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.