by Rudolf Kotek
Initially, a Franchisor must determine the markets in which the franchised business is most likely to be established successfully.
It is generally advisable to concentrate expansion in one or a few markets where “critical mass” can be achieved quickly in order that the network have in such markets effective advertising, support and assistance and effective monitoring of Franchisee performance. A Franchisor’s ability to expand is limited by its financial, management, supplier and field service resources. Franchisors who fail to understand the limitations on their ability to effectively expand are more likely to fail in improvidently selected expansion markets.
In mature franchise systems, decisions by the Franchisor to establish additional outlets in proximity to existing Franchisees is seen by those Franchisees as encroachment on their business. Franchisees resent and resist such perceived encroachment and the Franchisor is confronted with a choice between fully penetrating the market and preempting competition, at the cost of impairing existing relationships, and accepting a lower level of market development.
Encroachment problems also arise when a Franchisor attempts to penetrate franchised markets through nontraditional outlets or distribution channels in department, grocery, convenience or general merchandise stores, on school campuses, through mobile carts and kiosk facilities and in combination or dual branding arrangements. Achieving the optimal balance between effective market penetration and good franchise relationships is difficult. Even the best-managed franchise networks have difficulty resolving the problem of balancing the imperatives of network expansion and competition with perceived interests of existing Franchisees.
A Franchisor generally has less control over franchised outlets than it would have over company-owned outlets. Maintenance of high and relatively uniform standards throughout a network is of significant value to those Franchisees that voluntarily maintain system standards and perceive system standard as a valuable element of their franchise.
If a Franchisor fails to establish and maintain system standards, its competitive position and the value of its franchise will decline. The most productive and successful Franchisees may break away and the ability of the Franchisor to sell franchises and to expand will be impaired. The franchise relationship can be inflexible. Franchisees may resist changes needed to adapt their businesses to changing markets by upgrading their business facilities, changing the products/service mix, modifying operating procedures, adopting different marketing strategies and modifying the standards at company-operated outlets.
A Franchisor must implement policies, systems and procedures that help maintain standards by rewarding compliance and enforcing system standards where positive motivation proves to be in- sufficient. Many Franchisors make effective use of peer pressure by other Franchisees to achieve compliance with system standards. Inspection reports should be reviewed with Franchisees and realistic timetables should be determined and agreed upon for correcting appearance and operating deficiencies. Follow-up inspections should be timely conducted and a Franchisor should be prepared to offer assistance to a Franchisee who is making a bona fide attempt to bring the appearance and operation of his business into compliance with system standards.
Rudolf Kotik is the founder of RK Franchise Consultancy Inc, which developed more than 350 Filipino Companies into Franchise Systems. Email: rk@rkfranchise.com; Websites: www.rkfranchise.com, www.franchise.ph
