises have complained that the DeLuca has glutted certain markets, making it difficult for them to make healthy profits or even stay in business. DeLuca says the average franchisee makes a profit of between $40,000 and $50,000 a year. He says only about 1 percent of the stores fail.

From Subway’s Success fast food chains have gleaned a simple message: Consumers perceive submarine sandwiches to be a fresher more healthful alternative to burgers and fried foods. Thus a number of fast food chains have started offering submarine sandwiches as part of their menu and other submarine chains, such as Blimpie and Cousins subs are spreading to new markets.

Subway however has a number of points working in its favor. First consumers equate it with submarine sandwiches, which they perceive as healthy. Second, Subway has the advantage of being nation wide it can advertise nationally and it offers the same menu in all of its stores so that consumers know what to expect when they see subway stores. Third, Subway recognizes the importance of offering good value to consumers. For example, it cut the price of its best selling sandwich; the turkey based Cold Cut Combo from $1.89 to $1.69. By making the combo with thinner slices of meat Subway was able to cut the price again to $1.49 sales of sandwich rose to record heights.

Fourth Subway management has demonstrated good marketing abilities. For example, it offers a stamp for each submarine purchased to be placed on a “Sub Club” card. After the customer has bought 12 subs, the card can be redeemed for a 6 inch sub. Twenty four stamps get the customer a foot long sub. This is a useful tactic for developing store loyalty.

Discussion Questions

1.      Based on the case information and your personal experiences, list at least five things you know about Subway. This list offers you some idea of your cognitions about this restaurant chain.

2.      Based on the case information and your personal experiences, list at least five things you like or dislike about Subway. This list gives you some idea of your affect for this restaurant chain.

3.      Based on your personal experiences in buying submarine from subway (or a purchase in another fast food restaurant if you haven’t been to Subway), list at least five behaviors you have performed in making purchase. This list gives you some idea of the behaviors involved in purchasing from a fast food restaurant.

4.      Based on the case information and your personal experiences, list at least five things Subway has done in the environment to influence consumers to purchase subs. This list gives you some idea of how the environment influences cognition, affect and behavior.

5.      Write a brief description of a purchase you have made from Subway (or another fast food restaurant if you haven’t been to Subway). Did the purchase involve cognition, affect, behavior and the environment?

6.      Visit Subway’s Web site at http://www.subway.com. Do you think it has good Web site? Why or why not?

Source: John P.Cortez, “Subway Builds Its Way to No.2, “Advertising Age July 5, 1993, p.32; John Birmingham, “what now?” Restaurant Business, July 20, 1992, pp. 80-88; Denise Lavde, “Owner: Subway Become Giant “By Accident,” Wisconsin State Journal, July 11, 1993, p 1E+; http://www.subway.com.