Have you ever wondered why some
retail organizations struggle, while
others make record profits? While product mix plays a huge role, other factors also are at work in the marketplace.
A key — and sometimes overlooked —
element is franchise attractiveness.
“The phrase ‘franchise attractiveness’ is
not about the literal appearance of a retail
outlet but rather the attractiveness of the
brand itself to potential franchisees and
consumers,” says Mitch Phillips, director
of network analysis at Urban Science, a
Detroit-based global channel optimization
firm. “A network of strong franchisees
can do wonders for a retail organization,
so it’s in the best interest of the franchisor
— the retail organization — to make its
franchise value proposition as appealing
as possible to attract the finest franchisees in the marketplace.”
SmartBusiness asked Phillips why franchise attractiveness is important and how
retail organizations can strike the perfect
balance between their interests and those
of their franchisees to form mutually beneficial partnerships.
Where do you begin this complex task?
First of all, it’s necessary to understand
that the franchisor, the franchisee and the
consumer all have different — and sometimes conflicting — objectives. The job of
the franchisor is to increase sales and to
reinforce the brand image. The franchisee,
on the other hand, wants to obtain a favorable return on investment (ROI). And then
there’s the consumer, who wants to get a
great product at a good price via a convenient location.
Now you must add in another factor:
the competition. It’s a given that competing franchisors have identified similar in-market opportunities; so not only will
you be competing against them for the
eventual end consumer, you are similarly competing for the same potential market of entrepreneurs looking to invest.
You must be very concerned with the relative value, or attractiveness, of your
franchise.
And while it is not a one-dimensional issue, the bottom line for an investor is that
franchise attractiveness depends on ROI,
which depends on sales at that outlet.
Sales, of course, are influenced by many
things, including factors across the retail
network or items within individual franchisee operations.
How does the consumer fit into the picture?
If consumers aren’t drawn to your brand
and its products, you’ll have a difficult time
making a sale. And not only do they have to
like the products, they have to think the
pricing is fair. You have to use relevant and
timely advertising and marketing efforts
via the most appropriate media in order to
get the word out.
Then, once you’re able to get consumers
into your store, the sales approach used
there can also be a deciding factor in
whether someone buys your product or
not. Also, what is the facility like? Is it
clean, well-kept and convenient? Is there
ample parking?
In a perfect world, all of these operational
elements would be consistent across the
retail network, and the consumer will just
go to the closest, most convenient location.
In reality, though, all things aren’t equal.
The draw of each retail outlet can be increased by tweaking the inventory, pricing, advertising, sales approach and the
facility itself.
What kinds of retail network aspects affect
franchise attractiveness?
With any network, the franchisor is
responsible to determine and implement a
retail plan with the correct number and
locations of retail outlets in order to
ensure that franchisees have the opportunity to maximize their retail performance
objectives. Clearly, franchisor action
directly impacts the opportunity that is
reasonably available to the franchisee.
For instance, if a franchisor places too
few retail locations in a market — therefore making each store’s opportunity very
large — then the likelihood of success
declines dramatically.
This sounds fine in theory, but how does it
work in reality?
It’s all about finding the perfect balance
between franchisee ROI and sales performance, without ignoring the desires and
needs of consumers. We’ve seen such a balance occur in real life, which resulted in 50
percent higher share and a higher ROI for
franchisees.
One way to achieve balance is to align
standards with consumer demands, manage dealer opportunity, establish relationships between standards and performance
and finally, optimize ROI and brand performance.
These steps are just one example of how
to increase franchise attractiveness; there
are many different paths that lead to success in this area. As with many things in
life, there’s no one-size-fits-all answer.
MITCH PHILLIPS is director of network analysis at Urban
Science. Reach him at (313) 259-9900 or (800) 321-6900. Learn
more at www.urbanscience.com.
