The last installment in a series on franchising. Having discussed the nature of franchising, the readiness to franchise from both franchisor and franchisee perspectives, this article covers what could go wrong within the franchising setup.
Franchising gets people excited about quick gains: business expansion and monetary rewards. Yet, it is due to this excitement that business leaders tend to overlook a few issues that could deem the arrangement unfruitful for either or both of the parties. Below is a brief discussion of some of the culprits of franchising that you should be on the lookout for, or work to amend in existing set-ups, to maximize the benefits of franchising to your business:
1. Franchising agreement
The foundational rock to any franchising relationship is the franchising agreement dictating the: commencement, term, renewal, region, breadth of services/products covered, use of trademarks, payments (upfront franchising fees & ongoing royalties), schedule, training, operating manual, business plan, marketing & promotion, binding laws, governing laws & jurisdiction) social media policies, termination terms, transfer of ownership (both on franchisor and franchisee fronts), and obligations on both franchisor and franchisee ends
If the franchise agreement does not cover all (or as per applicability, most) of the above, then you could be set up for failure at the start of the relationship
One of the most important elements in the success of the franchisor/franchisee relationship is managing expectations. The franchisor expects to have expanded their brand reach, diversified their distribution channels, and that the money will start rolling in ASAP. The franchisee expects to have bought in to a winning formula and that the ROI is speedy as they sing to the melodies of cash flying in. Both are wrong – setting up a successful franchised business in a new market needs to be structured and steady to ensure prosperity & longevity
Depending on the establishment of the franchised brand, the business needs to be set up in the new markets requiring both franchisor and franchisee to work diligently together, to develop a learning curve to allow for altered/amended approaches, to endure, and to be patient before reeling in the success of the franchised units
3. Localization (or lack of)
Localization has been identified as a key ingredient in the success of franchised businesses. That being said, some businesses allow the franchisee free reign on localizing efforts, and others halt any efforts related to altering the offerings to suit the franchised market. Once again, both approaches yield negative results.
Too much localization dilutes the franchised brands and could ultimately result in a lost identity, and too little localization could reflect a rigid business that is non-accommodating of its host market resulting in negative perceptions by the customers/stakeholders. Case in point: a giant such as McDonald’s fell flat on their faces trying to over-accommodate local markets such as offering McFalafel in Egypt which was overpriced and unrealistic in terms of the local market’s expectations – Egyptians sought McDonald’s for burgers, and chicken or fish filet sandwiches, and not falafel which is available at any corner at a fraction of the McDonald’s then-selling price and with many other variations.
Localization could be as simple as celebrating local festivities through communication material, altering packaging
Customers aware of the franchised business usually have a price-point awareness of what the product/service sells for in the home market. Accordingly, they tend to expect to pay the same in the local market. That, of course, might not be viable for the franchisee as they need to
5. Speedy internationalization – and lack of readiness (for both parties involved)
Going back to the articles on the readiness to
6. Location, location, location
The staple saying is self-explanatory, yet, in this
In summation, it is worth noting that franchising is a two-way relationship, the main ingredient of it being communication. Franchising cannot work one-sided, and it cannot efficiently function without feedback since the bottom-line of this business set-up is the mutual benefit of both parties: transfer of know-how, expanding the geographic reach of a business, and financial returns on both ends.
Happy Franchising! 😊