Why should you become a franchisor?
Make a Success of Your Products!
More and more companies are finding themselves being limited by traditional distributive channels. A possible solution to this is to build up one’s own sales network. A system of branches or a team of fieldworkers requires resources, however, which new companies often do not possess. Besides this the fixed costs are also increased and consequently the entrepreneurial risks involved are greater. For such a situation distribution franchising offers an alternative:
Advantages of Distribution Franchising
By having independent business people in the sales network, franchisors do not need to find capital to invest in the various areas. At the same time the franchisees use their own working power and take over a share of the entrepreneurial risks. As well as this distribution franchising offers further clear advantages:
- The motivation at the point-of-sale is higher than in
a branch store as the franchisees are responsible for the business. Our
experience shows that sales increase by 10-15% once a branch store has been
changed into an independent franchisee business.
- The system’s head office’s close management of the
franchisees allows the system’s uniform marketing concept to be consistently
carried out by all the franchisee shops.
- There are clear regulations concerning the set-up of
the shops, the presentation of the different goods and the structure of the
- As the shops specialise in the franchisor’s products
so their competence increases with regard to the customers. This is even more
significant when the products require much explanation.
- As the shops have a uniform design and appearance customers recognise them
wherever they are. With the customers’ increasing mobility this is an
additional competitive factor.
- Franchise systems bring in long-term profits when a
mutual cooperation exists between the partners and when they are in a position
to recognise and react to changes on the market.
- Franchise businesses offer franchisors a strategic
sales potential. In comparison to independent wholesalers and retailers, they
are able to calculate their method of ordering in a better way as a result of
the cooperation regulations defined in the franchise contract and business
- The system’s regulations and control mechanism ensure
that the dealings with the customers remain at a consistently high level of
quality. Despite the fact that the system is operated nationally, the people
with whom the customers deal are oriented towards the local market. They are
often from the region themselves. Key customers have someone in their own area
to cover their requirements.
- The network of franchisee businesses provides a source of market information and suggestions for improvement. For this source to be efficiently used, however, there must be a relevant communications instrument in place within the system as well as a reception point for suggestions.
Preconditions for Building up a System
For building up a system the franchise system must not endanger the traditional channels of distribution so that a company does not suffer a loss in sales whilst building up the system. On the other hand the franchise businesses must be protected from competition from the other channels of distribution. Such a competition would endanger the system’s uniform corporate identity and reduce the franchisees existing exclusive sales rights within an area. An innovative kind of business must be developed for marketing the products. This could be, for example, a retail business, a shop-in-shop system or a concept for marketing in the field. Profit expectations, chances and risks for the future franchisees in the business must be realistic and calculable. They must be proven by at least a pilot business and later by the results of existing franchise businesses. Franchisors must own the necessary industrial property rights for the brand names used by their company. Resources must be made available for building up the system and setting up the system’s head office.
Source: Jens Syring, Management Consultant