Strategic Concepts in Franchising – Building the Brand

Strategic Concepts in Franchising – Building the Brand

Executive Summary

The over-riding goal of essentially all well-managed franchise systems, and one that informs both day-to-day operational decisions, as well as longer-term strategic directions, is “building the brand.” 

Major points include the following:

• Brand value begins with, and in enhanced by, a reliable, repeated, consistent and positive customer experience at the retail level.

• On both the operating unit level and as a general guiding principle for development of the entire system, building the value of the brand, and the good will associated with it, serves as a reliable basis for making almost all management decisions.

The Over-Arching Importance of Building Brand Value

At the Retail Level

Marketing professionals would tell us that “branding” involves establishing in the mind of existing and potential customers a positive association between the brand and the actual retail-level experience of the customer in dealing with the brand, whether through purchases or otherwise.

That positive brand value will have the effect of enhancing future dealings, including those with branded outlets that the customer may never have visited previously. 

In other words, if the franchisor has built in the customer’s mind a positive association with the brand, he or she is much more likely to make a buying decision in favor of that brand and make a purchase from a branded outlet (whether brick-and-mortar or otherwise), even if he or she has never patronized it before.

Obviously, then, building brand value is critical in a franchised system, where multiple locations, each operated under independent management and ownership, all use the same brand and operating system in connection with servicing customers.

While that multiplicity of outlets can be a significant advantage in establishing market presence and even dominance, it necessarily comes with some related exposure. 

If a customer has an unhappy experience at one location, the value of the brand will be damaged in her opinion and she (and anyone she shares her experience with) be that much less likely to patronize any of the outlets sharing the brand.

At the same time, a reliable, repeated, consistent and positive customer experience at the retail level will operate to ensure that the retail customer has good feelings toward any retail outlet bearing the brand, and make it more likely that she will feel comfortable in dealing with other outlets and recommending them to her friends, even if she has never patronized those other outlets herself.

The importance of building brand value through reliable, repeated, consistent and positive customer experiences is what drives much of the operational steps in managing a franchised unit, as well as the franchise system as a whole. 

In fact, it’s simply a need to build and maintain brand value that results in much of franchise activity at the Franchisor level, including product/service selection, pricing decisions, supplier approvals, advertising, location selection, training and in-store inspections/audits.  These diverse functions are often best understood as basically the means by which brand value is enhanced and preserved.

At the Strategic (or Management) Level

So, the benefits of a philosophical approach to “building the brand” are clear at the retail level, and most marketing and operational personnel understand that importance well enough. 

What’s sometimes ignored, however, is that a commitment to building the brand also serves as a reliable guide to more strategic decisions at top management levels.

Suppose, for example, that a Franchisor is considering the addition of a related product or service line to its current offerings, and that the new product or service could either be offered through existing franchised (and perhaps company-owned) outlets under the existing brand and system or through a newly branded, and separate, set of outlets.

A Franchisor who is mindful of the need to build the brand will take that consideration into mind, along with others, and may decide that the potential synergies of combining two closely related product lines (say, burgers and salads) in a single retail chain under one brand builds the value of the brand significantly, and to a degree to make the additional investment in training and operational adjustments well worthwhile.

Or, take another, sometimes more contentious, example: 

A Franchisor has a Franchisee who is a top producer and regularly makes substantial royalty payments, as well as purchasing high levels of proprietary product from the Franchisor, but who also fails to follow important operational guidelines and is the subject of a disproportionate level of customers complaints. 

And suppose further that the Franchisee has requested the award of a franchise for a second location, or her renewal option is about to come up, conditioned on the payment of a substantial renewal fee, which she’s willing and able to make.

Here, a Franchisor committed to building the brand may decide to forego short-term economic advantages and require the Franchisee to cure any operational defaults before any additional franchise, or any renewal, will be awarded.

In making the decision, the Franchisor asks itself one simple question:

“Which decision will do the most to build the long-term value of the brand?”

The answer to that question will almost always serve as a reliable guide to the best course of action.