By Raffi Darrow
March 2005
© R-Design, Inc.
When building a new business, there must be a lot of time and consideration put into growing a client base. Some people with an entrepreneurial spirit don’t wish to “reinvent the wheel”. They want to be their own boss, but would like a business that has some groundwork already built and footsteps to follow. Such is the route of a franchisee.
The greatest strength of franchising is the ability to build a business using a concept that is already recognized. Your logo, colors and storefront have already been tweaked to fit the market. Decisions about business cards and signage have already been made for you, so you can focus on running a business instead of building brand awareness. Franchisees get the advantage of marketing, training and team-like support. (And buying an existing franchise can provide you with a database of existing customers.)
At closer observation, there are both benefits and consequences of this connection to a trademark. Some of the important advantages include:
- Brand Awareness - Consumers want to work with companies they know and trust. It can take years for a business to build a brand name backed with this kind of integrity. A franchise provides you with this polished concept.
- Training - Nearly all franchise companies provide training. After all, the company is only successful if its franchisees are profitable.
- Purchasing Power - Most franchise companies purchase their goods and supplies at reduced rates because they buy in bulk. These savings can be passed back to the franchise units.
- Proven Business Plan - Through years of experience and research, flourishing franchise companies know what works. The goal is to teach their formula for success to each franchisee to help build the brand.
- Advertising – Many franchise companies support their franchisees with local and national advertising to establish name recognition and help drive sales.
- Support - Successful franchise companies provide support which may include ongoing training, product enhancements, system upgrades as well as assigning representatives to a geographical area for question and answer support.
- Purchasing Power - Most franchise companies purchase their goods and supplies at reduced rates because they buy in bulk. These savings can be passed back to the franchise units.
In addition to the advantages given to the franchise owner, the consistency presumed of a franchise produces great advantages for us, the consumers, as well. Franchising creates a new level of efficiency and competitiveness, resulting in quality and pricing that benefits consumers first. “Consistency gives consumers confidence in a business,” says Robert A. Robicheaux, chair of the Department of Management, Marketing and Industrial Distribution at the University of Alabama, Birmingham. When we walk into a well known franchise like Subway or The UPS Store, and get the experience we expect, the result is a feeling of assurance with the company. And some franchises, like Starbucks and Barnes & Noble, actually provide an expected experience, not just a product.
It takes a village…
There is usually a franchise fee for advertising on a regional or national basis. Most larger franchisors require their franchisees to pay a certain amount into a national fund used to advance the concept. These dollars are pooled together. For example, McDonald's has advertising funds of nearly $100 million, paid by the franchisor and individual franchisees. The upside is substantial in terms of the visibility you get with the type of advertising that most franchisors do. Allstate Insurance gives their independent agents the option of being included in a full page ad in the yellow pages along with the other local offices. You get a reduced advertising rate, but the ad may mention an office 5 miles away from you. On the other hand, Allstate’s national advertising does not mention specific locations and reinforces the company name at no cost to the agent.
But what about marketing items specific to one location? A Saint Petersburg, Florida, franchisee for Schakolad was happy that she didn’t have to put any thought into ordering her business cards when she started. The company just added her location’s address and phone number, and the cards were ready before the shop even opened. This need to completely identify with corporate branding can also put franchisees at a disadvantage. Outside signage can be very expensive for a business owner. Most franchisors have developed a sign package that the franchisee is obligated to purchase. Decision-making in terms of size and style is done for them, but the decision of whether or not to purchase such signage is no longer their own.
Big guys vs. the little guys
When comparing large, national franchises, like McDonald’s, to a regional or smaller chain, like Whattaburger, those interested in purchasing a franchise need to weigh national exposure vs. cult-like regional dominance. Kevin Hogan, president of Houston-based Liberty Development Consulting LLC, who works with the Whattaburger Franchise, talks about this concept. “It’s a matter of individual location, brand awareness, marketing power and media efficiency,” he says. Replicating the success of a regional franchise in an area where there’s no brand recognition will be tricky for the franchise owner.
For example, if you decide to be the first to start a Chicago-based franchise in California, the past five years of advertising targeting the midwest does not offer you much marketing support. But if you build one in St. Louis, Missouri, you’ll get more results from their media campaigns and a return on the advertising fees you’re required to pay as a franchisee.
Interdependency
Franchisees are interdependent because of the trademark they share. It can provide benefits but it can also constrain them. Each franchised location usually has the same storefront style, hours and pricing – regardless of geographical location, culture and franchise operator. If an oil and filter franchise opens in a strip mall near suburbia, they will have higher rent and overhead than the location near the outskirts of the city, but they may be locked in to the prices they have to charge for an oil change. Consumers also see individual franchises as part of one larger company. If they have a bad experience at one location, they may go to complain or ask for a refund at an alternate location, causing one franchisee to bear the burden of another’s mistake.
These unintended consequences are part of the franchise game. A franchise company that is truly helpful will work through problems with each franchisee on an individual basis. It may mean that a Quizno’s in the city is open 3 hours later than the one uptown. But franchisers also realize that imposing and maintaining a certain standard for all franchise outlets is what protects and reinforces their brand.
Know where you came from
Each franchisee invests their money, time and life into building their business. They have assistance, training, guidance and benefits other entrepreneurs may not receive when they go out on their own. And at the end of the day, they have to remember that they did not build their franchise all on their own. A corporate team and existing brand recognition is what contributed to their success.