Franchising: how to set up a compelling offer to Franchisees

An example of our work done in Sales & Marketing

For all companies investment possibilities – both out of their own money and by taking debt financing – have limits. In certain industries, though, it is possible to extend these limits – and therefore the size of the company – without having to invest directly: by leveraging other entrepreneurs, i.e. Franchisees (or Partners). Franchisees would provide not only their investment pockets, but also their managerial time and know-how, as well as a fundamental resource in business: risk assumption (they would bear the whole risk of failure). But in order to make Franchisees provide all these things to Franchisors (the companies willing to extend their size/reach), the latter have to provide a lot in exchange: in a nutshell, they have to have a compelling offer to Franchisees.

The following example – taken from our direct experience with a client of ours, a very innovative player in Retail – illustrates the path of how we foster companies’ growth by setting up and managing their Franchising Business Development.

The most important thing of all regarding Franchising – that unfortunately many times is instead underestimated (or voluntarily neglected) by companies – is making sure that the business can truly be developed in Franchising. Not all businesses, in fact, have the characteristics to be developed leveraging external partners. A golden rule: a company that wants to develop a Franchising business has to make sure that its Franchisees be happy (i.e. that they as well make money). If instead a company just wants to exploit others, certainly it may have some little return in the very short time, but it afterwards is destined to be ruined (with also a lot of lawsuits). If the business (the Concept) is not suitable for being developed in Franchising respecting the golden rule, much better to stay away from it.

The second most important thing in Franchising is to decide how to differentiate our Partnership Offer. In fact, potential Franchisees are not at all the same. Actually, they are extremely different from one another: in terms of investment possibility, size, business know-how, reliability, resources, interests sought in a partnership agreement,… If this is the case – as it is – the best way to leverage such variability (and not lose growth opportunities), is to be able to differentiate our Franchising offer: letting them choose the one that most suit their interests and willingness to work with us (with our Concept).

In this specific case, after thoroughly considering all detailed characteristics of our client business, we decided that the best way to differentiate the Franchising Offer was “Exclusivity”. The following picture describes the structure of the Franchising Offer differentiation along this business dimension (which we will explain later in the Article).

As you can see, the way the Franchisee could obtain the “Exclusivity” conditions (which of course would be much better than the Non Exclusivity ones) was to be able to open a certain number of the Franchisor’s stores within the first 5 years from the partnership signature. And it’s not all, we see here a second axis of differentiation that we adopted: the number of stores to obtain the Exclusivity conditions, in fact, was variable territory-by-territory (the rationale being that the value of the Exclusivity in a country/market such as for example the United States was much bigger than the value of the Exclusivity in a small country/market).

We then differentiated the Franchising Offers, along five business axis, as summarized in the picture below.

As you can see, while we decided to provide the two types of Franchisees with the same Retail Concept and Products to be sold, we instead differentiates significantly the Partnership Offer in terms of:

Coverage of Channels and Businesses (allowed to the Franchisee)
Use of Brand (allowed to the Franchisee)
Services / Support (provided by the Franchisor).

Let’s have a look at the summary of the differences in two of the five business axis, shown by the two images below.

Based on these schemes (and decisions), we then defined the details of our Client’s Franchising Offer: i.e. the detailed economics, the detailed contracts, the operations to be set, the services to the Franchisees to be put in place,…. The Franchising Proposal that we defined was extremely compelling, being able to attract a number of Franchisees. Which allowed our client to start very quickly the Franchising business and obtain great economic results.