franchising aspects Nov, 08 2010

Winning Edge Of Best Practiced Franchisors

Franchise owners both domestic and international across the globe compete for market share. But there is something that sets apart and makes the market leader or an emerging franchise system better than their competitors. Let us find out.

By Rod Young
Executive Director at DC Strategy
Winning Edge Of Best Practiced Franchisors

In developing national and international franchise business systems, the DC Strategy team found that the features of many businesses which stood out for their growth trajectory and market share had common elements that were not confined to industry groups. These features were present across businesses as diverse as food, retail and service networks that built substantial enterprise value for their proprietors and shareholders. Conversely, almost all networks which failed to thrive lacked many of the following features:

Consistent execution of the fundamentals

At the heart of any business is the customer proposition. While this may seem so basic that you may say that every business has one, the best practice franchisors have a focus on the customer proposition, which develops loyalty and see them coming back. There is an understanding that each customer is more than just one transaction and they understand that the lifetime value of their customer is many multiples of the first transaction with a new customer. This lifetime value is being calculated and benchmarked across the network.

This leads to a greater concentration on developing customer relationships that are much deeper and enduring. The point of sale experience is a key focus to capture new customers and is supported by recognition that is backed by online and sometimes, text communication as well as direct mail to build true customer loyalty to the brand. Included in the fundamentals are the staff/store/uniform/vehicle presentation that creates and reinforces good impressions and a commitment in keeping customers' experience fresh.

Well-defined KPIs, benchmarking and financial reporting

Alfred P. Sloan, the Head of General Motors, had said in 1950s, “The purpose of an enterprise is to make a profit.” We are always fascinated to hear the excuses used as to why a franchise company does not require, collect, and analyse the monthly profit and loss statements of all franchised outlets. How can any senior executive build, run, and maximise the performance of an enterprise, if he or she does not have access to the key metrics and especially, the net profit of the franchise outlets?

Franchise systems that flourish have highly developed point-of-sale systems linked to management reporting processes that measure and benchmark KPIs across the network.

The better franchisors publish entire networks' store-by-store profit and loss and educate their franchisees on how to analyse this data and performance, relative to others in the group.

Comprehensive compliance management

A complaint of many better franchisees in some networks is that the franchisor is soft on compliance and is letting other franchisees operate a poor standard of business, which reflects badly on their franchise business and ultimately its value.

These better franchisees soon sell-up and migrate to networks with more professional compliance standards. The great franchise systems understand that the customer promise conveyed by advertising and marketing must be faithfully reflected at the customers' end of business. They define what the standard of the network is during the recruitment, screening and selection of franchisees with a view to weed people who do not value standards. Induction and training programmes highlight what the standards are and how they are measured, managed and achieved.

The field staff provides a fresh set of eyes to prevent "store blindness". Compliance in reporting is also well ingrained in the culture of great franchise systems to measure compliance to defined standards.

Field staff as coaches, not auditors

The best franchise companies are focused on developing their franchisees to become better business people by education rather than policing. We all know that every light globe should be working but if field staff spend too much time on trivia, or develop a culture of blame, they miss the opportunity to earn the confidence of a franchisee. This confidence is critical before coaching commences and quality field staffs develop far better franchisees and businesses when they have invested the time to listen and understand the goals and motivation of a franchise owner and his or her family.

A focus on the value of intellectual property

Real champions are brand champions. They understand that the brand is one of the few ways to add a premium price to an otherwise commoditised product or service. We see the best franchisors don't just focus on the trademark and colour scheme, which is of course the cornerstone of the brand, but understand their IPs also, embraces their systems, processes and documentation.

In a world where any tangible item can be easily copied, the true value of IP is often enshrined in the way things are done in the organisation. A respect for these processes and an understanding of how they create value for the business has become part of the culture and is trained into new recruits in the leading franchise systems. Intellectual Capital, which is the collective knowledge in the heads and hearts of the franchisors' network of staff and franchisees, also falls under the IP category of an enterprise.

Real marketing and advertising muscle

Nothing builds a business like a commitment to advertising. We use the word commitment purposely because a feature of all leading franchise systems is a focus on advertising and marketing from the very beginning of the network. While many competitors decide to wait until they are bigger before spending big on advertising and as a result fail to grow, the best franchisors typically allocate a more substantial percentage of turn over to advertising than their competitors and then supplement these, relatively small with an additional investment, to advertising.

Another feature we see is highly developed local area marketing activities by franchisees. The advertising and marketing is multi-faceted with traditional leaflet and direct mail, local newspapers, radio, TV, billboards, PR and a growing online commitment to internet advertising. Innovative cross-promotional activities with non-competing business serving the same consumer pool are also engaged. These innovations are almost always developed first by the better emerging franchisors who are looking for cost-effective ways to create a larger than life image.

Continual innovation

Innovation is where the best franchises keep ahead of the pack. They realise that competitors will eventually copy the market leaders and understand that differentiation is important. This differentiation is not just in product but in every aspect of the business. The best players have an on going innovation programme in almost every area of the business. It may be seen by the customers and competitors in new products, services or advertising but the invisible innovation that defends and extends market share is often related to staff training, direct customer communication via e-mail or direct mail and new technology to track the nature of the business and customer trends.

This leads to more correct decisions being made earlier that edge better franchisors even further ahead of competitors and re-engage customers who may become jaded without change.

Supply chain management

When franchisors start to treat their suppliers as strategic partners, they start to approach best proactive not only in franchising but in business generally. By harnessing the know-how and experience of their suppliers, good franchisors find a willing partner in new product research and development because suppliers understand that assisting customers to grow will result in increasing sales volumes for those suppliers.

There are substantial benefits being created or costs saved by working with suppliers, who understand the strategic plans of their franchisor customers. The key to supply chain management is firstly ensuring that standards are specified for quality, service, and delivery and are not compromised, and secondly, the prices paid by franchised owner/operators across the full range of approved products result in a higher gross profit than if that franchise business owner purchase it independently.

Sound two-way communication

The communication process starts with an open mind by the franchisor and especially the field support team and a willingness to listen and respond to franchisees' concerns. The process of monitoring and responding to these concerns is where great franchises excel. Franchise Advisory Councils, franchisee product development input, regional advertising committees and annual conferences are all the hallmarks of the better franchisors.

Induction and ongoing training

Good franchisors understand that the initial induction and training, prior to a franchisee taking over his or her business, is merely an orientation process. The real training starts once the first few months of trading are under the franchisee's belt and the franchisee starts to settle into a rhythm. For the best franchise systems, training is an on going activity, which is directed not just at the franchisee but his or her staff to ensure that execution of the customer service strategies and the customer experience are being faithfully applied. Training programmes are evident from the most junior new recruit to franchisee and manager training supported by suppliers as well as the franchisor, both off-site and in conjunction with regular field support coaching and guidance at the franchisees location.

Online learning is also emerging as a feature of more progressive and committed franchisors, as best of the best understand that training is a commitment that pays dividends.

In summary, the reader can see that the very best franchise networks are also the very best businesses. They are constantly monitoring the outcomes that result from the ongoing application of the 10 key features of best practiced franchisors.

For any franchising business to develop into a national and international brand, how well these features are developed and executed will determine an organisations' position in the competitive pack. The value prize is market leadership and the reward it brings for all stakeholders in your business, be they customers, staff, franchisee or shareholders.

Related: Whats Better, Franchising Or Joint Venture?

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