Pricing Strategy Franchise formats with COVID-19

In the absolutely unique and challenging situation we find ourselves in, almost the entire business world has been disrupted. Bleak forecasts for the next 18 months are expected, along with changes in the social, political, and economic landscape. However, staying “grounded,” we can say that in the post-lockdown phase, we must think about restarting and, concerning the business world, selling and developing. Leading economic pundits have already reflected on how pricing policies for products and services will change. In this article, I would like to briefly discuss the lever of pricing applied to franchise sales. Yes, because as I always tell everyone seeking advice or information about the franchising world, formats are market offerings that demand understanding and purchase from the demand side.

Considering that pricing is one of the fundamental levers of marketing, what strategies can be adopted to remain attractive to potential franchisees? What changes should we consider? This is because we cannot approach the market as we did before in terms of entry fees, royalties, setup costs, and training.

Bearish strategy

This is the most instinctive and common strategy. Anticipating a decline in purchasing power associated with investment fears (when you have little money, you are more careful about how you spend it), the price lever can be lowered by offering significant discounts on the main economic assets of franchising models such as entry fees and royalties, undoubtedly increasing appeal. But beware. As much as the price can be lowered, attention must be paid to the services promised to affiliates. It is not feasible to support the “network” organization by guaranteeing the same services (or their quality) at a lower cost. So, do we reduce services? Yes, but only if our market positioning allows it. If we want to present ourselves as a “premium brand,” we cannot behave like a “low-cost” one. So be careful!

Diversification strategy

Without diminishing the value of our format (that of the “top of the line”), given that once the price is lowered, it will be difficult to regain ground, we can consider diversifying our pricing. How? By offering a more “affordable” format, a more compact one, or one that may be specialized only in one of our services/products. This way, we do not compromise the “premium” format and still manage to bring something sellable to the market. Although it is an effective strategy, it is important to keep in mind that this way, we distance our “premium format” from ease of development. In this case, we should think of new ways to sell it and, above all, new targets.

Change strategy

What if we didn’t sell the format? What if the goal we want to achieve is not to cash in, but to grow the network despite everything? If we do not want to engage in price wars or create “residual formats,” then we need to reconsider the strategy and create a new one. We have already discussed franchising joint ventures, as well as zero-cost franchising. The strategy of “non-combat” involves presenting ourselves on the market with rethought franchising formulas. An example could be providing a direct operating store on loan (conversion), or bringing the franchisee into the company through a joint venture in exchange for a fee (such as branch rent). This way, it is possible to create tailor-made formulas for each type of interested interlocutor. This would require creativity in negotiations, but it allows us to empathize with the market and respond promptly.

Yes, crisis periods require changes and making the most of necessity. Today more than ever, an accentuated phase of Darwinism is palpable, but as Leopardi said, “even in the last moment of life, one can change their destiny.”

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