Web Exclusive | December 2011 | By Daniel P. Smith

Wendy’s, Subway Slash Prices

Recent efforts by the two brands show quick serves are trying to fill a pricing void.

On December 1, Subway rattled the quick-service world when it announced its latest promotional offer: $2 six-inch subs.

As a “Customer Appreciation Month” promotion, the $2 December-only deal may be Subway’s boldest play yet in the pricing wars to compete with other chains’ value menus.

“[Subway is] clearly trying to take the focus off of what people can get for $1,” says pricing consultant Leslie Kerr, founder of Boston-based Intellaprice.

While Subway’s popular $5 footlong program already hits on value messaging, it still features items that are five times the cost of dollar-menu entreés, such as McDonald’s McDouble and Burger King’s Junior Whopper.

"For Subway, who can't get into the 99-cent battle, this is the next best thing. The $2 price point is definitely a way to get to the other end of that barbell,” Kerr says, referring to pricing strategy that has premium-priced products on one side of the menu and price-conscious offerings on the other.

Concocting the right price mix is becoming increasingly critical to attract diners in today’s economic climate.

Already in the popular $1 space with its My 99¢ Everyday Value Menu, Wendy’s introduced its Dave’s Hot ‘N Juicy premium hamburger lineup in September, a line that initially featured three burgers in the $4–$5 range.

But last month, the new W hamburger, featuring a pair of 2.25-ounce patties, two slices of cheese, a signature sauce, onions, lettuce, and crinkle-cut pickles, made its debut. At $2.99, the W fits a price niche between the premium Hot ‘N Juicy line and the 99-cent deals. The hope, a company representative says, is that customers see value in the W and step up the pricing ladder.

“When you can cover all price points, there are simply more opportunities and choices for value to the consumer,” says Wendy’s spokesman Denny Lynch.

Although Lynch acknowledges that it's too early to determine the W’s success, he says other brands need to take advantage of the new mid-tier-pricing strategy.

“When you can cover all price points, there are simply more opportunities and choices for value to the consumer.”

“We can’t all live at 99 cents, especially considering where food costs are going,” Lynch says. “We have to be able to present a strategic menu that offers value and does so beyond the 99-cent price point.”

Subway chief marketing officer Tony Pace says consumers will see the $2 offering for what it is: a show of gratitude during the holiday season.

“At the end of the day, we know it’s a compelling price point,” Pace says of the offer, which is only available with the Meatball Marinara and Cold Cut Combo sandwiches. “To be able to say to customers ‘we’re on your side’ is important to us.”

Pace says company leaders view the December deal as a goodwill builder and traffic driver during a traditionally challenging month.

The company’s $2 deal is similar to its famous $5 footlong, which also began as a limited-time offer. While the $5 footlongs have grown into a $4 billion brand, Pace says, the company intends to respect the $2 deal’s month-long shelf life.

“We will stop this deal at the end of December, though we will come back to the customer-appreciation theme again,” Pace says.

Ultimately, Kerr says, the value for both Subway and Wendy’s extends beyond offering price variety to consumers and strengthening the barbell.

“I look at all of these as marketing plays,” she says. “The $2 deal, the W burger—these are new news and give people something to talk about. Regardless of what people buy, these offerings can get people in the door, and that's effective, too.”