By: Robert A. Gappa
President, Management 2000
Since 1972, the number of
business format franchisers in the United States has increased by over 1,600 or
175%. This growth in franchisers has
increased the competition to find and sign qualified franchisee
candidates. As franchising continues to
evolve as a significant strategy for companies of all sizes to market and
distribute products and services, the demand for qualified franchisees will
increase accordingly. Management 2000
believes the ability of a franchise system to maintain a competitive edge in
the 1990's rest, to a large degree, on the success of the franchisee
recruitment and selection process.
After working with hundreds of
franchise systems both large and small, it is clear that many of the problems
experienced by most franchise systems originate in the way franchisees are
recruited, selected, and brought into the system. During this critical process, the focus traditionally has been on
"closing the deal," rather than determining whether a candidate is
right for the system and the system is right for the candidate. As a result, many franchise systems are
shackled with poor franchiser/franchisee relationships. These relationships
create an adversarial environment which eventually prevents the franchise
system from realizing its potential.
The purpose of a franchisee
recruitment and selection process is to create the future of the company. To do this implies a fundamental shift in
the traditional understanding of franchising, of the objectives of marketing,
and of the role of the marketing representatives.
First, the franchise organization
must understand the nature of franchising and agree that franchises are
granted, not sold. This starts with the
franchiser. Once this understanding is
reached, it will significantly change the expectations the franchiser has of
its licensing personnel, which will, in turn, influence the selection and
recruitment process of franchise licensing representatives.
Second, the traditional marketing
objective must change. Rather than
focusing on the number of inquiries, the focus must be on the candidates and the value each will bring to
the organization over the life of the franchise relationship. Granting franchises
goes beyond a numbers game to a consultation process that produces more
qualified applicants, in less time, and results in better franchisees.
Finally, licensing
representatives must also change the way they see themselves. Rather than convincing prospects that they
should "buy" a franchise, they must act as consultants, helping
candidates make informed business decisions.
Rather than focusing on what the franchise can do for the candidate, the
focus must be on the candidate and what he or she needs to do to make an
informed business decision about joining the franchise. Listening and questioning skills must be
developed and refined—not easy for traditional sales people, used to finding
"hot buttons," "overcoming the objection," and
"closing sales."
The result of these mental shifts
will be the determination of mutual compatibility, better franchisees and an
effective use of resources to find and sign qualified candidates.
A focused franchisee recruitment
and selection process is comprised of the following interrelated parts:
1.
Market
Development Strategy and Plan
A Market Development Strategy and
Plan provides the direction for building the system to achieve the vision of
the company. The Market Development
Strategy and Plan documents the company's marketing and operational decisions
related to market analysis, market selection and penetration goals, competitive
analysis, and franchisee structure and form.
2.
Structured
Franchise Licensing System
A structured franchise licensing system is designed to achieve the
results of the Market Development Strategy and Plan. This system contains processes for identifying candidates,
qualifying and interviewing them, follow-up procedures, granting a license, and
opening a unit.
3.
Skilled
Franchise Licensing Personnel
Skilled franchise licensing
representatives will know how to use the structured licensing system to achieve
the results of the Market Development Strategy and Plan. The role of franchise licensing
representatives is to help the franchisee candidates make an informed business
decision about whether the franchise is the best opportunity to achieve the
candidates' goals, dreams, and objectives.
The goal of this chapter is to
provide the reader a context for thinking about the franchise recruitment and
selection process. This chapter
primarily focuses on the following questions:
·
What does it mean to grant a franchise and why can't
franchises be sold?
·
How is the Market Development Strategy and Plan used
to effectively build a franchise system?
·
What are the components of a structured system and
why does a structured system work?
·
What skills are needed for the franchise licensing
representative to effectively recruit, select, and grant franchise licenses to
qualified franchisees?
As franchising increases in
popularity, from both the franchiser's and franchisee's perspective, the
competition for qualified candidates will continue to intensify. As you read this chapter, evaluate your
company's franchisee recruitment and selection process. After studying this material you will have a greater understanding of how and why your company's process for
recruiting and selecting franchisees can improve, how your relationship with
franchisees can start on a firm foundation, and how your franchise system can
reach its potential into the next century.
Most franchisers are under the
misconception that franchises can be sold.
To effectively build a strong foundation for growth and to use the true
power of franchising, franchisers must understand what franchising is, why
franchises can't be sold, and how granting
franchises establishes a proper context for building a strong relationship with
and between franchisees.
Let's start this discussion by
exploring "What Is Franchising?"
Franchising is a business strategy for getting and keeping
customers. It is a marketing system for
creating an image in the minds of current and future customers about how the
company's products and services can help them.
And it is a method for distributing products and services that satisfy
customer needs.
The power of franchising is
created when the franchiser and franchisees work together as a team with a
mutual commitment to market share.
Mutual commitment to market share enables the franchise system to get
and keep more and more customers, who consume more and more products and
services, more and more often, so that the system grows faster than the market
demand for the product or service and faster than the competition. When these conditions exist, franchising as
a business strategy, as a marketing system, and as a method of distribution,
works best.
Franchising is also a business
relationship between franchiser and franchisee based on a legal structure. Under this legal structure the franchiser
grants to the franchisee a license to use the franchiser's brand name,
operating system, and ongoing support system to accomplish the business purpose
of the relationship, which is to get and keep customers. When this business purpose is accomplished,
the franchiser and franchisee are better able to satisfy individual motivations
and achieve individual goals, objectives, and dreams.
The premise that a franchise license is not sold and the
franchisee does not own the franchise license is supported by the following
facts:
A franchisee cannot incorporate using the franchiser's name
because the franchisee does not own the name.
Should the franchisee want to exit the business, the
franchise license is not sold; rather, the franchise license is transferred
upon approval of the franchiser. The
franchisee enters into a separate transaction to sell his or her assets.
The franchise agreement has a stated term and must be
renewed if the franchisee is to continue in business under the franchiser's
brand name. If a franchisee owned the
license, it would not need to be renewed.
The market, the brand name, the operating system, and the
ongoing support system are "owned" by the franchiser. The franchisee is delegated the right to use
the brand name, in a defined market, for a designated period of time, to
develop market share for the franchise system.
A franchise cannot be sold or bought. However, a franchisee does own the assets of
the business. A franchisee has invested
in a company's brand name, operating system, and ongoing support system in the
hope of obtaining a return on this investment.
This investment is returned to the franchisee in two ways:
1.
From
current revenue, as a result of using the brand name which creates customers
and using the operating system which gets those customers to come back.
2.
From the increase in value of the franchisee's
assets due to the association with the franchiser's brand name which enhances
the franchisee's ability to produce future revenue.
The use of the words
"sell," "buy," and "owner," when referring to the
franchisee, sends a message that is contrary to the real purpose of the
franchise relationship. Such words
focus on the legal structure of the relationship, rather than on the business
purpose.
Let's explore the logic of
selling franchises and evaluate the impact of this language on future
franchisee behavior. First, the logic:
·
If I sell you something, you, therefore, have bought
it.
·
If you have bought it, you, therefore, own it.
·
If you own it, you, therefore, can do what you want
with it.
This thinking process creates
what we call, an "owner" mentality.
Now, the impact of an "owner" mentality:
·
An owner mentality has a crippling impact on the
growth of the franchise system. This
thinking leads franchisees to believe they can change the operating system at
will. These changes create an
inconsistent application of the operating system from franchisee to franchisee
and from unit to unit. This inconsistency adversely affects customers'
experience and expectations and invalidates the perception of the brand name
created through the collective marketing efforts of the system.
·
An owner mentality leads to the perception that
franchisees within the system are competitors of each other rather than
teammates responsible for enhancing the value of the brand name. This perception originates when the
franchisees are told they are "independent owners."
·
We have often seen franchisers reinforce this
thinking by requiring franchisees to display a sign in the place of business
which says, "This franchise is independently owned and
operated." This, again, focuses on
the legal relationship rather than the business purpose, which is to get and
keep customers. It prevents
franchisees, the franchiser, and the franchise system from taking advantage of
the power of franchising. Since the
assets are owned by the franchisee, we suggest the use of the words, "This
(unit, store, office) is independently owned by (name of proprietor) and operated under a license from (name of franchiser)."
·
An owner mentality makes franchisees believe the operating system is the way the franchiser
controls them, rather than seeing the operating system as the way customers are
retained and value of the brand name is built.
·
An owner mentality prevents the franchisee from
understanding why it is important to implement legitimate changes to the
operating system as the system grows.
The franchisee does not understand because franchising was never
adequately explained—namely, that the operating system is for the customer, not
for the franchisee. Changes in the
operating system, when adequately tested and consistently applied, are made for
marketing reasons, to fulfill the business purpose of the relationship, which
is to get and keep customers.
·
There is usually no context provided to franchisees
for understanding the real purpose of the initial franchise fee and ongoing
royalty fee. Franchisees mistakenly believe that the initial franchise fee was
for the brand name, operating system, and training. They also believe that the ongoing royalty fee is only for the
support the franchiser provides which makes the franchisee successful. This thinking creates a dependency in the
franchisee and causes
him to constantly ask, "What has the franchiser done for me today?"
These are only a few examples of
how the words "sell" and "owner" adversely affect the
franchiser/franchisee relationship, potentially dilute the franchisee's
investment, and prevent the system from capitalizing on the power of
franchising to get and keep customers.
Almost every problem franchisers
face with franchisees originates in the way franchisees were educated to think
about the relationship when they were recruited and selected in the first
place. The problems experienced by many
franchise systems can, in many cases, be eliminated by establishing a proper
context for understanding the franchiser/franchisee relationship during the
recruitment and selection process.
New
Language and Behavior
The following table outlines the
differences between selling and granting franchises and offers suggestions for
new language and behavior.
|
|
“Selling”
Franchises |
“Granting or
Awarding” Franchises |
|
The Function |
Franchise “Sales” |
Franchise “Licensing” |
|
The Person |
Franchise “Salesperson” |
Franchise “Licensing Representative” |
|
The Recruit |
Prospects |
Candidate |
|
The Role |
“Sell” a license/franchise |
Help candidate to make informed business
decision. Create the future of the
company. |
|
The Process |
Assume, convince, manipulate, pressure |
Involve, facilitate, guide, stimulate thinking |
|
Approach and Skills |
Tell, present, close |
Question, listen, facilitate, and confirm
decisions |
|
The Language |
Hot Buttons, sense of urgency, objections and
close the deal |
Motivation, candidates’ decisions, basic issues,
granting the license |
|
Franchisees |
Owners |
Member/Associate/Affiliate |
To help the candidate better
understand franchising and the franchiser/franchisee relationship, the
franchise licensing representative should communicate the following to the candidate
during the recruitment and selection process:
1.
Unit-to-unit
consistency is imperative to the success of franchising.
If franchisees do not follow the
operating system as prescribed, they are impacting the customer's perception of
the product and service being marketed.
Lack of consistency dilutes the investment made by all franchisees in
the system. Candidates need to
understand that the operating system institutionalizes the customer's buying
experience. The operating system
reinforces the image created by marketing and builds customer
expectations. The operating system is
for the customer, not the franchisee.
The brand image is enhanced if the operating system consistently
delivers what the customer expects.
2.
Franchisees are
not competitors, even if located in the same market.
All franchisee-managed and
company-managed locations share the task of establishing the brand name as the
dominant brand in all markets entered.
This focuses on the business purpose of the relationship, which is to
get and keep customers. By increasing
brand-name awareness, more and more customers are created who use more and more
of the products and services. Everyone
in the franchise system, especially franchisees located in the same market, has
a shared responsibility to work together as a team to "grow" the
system and increase the system's market share.
3.
The franchiser
and franchisee have an interdependent relationship.
The franchiser and franchisees
each must accept responsibility and accountability for the success of the
system. It is not the responsibility of
the franchiser to make franchisees successful.
Franchisees must market the brand, work the operating system, and use
the ongoing support system to get and keep customers. Likewise, the franchiser must "grow" the system,
provide the best operating system, and assist the franchisee to become more
effective, efficient, and profitable by providing support services. The franchiser and all franchisees must work
together as a team for mutual benefit.
4.
Communicate the
purpose of the initial franchise fee and the ongoing royalty fee.
The initial franchise fee goes
toward the following:
·
Franchiser's expenses in connection with franchisee
selection
·
Training and support provided by the franchiser
prior to opening
·
The cost to develop and organize the franchise and
related systems
Ø
Trademark and trade name registration and protection
Ø
Compliance with various laws
The royalty fees are paid
for the revenue that was generated in the prior reporting period because:
·
The brand name created a customer
·
The operating system used by the franchisee got the
customer to come back
·
The support services provided by the franchiser
helped the franchisee acquire and develop their ability to think about how to
use the franchiser's brand name and operating system to accomplish the business
purpose of the relationship, which is to get and keep customers.
Once
franchisers and marketing representatives have a firm understanding
of the purpose of franchising, a Market Development Strategy and Plan must be
developed.
A Market Development Strategy and
Plan provides the direction for creating the future of a company. It is the first step in implementing a
focused recruitment and selection process. A Market Development Strategy and
Plan should:
·
Focus on the purpose of business, which is to get
and keep customers
·
Evaluate various options and conditions that
influence the development of markets
·
Document marketing and operational decisions that
will chart the course of the development effort
·
Focus on key result
areas, areas of activity that contribute to the achievement of the market
development goals and vision
The Market Development Strategy
and Plan is a result of an ongoing planning process that determines how the
company will be developed. This process
should focus on three strategic areas:
·
The goals and abilities of the company
·
The current and future customers for the company's
products and services
·
The competition for getting and keeping customers.
The strategic analysis should
focus on some of the following strategic questions:
·
The Company
Ø
What are the company's mission, values, and vision?
Ø
What are the company's strengths and weaknesses?
Ø
Will the company be international, national, or
regional in scope?
Ø
How fast does the company wish to grow?
Ø
What resources (people, money, material, time, and
space) are available to develop the company?
Ø
What strategies besides franchising will the company
use?
·
The Customer
Ø
Who is the customer for the company's products and
services?
Ø
What are the market segments for the company's products and services?
Ø
What is the market potential for the products and
services today and in the future?
Ø
What is the growth potential of the industry?
Ø
How is market share measured?
Ø
How will the products and services be marketed and
promoted?
·
The Competition
Ø
Who are the company's major competitors?
Ø
What are the competitors' strengths and weaknesses?
Ø
In what markets do these competitors have a
strategic advantage?
Ø
How do the competitors' products and services differ
from yours?
Ø
How will the company create a competitive advantage?
Ø
How will competitive barriers be created or handled?
Strategic analysis provides a
basis to make decisions that will determine the direction of the development
effort and result in answering the following questions:
·
What business strategy (franchise-managed and/or
company-managed) will be used to penetrate each of the identified market
segments?
·
What is the criteria for the ideal geographic
markets to be penetrated?
·
What are the primary, secondary, and tertiary
geographic markets to be pursued?
·
What structure and form will the franchise take,
i.e., single unit, multiple units, development agreements, sub-franchiser, or
area manager?
·
What is the profile of the franchisee candidate?
·
What will the franchisee performance standards be?
·
How much market penetration (number of units and
volumes/unit) will be required to support the initial marketing effort? What
growth is required (number of units and volumes/unit) to maintain a competitive
position in the market?
·
What initial support will franchisees need to open
and develop the market?
·
What infrastructure will be needed to support
franchise-managed and company- managed units in each market entered?
·
What should the initial franchise fee, ongoing
royalty, and marketing fees be?
To remain
competitive, a business needs to increase its market share by growing faster
than the market demand and faster than the competition. Marketing conditions are ever-changing and
business is never static. New products,
new market segments, and new niches are created almost daily. As market conditions change, it is a
strategic necessity that the franchiser maintain flexibility and control over
every market entered; otherwise, the system is vulnerable to competitive
attack.
Without a
Market Development Strategy and Plan, many
franchisers abdicate their right to the market. In many cases, franchisers select markets by reacting to
candidate inquiries rather than
determining a focused
strategy for market penetration. This
situation is aggravated when the franchiser gives the franchisee an exclusive
territory with no performance standards.
The franchisee then thinks he/she "owns" the territory
(market) and sees other franchisees as competitors. Consequently, when market conditions change or competition
increases, neither the franchiser nor the franchisee is strategically
positioned to respond; and the franchise system suffers as a result.
In
summary, a Market Development Strategy and Plan consists of the following
components:
1.
The company's mission, values, and vision.
2.
A definition of who is the customers.
3.
A definition of the various market segments.
4.
A definition of the market selection criteria.
5.
An analysis of the potential markets to be
developed. This analysis may include:
·
Number of potential customers
·
Competitor analysis
·
Desired number of franchisees in each market
·
Number of units needed to penetrate and develop
market share
·
A strategy to build and maintain brand name awareness.
6.
A plan to coordinate the various departments in the
company to accomplish the market development goal.
7.
A summary of the target markets. This summary may include:
·
A description of the market
·
Units in the market
·
Timeline for development
·
Number of franchisees and units per franchisee
·
Marketing dollars to be generated to maintain a competitive position
For many franchisers, a franchise
licensing system traditionally has consisted of putting an advertisement in one
or more national magazines or newspapers, reacting to inquiries by sending a
brochure, hoping the candidate calls back, conducting a prospect presentation
that tells how great the concept is, and signing whoever has the money.
This approach in the 1990's is a formula for franchise mediocrity. The growth in the number of franchi