Will Franchising dilute my Brand Equity? A Franchisor seeks answers…
With so many brands opting for the franchising routes to increase market reach and cash in brand image, not all brand owners are convinced that the franchise model is the best route to achieve growth objectives.
Although there are so many online articles promoting the benefits of franchise models and success stories, there are very few which focus specifically on query when to avoid the franchising route.
We at selloverseas.com also receive many queries for franchise consultancy where brand owners are seeking only franchisee models. However after sharing feasibility studies on market entry, logistics planning, explaining pros and cons etc. we have been able to help our clients to decide on the best option to expand channels and create sustainable sales growth through other routes also.
It is better to weigh all options such as own branded stores, appoint distributor, authorized reseller, retail or commission agent for a given product or service.
Please share your thoughts at [email protected] to alleviate the below doubts of the Franchisor for benefit of our registered members.
Will Franchisee be motivated to maintain the required quality & standard?
Franchisee contracts for fixed period typically three to five years however business being in dynamic environment, external factors may lead to ups and downs. During downturn franchisee may lose initiative or compromise on service standards.
In realistic scenarios people continuously look for their self-interests, this opportunistic behavior may lead them to do what is best for them. This could be an unfortunate situation for the franchisor and franchisee.
A legal expert may suggest build clauses to maintain the agreed standards. But in reality, binding parties have invested time, money, and goodwill to get this relationship going. The answer we seek here to question
What can be done to motivate franchisees during difficult market situations?
Why should I share my trade secret?
The franchise that creates a brand to reckon with normally has some USP for e.g. KFC may have a secret technique to fry chicken; a pharmaceutical franchisor is probably using a formulation on which they have spent years researching.
They always have a fear that trade secret will be lost or may lead to intellectual property issues. Now this is a tricky one; yes we can have IP protection, trademark registration but when you are dealing with local laws in countries like China, Venezuela or Cuba it may not hold much ground.
We look forward to your inputs on how to avoid intellectual property risks?
This is the most common fear while appointing a franchisee; a PR fiasco by one of the franchisee units may bring down the whole BRAND or can have a ripple effect on all other units.
Even the best due diligence cannot foresee such a risk. The best way is to learn how to communicate BRAND strength and manage the issue at hand. It is the primary reason BRAND invests a substantial part of franchise income to hire the best PR professionals.
Please share your experience of how you manage PR communication to preserve brand image?
Huge Cost of retraining and replication
Business cycles are dynamic i.e. product or service evolves, grows, matures and decay. Brands consistently innovate to keep themselves updated with the latest technology, trends and tastes. The cost of re-training, educating, and maintaining uniformity is substantial in a franchise model.
Is this the reason why APPLE operates its own stores?
Once a franchisor understands the risks and has sufficient infrastructure to mitigate them, a franchise model could be the right way to expand your brand. The next step should be to prepare a draft business plan and estimate the initial capital required, working capital requirements, ROI time period, etc. to convince and motivate franchisees to invest.
There are the two basic documents franchisor and franchisee agreement, where legal protections are documented. Secondly, the franchisee manual provides answers to all operational procedures and guidelines on how to successfully run the franchise.
Selloverseas team can guide franchisors from an early stage on how to obtain legal guidance and developing franchisee manual and related documentation?
1. What is the difference between franchisee and franchisor?
The major difference is franchisor directly owns the trade-marks and business model; whereas the franchisee is the person or Corporation that owns and operates the business using the trade-mark and business model system licensed
2. Which Business categories mostly used the Franchise model?
Mainly two categories Service industry & Consumer Product companies prefer to use franchise models;
Service Industry: F&B Franchise like Ice cream parlour Franchise; Fast Food Franchise etc. Or
Education Franchise- Coaching and tutoring; pre-school franchise, Nursery Schools etc. Or
Health and Wellness Franchise- Gym, weight loss franchise etc.
Consumer product: Gems and Jewellery Franchise, Clothing Franchise, Cosmetics and beauty franchise or nutrition and wellness products and many more.