Buying a Franchise? Make Sure the Marketing Process Is Worth It
Make sure the franchise you buy, and their marketing system, are worthy of your time and investment.
Buying a franchise means buying an end-to-end process: the mechanism for how corporate sets strategy and then executes through a combination of the corporate team and franchisees. You're also buying whatever franchisee feedback loop does or doesn't exist to impact decisions. The marketing process is especially critical.
Note that the corporate team can change at any time. That brilliant and proven marketing leader you met at Discovery Day, who influenced your decision to move forward, could leave. If you're lucky, they'll make a good replacement hire. If you're unlucky, an under-qualified junior staffer gets a battlefield promotion. Don't make your decision just about the team. Like everything else in franchising, it's about having and following a great system.
1. How is the franchise marketing strategy created?
Why do some franchise brands have poorly devised marketing strategies? First, many concepts are created by founders who invent a great operating model that later becomes a franchise. But they may not have good skills or instincts in the science and art of marketing. They simply don't know what they don't know and haven't yet hired a strong marketing leader to help them. Second, concepts may not do enough data analysis or keep up with the times. Established brands especially can fall into this trap and get very stale. Third, many concepts lean too heavily on franchisees to create customer demand, no matter how much money franchisees are kicking into the national brand fund. That's really a strategy to shift marketing responsibility to franchisees.
To create the right marketing strategy, start with three basic questions: Who are our best customers? Why do these customers buy our product or service? How do we know? Understand the level of sophistication and data-driven decision-making you are buying into when you evaluate franchise opportunities. Most brand funds charge between 1% - 6% of gross sales. That's big money. How and where are they spending that money? Is it effective? How do they know?
Take a look at current campaigns and customer messages. Why were those specific messages and campaigns created? For example, if an education brand heavily markets their proprietary curriculum, but consumer data instead shows that parents are actually more concerned about safety, they may be spending fund money pushing the wrong theme. The brand may tout convenience or price or unique experiences when customers really value something else. What data drives decisions? Some brands are brilliant at marketing and are heavily data-driven. But many are not.
2. How does franchisee feedback influence marketing strategy and budget allocation?
The franchise should track leads, how and why they convert into customers, and what drives higher tickets, frequency, referrals and repeat business. But often, there is a missing data point in the marketing feedback loop: franchisee input.
In a strong franchise system, a well-functioning mechanism exists to gather, process and report back out on franchisee feedback. The brand fund should be a separate fund and should include a governing board with elected franchisee representatives. Ask for examples of marketing course corrections based on franchisee feedback. Some of the best ideas come from the field, but only in systems that respect, aggressively gather — and do something with — that valuable feedback.
Most franchise agreements give the franchisor the final say in how the brand fund is spent. Most agreements also say the franchisor is not obligated to spend one penny of your monthly brand fund contribution within your market. In some brands, small markets are kicking money into the brand fund, but the money is actually spent in larger metro areas with greater density of operators who are generating higher royalties for the franchisor. Small markets can end up subsidizing large markets. Talk to franchisees. Ask to see the budget allocation. Understand what the brand fund is being spent on and your ability to influence that spend.
3. What is the division of labor between the franchisor and franchisees?
When it comes down to tactical marketing execution, who is responsible for what? What does the franchisor do to generate demand? What must franchisees do for themselves?
For example, many home services brands employ heavy use of door-knocker campaigns, yard signs and direct mail during their big seasonal awareness push. If you're in that business, you must be willing to do whatever it takes to get you and your team out into your community during those times, because your business depends on it. You are responsible for that work and spend, not the franchisor.
It's also possible that any required local marketing minimums are actually set too low. If your budget is based on the minimums or low end of the range outlined in the Franchise Disclosure Document, you may be grossly underestimating a realistic spend-to-demand equation. Talk to franchisees about customer demand, turnover and growth. What demand is needed to breakeven? What demand is needed to be profitable? What spend is required to drive that demand?
Pay attention to hidden marketing fees. For example, in retail concepts, the franchisor may require Class A (high-end) locations with high rent to match. This may be entirely appropriate for some concepts. For example, many quick-service restaurant brands need to be at specific high-traffic locations. Day spas with premium brand images benefit from being in high-end shopping locations. But unfortunately, some retail brands require Class A sites, because their marketing is actually weak. They hope (but can't prove) Class A sites will make them more visible. That's effectively an extra tax on franchisees to compensate for marketing shortcomings. Ask franchisees, would they lease this location again? This size and configuration? Higher rent should only be paid if it's core to the brand image, is where your customers want to buy and if supported by a profitable economic model.
Remember: When you buy a franchise, you are also buying their marketing process. So, make sure the franchise you buy, and their marketing system, are worthy of your time and investment.
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