Why Franchisors Should Evaluate Their Franchise Competitors
by Ed Teixeira
During these challenging economic times, individuals seek the greatest return
on their franchise investment. In order to grow their system franchisors need to
offer the best opportunity and value to prospective franchisees. For these
reasons, it’s important for franchisors to perform a competitive analysis of
franchisors that are direct and indirect competitors. It’s a given, that all businesses should do a competitive review on a regular
basis. However, franchisors may do a competitive analysis of other franchisors
prior to or after launching their franchise program. Thereafter, some
franchisors fail to see how well they match up to similar franchise programs.
Just as franchisors expect their franchisees to be aware of their competitors
and new programs or promotions, franchisors should do the same.
There are important reasons why franchisors need to be on the top their game
when it comes to franchisee value:
- The current economic client has made the sale of new
franchisees much more difficult.
- Individuals are more savvy and knowledgeable about
finding and purchasing the right franchises.
- It makes good business sense to maximize the value of
the franchisee investment.
There are two types of competitors that franchisors should review: direct
competitors; who represent franchises in their own business segment and indirect
competitors; which represent franchises in a related segment. For example, in
the Children’s franchise sector, children’s fitness and enrichment programs
could represent direct and indirect competitors of each other.
Given the number of potential franchises that could be considered direct and
indirect competitors, it’s best to begin with those that most closely match up
to your particular franchise opportunity based upon investment, size and
maturity. Once you’ve identified the franchises, set up a spread sheet and rate
and compare the following items to your franchise opportunity:
- The initial franchise fee. What does the franchisee receive
for their fee?
- The quality and size of the franchisee territory. Is it
truly exclusive and protected?
- Royalty fee. Any incentives to pay a reduced royalty by
increasing revenues?
- Advertising fund. Is in force, what is the payment and how
is it structured and administered?
- The initial and renewal terms of the franchise. What is the
renewal fee?
- Franchisor training and start-up support.
- Litigation is an important comparison among franchise
programs.
- Ongoing franchisor support. Are there differences in terms
of services and support?
- Marketing programs and the use of social media. Technology
can provide an edge if properly used and franchisors on the
cutting edge of new technologies can have a competitive
advantage.
- Operational efficiencies. Franchisors that provide their
franchisees the operational tools that allow them to run their
business more easily will provide their franchisees more value
for the fees that they pay.
There may be other items you can add to the list. The important thing is to
see how your franchise stacks up against the others.
Individuals looking to purchase a franchise expect to receive the most value
for the money that they are investing. Since franchisors compete with other
franchisors for many of the same investment dollars it’s important that they be
aware of their strengths and weaknesses versus other similar franchise
opportunities.
© 2011 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC.
He can be reached at
franchiseknowhow@gmail.com
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