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Dec, 01 2008

Franchising beats meltdown

The present challenging economic scenario has played havoc with financial institutions, having a ripple effect on the lives of people. The brunt of the meltdown is being felt by all sections of society, class, creed, nations - developed and developing, an

However, contrary to common belief, the downturn has had a positive effect on franchising.

Sure, there will be some concepts based on highly discretionary purchasing habits that will suffer when consumer spending contracts, but franchising will endure and prosper because of its greater branding and marketing effectiveness, support networks, consistency of offering and team spirit to succeed. Consequently, in tough times, franchises increasingly succeed at the expense of standalone small business operators, whose buying power, branding, marketing and operational expertise cannot match that of the larger chains. And, as unemployment grows, so too does the attractiveness of self-employment via franchising.

While the clouds of economic misfortune gather in the distance, franchising is well-prepared to weather the storm, and even prosper.

It makes good business sense for franchisors to invest in the downturn economy. Reasons for the same are:

  • Readily available shopping spaces since new company-owned, company-operated and standalone businesses are not taking off.
  • No difficulty in getting credit due to brands having greater credibility.
  • Only one or two franchisees to be identified in a month to sustain business growth.
  • Availability of people who are either laid off/going off business and have excellent job skills with good credit ratings.

To combat slowdown, the usual business methods will not work. Franchisors should adopt the following factors when making their marketing plans:

Research the customer:

Instead of cutting the market research budget, you need to know more than ever how consumers are redefining value and responding to the recession. Consumers take more time searching for durable goods and negotiate harder at the point of sale. Conspicuous consumption becomes less prevalent.

Keep advertising:

This is not the time to cut advertising. Brands that increase advertising during recession, when competitors are cutting back, can improve market share and return on investment at lower costs than during good times. Uncertain consumers need the reassurance of known brands. You could also bargain for lower costs on advertising over protracted contracts.

Adjust product portfolios:

Marketers must reforecast demand for each item in their product lines. Tough times favour multi-purpose goods over specialised products. Weaker items in product lines should be pruned. Gimmicks are out; reliability, durability, safety and performance are in. New products, especially those that address the new consumer reality and thereby, put pressure on competitors, should still be introduced, but advertising should stress superior price performance, not corporate image.

Support franchisees:

In uncertain times, no one wants to tie up working capital in excess inventories. Extended financing and generous return policies motivate franchisees to stock your full product line. This is particularly true with unproven new products.

Adjust pricing tactics:

Customers will be shopping around for the best deals. You may need to offer temporary price promotions, reduce thresholds for quantity discounts, extend credit to long-standing customers and price smaller pack sizes more aggressively. In tough times, price cuts attract more consumer support than promotions such as sweepstakes and mail-in offers.

Emphasise core values:

Although companies may make some employees redundant, chief executives must cement the loyalty by assuring employees that the company has survived difficult times before, maintaining quality rather than cutting corners and servicing existing customers. CEOs must spend more time with customers and employees. Managing working capital can easily dominate managing customer relationships. CEOs must counter this. Successful companies do not abandon their marketing strategies in a recession; they adapt them.

The franchise buyers or the prospective franchisees need to change their academic perception to invest in a franchise business after due diligence, a better option during slowdown.

Franchising is not about irrational exuberance; but about making an informed decision.

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