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Jan, 01 2007

The franchisor's obligations

A franchisor is faced with the unique opportunity of entrepreneurs management, dealing with franchisees who are business owners in their own right, rather than employee management

With the franchising industry coming of age, technology making difference across the segments, geographical boundaries becoming redundant and more and more transnational players in operation, the franchisor's obligation has become more relevant than ever.

The franchisor, thus, has to ensure that adequate controls and operational procedures are well defined to achieve his business and organizational objectives. Moreover, the franchisor has to have a well-crafted roadmap of milestones and benchmarks that is required to realize his business vision.

The franchiser's obligation, therefore, emanates out of his commitment towards his own long-term business objective that he needs to fulfill to the maximum extent possible. The various interfaces that he caters to in order to manage long-term goals may be broadly categorized as:

  • The Brand
  • The Franchise
  • The Society, which includes the end users, and
  • The Economy

The Brand

'Brand' is what franchisor is all about. His business advantages, market synergies, associate pulling strength, etc are all determined by his brand power. Not to mention, the real challenge before the franchisor is to create, maintain, grow and protect his brand. This is truly a rigorous planning-execution game which not only requires branding exercise but also strict product/quality controls to sustain the initial wave so that the branding costs are justifiable.

Large scale national or international promotions may initially serve to create hype and brand awareness among the customers. However, franchising being a "different" business format altogether, needs more "Customer-basedmarketing" rather than "transaction-based-marketing" strategies, to endure long-term brand awareness and convert the same to 'brand loyalty' which would arise only if the brand is a long term player. And in order to stay in market for long term, it is quite essential that the brand is adequately protected from both outside encroachments and internal bottlenecks, which would mean frequent quality checks and periodic training and orientations, and if required, even elimination of the unwarranted elements from the systems, with strong and lethal legal infrastructure. The skills, personal acumen, vision, technical expertise and innovative attitude of management of the franchisor organization plays a vital role in upholding and overall brand management.

The franchisee

The franchisor always has to keep in mind that his total survival/growth depends on the franchisees' success. The franchisee is like a transparent glass through which the customers get a glimpse of the franchisorbrand. Notwithstanding the franchisor's actual persona, the more clear and clean the glass, better the image.

Two basic points that franchisor must evaluate in order to take control of the situation are:

  • Product/Service
  • Delivery

It is very important to understand the markets. Different markets exist at different places at the same point of time. However, the maturity level of each of these markets may be at different stages. Even with the best of products/services, what the franchisor must judge is what product is he offering to the franchisee at a particular market? The same product/service may be a huge success in one market but may require certain customization to cater successfully to a very different market. Flexibility and customization of product/services are hence the key to build a successful franchisee network.

In addition to the brand and the product/service, the franchisor must ensure, to his own interests, that the franchisee has only one solution to all his business problems, ie, the franchisor himself. The dependence of the franchisee on this "single window" may not essentially arise out of any contractual obligation, but the franchisor's assistance in delivery of the product, in terms of maintaining and upgrading quality, customer service and support, training, effective supply chain management, business enhancers, pricing policy, R&D, marketing and promotions, competition strategy, maintaining transparency of operations, brand support, business strategies, etc. With a huge mobile globalised population, the end user's experience at two different outlets should not have huge variance in terms of standards of delivery.

The society

Society is the reflection of economic and cultural state of affairs. Each constituent of the society has a different set of expectations from any business. It is also the society, where the business derives its existence, associations, consumers and branding from. It is, therefore, the main tree from which the franchiser derives the fruits of his hard work, and hence needs to adequately nourish it. Fortunately, franchising is a business mode that can contribute more towards equitable distribution of income than any other business formats. It provides the opportunity to entrepreneurs; it brings the international experience at the local levels, it imparts skills, expertise, orientation with high business standards, operational expertise and ethics which the franchisor equips his franchisee with, which otherwise would not have been in place at all. With transnational franchising on growth, it provides an opportunity for greater interaction between two cultures at more grass root level than MNCs setting up their ventures. Above all, franchisor shall ensure that, with shared risk and economies of scale in their (franchisor and franchisee) favour, advantage is passed on to the end user, ie the consumer, who derive the maximum benefit due to global brands available at their doorsteps by monitoring the pricing policies of the location. In a nutshell, it has a considerable favourable impact on the quality of life.

The economy

Franchising is a comparatively new business concept in India. It is relatively a new business format in other countries as well as compared to other business models. The inherent advantages of risk and cost optimization, and the phenomenal growth it has achieved in the Western countries, especially the US, makes it further lucrative in terms of "what can be" rather than "what it is". This gap showcase that the growth prospects are huge. For proliferation of a product/service into deep pockets of humanity, there is no better model than Franchising.

The author is Arun K Khetan CEO and MD of Zee Network Education Group.

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