Advisory Jul, 18 2011

Know the market before you invest

With almost every business or industry taking up franchise model it is becoming difficult for the business aspirant to zero down on a business opportunity that is best suitable for him. Under such circumstances, a thorough market research holds the key fo

By Abha Garyali
Sub Editor
Know the market before you invest

Franchise industry has recorded a steady growth of 30-35 per cent in the past five years and is projected to soar much higher in the coming years. The burgeoning franchise arena today caters to countless franchise opportunities. No matter whether it is a tried and tested concept of restaurants, fast-food, education or newer concepts like senior care, agri-products or pet care centres, franchising has engulfed all. However, with rising opportunities, there are rising number of franchisee failures also.

Before taking up a franchise aspiring franchisees need to consider and weigh the franchise in terms of its market size and market opportunity before investing their hard-earned money in it. The article presents a guideline to aspiring entrepreneurs to search the market of their desired franchise, understanding the need and to know the success/ failure ratio as well.

Significance of market research

It is true that a franchisor always does a careful study of the market before starting a franchise business. He does extensive research on the current market size as well as the potential market for his product/service. Nevertheless, it is also important for an aspirant to study his area or market before plunging in with a particular franchise. It is of utmost significance to gauge whether the particular product/service would do well in the aspirant’s market. Manisha Ahlawat, Master Franchisee, Vivafit India shares, “It is essential that the product/service you want to sell through your franchise fills a void in the local market and the product/service is readily accepted in the local market.” For this the aspiring entrepreneur has to keep a few things in mind and follow them. The various guidelines are as discussed below.

Guidelines for gauging the market

Getting into a business takes lot of hard work and an investment of hard earned money. Both can not be let wasted for not doing proper market study before initiating a franchise business. Therefore it is entrepreneur’s duty to research and select the right opportunity which can make him realise his dreams and reach his goals. For this firstly he has to study the market size and need of the product. Regarding this Ahlawat said, “Firstly the franchisee should tap in to their own network of friends, family and colleagues to get a general feedback on various kinds of franchise opportunities. A more organised and thorough approach can be taken by getting few marketing executives to conduct a research on the feasibility of running a particular franchise.  There are options to conduct surveys online also nowadays.  It is important to research the growth potential of the chosen franchise industry and the size of the franchise target market.”

Question the franchisor: As a responsible aspiring franchisee the entrepreneur needs to ask a lot of questions to the franchisor regarding hold of his product/ service in the present market.  Undoubtedly the franchisor has done his market study but it may not have included the franchisee’s area/ locality.  If a franchisor refuses from answering or gives wrong information, then the aspirant should re-think his decision about taking that franchise.

Need of product/service in the market: The aspirant should consider whether there is demand in the market for a particular product/service. In some cases there may be huge demand of the product in the national market but it may not be very useful in local markets. Therefore an aspirant should study his local market and also the need of customers before taking a franchise. Ahlawat said, “Before taking up the Vivafit franchise, I had studied the remarkable growth in the Indian fitness industry and also the lack of a women only fitness segment in this growing industry.  In the last decade women have gained buying power and do not hesitate to spend on themselves. Both these factors encouraged us to explore the women only fitness franchise options and Vivafit was the clear winner.”

Kind of product/ service: Franchising is not limited to a few traditional opportunities. With its popularity newer concepts have arisen which do very well in markets. Therefore before taking a franchise, the aspirant should consider the age of that particular product. If the product is long-standing and stable in the market of the aspirant, then he would get ample of statistics to study and research about the franchise. However if it is a new or rising product/ service in the market, then the aspirant needs to study the need of consumers of that market. For this he may need a lot of support from franchisor.

Find about fad markets: There are some products which do very well over a period of time but then decline. These are known as fad markets. Aspirants planning to invest money on them must be aware of their short life and should have another plan which can be implemented later.

Study competition in market: An aspirant should carefully research about the competition that would be faced by his franchise outlet. If the product/ service is traditional, then it is bound to have competition in market. Therefore it is best to start with unique marketing strategies to become more popular than others.  However if it is a new product with less competitors, the franchisee will get more time to come up with means to maintain their dominance in the market.

To summarise it can be said that studying the market and the product is the most essential thing while entering into entrepreneurship, whether is a franchise opportunity or business started from scratch. Franchising paves the future but aspirant himself has to select the franchise according to his market needs and popularity.

Related: Teamwork: a route to success

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