Sunday, February 14, 2010

Promotional Pricing

Promotional Pricing is when companies temporarily price their products below list price, and sometimes even below cost, to increase short-run sales (Kotler Pg. 277).

That is exactly what Stuart Frankel did 6 years ago when he noticed that sales at his two Subway franchises in Florida were lagging. Little did he know, his idea of introducing a "$5 footlong" sandwich on weekends would erupt into a successful, nation-wide Subway campaign.

He said that he offered the usual sandwiches on the menu just a dollar below list price. He did not anticipate the long lines that would result from this slight decrease in price, or that fact that his profit margins weren't at all reduced! As it turns out, the product he was selling was very elastic.

Eventually, the top managers at Subway caught wind of this successful promotional pricing strategy, and decided to take it nation-wide. They advertised heavily and brought in around $4 billion within the first year of the promotion.

The success of the $5 footlong promotion has made Subway one of the Top Ten fast food franchises in America. It is also the perfect remedy for a satisfying meal during a recession when Americans are more cautious with their spending habits.

Kotler explains that promotional pricing tends to be short-term, but in the case of Subway, it has been long-lived. So will this campaign ever end? Due to the success of it, I personally think it will be around a long time. Which is a good thing for us frugal college students!!!! :)

Kylee Wible
Section E

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