domingo, 1 de mayo de 2016

Conflict scenarios when designing a franchise system



There is a lot of content about franchising everywhere. I intend to show in this post what are the main principles to be taken into account when designing a franchising system for a company that decides to add this channel to its established distribution channels.

There is a concept in business strategy, a key term, almost biblical, the "value creation along the channel". And in a franchise process, this concept is magnified because it becomes very complex due to that it involves many players.

Every company creates value for the next point of the channel to justify a premium price o a purchase preference at the same price, basically through two mechanisms:
pulling down the cost to the purchaser, or
increasing the benefits to the buyer



All buyers in the world, as a standard behavior, slow to realize what are them being offered, and they will not pay for not perceived value, no matter how extraordinary this value in fact is. A company that develops little realative value but can communicate it more effectively, can handle a higher price than another company that has developed higher value but do not communicate it properly, for not having thoroughly investigated the channel secrets.

In this sense, it is very important to know, through research, who the real buyer is, since often, the one who decides the purchase is not the one who pays the bills. The purchasing behavior of a customer breaks down and is influenced by two main features:
Use criteria (functionality). For example, product quality, physical characteristics of the product, delivery time, technical support.
Value signals (influence to "increase" the criteria of use). For example, a company's reputation, its image, advertising, packaging, the consumer shopping experience, the management staff.

Below is a diagram that summarizes the basic concepts that value each buyer in the various links of a typical franchise chain, basically four: the final consumer, the franchisee, the franchisor and the potential buyer of the chain. The work is done for a restaturant franchise chain. Anyway, the great "star" of the whole system is and should be the franchisor, as it is the "pitcher" of the business. On his backs remains the ultimate responsability for sendig effective value signals.



PLAYERS AND CONFLICT HIPOTESIS IN A RESTAURANT FRANCHISE CHAIN

CONSUMER---------------------------------------------------------------------------

What uses: the final product

From whom receives value signals: from the franchisee and the franchisor

Use criteria: Speed and quality of service, price, food presentation, portion size, quality of ingredients.

Value signals: Advertising, combined promotions with other brands, discounts and payment methods, ubiquity, use of recyclable materials and organic ingredients, attractive setting.



FRANCHISEE------------------------------------------------------------------------

What uses: the franchise business format

From whom receives value signals: from the franchisor

Use criteria: franchise format profit margin, franchise format business model, marketing support from the franchisor, franchisor speed of response, quality of franchisor training programs, flexibility to adapt some franchise format items, availability of adequate personnel in the market.

Value signals: Financial provisions, proven business format and years of experience, absence of litigation with other franchisees, amount of franchises in operation, ammount of franchises closed or not renewed, geographical extension of the chain, brand market share.



FRANCHISOR--------------------------------------------------------------------------

What uses: the brand

From whom receives value signals: from its internal structure

Use criteria: franchise requests by potential franchisees, ability for systematize the business, internal structure to train franchisees, management's ability to manage a business chain, peaceful conviviality of franchising with existing channels, brand ownership with no litigation.

Value signals: Powerful brand, financial health, market proven products and business format, quality products and easily obtainable ingredients, marketing strenght, brand awareness, superior management team, outstanding suppliers and sponsors.



POTENTIAL BUYER OF THE CHAIN-------------------------------------------

What uses: a consolidated franchise chain

From whom recieves value signals: from the franchisee, from the franchisor and from the consumer

Use criteria: revenues, profitability, portfolio synergy with other owned businesses, consumer profile, stage of life cycle, possibility of joint other businesses with the brand, quality of suppliers and sponsors.

Value signals: financial health of the franchisor, simple structure and simple contracts, geographical extension of the chain, brand market share, lack of litigation.



As noted, the design criteria are different for the four analyzed levels. Based on these criteria, the designer of the franchise system must understand the different players power projects, and work better than the competition in all aspects, so that each link "buys" in the following in more advantageous conditions.

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