The one who breaks the patterns wins

Let’s inaugurate the collaboration on the Start Franchising magazine with the following premise. Franchising is a complex world, a sector that both suffers and benefits from the changes in the surrounding world, trends, credit flows, and also the spirit of an entrepreneurial class. However, it is a formula for business expansion that has been setting the standard for decades. Therefore, in this new “column,” I will analyze business dynamics inspired by real cases. In these cases, on one hand, attention will be given to the difficulties encountered by franchisors and/or franchisees in the development process, and on the other hand, managerial solutions will be suggested, in order to crystallize sector know-how.

Done.

We will analyze the case of a famous brand. An international chain with many outlets abroad has been present in Italy for some years now. However, there have been, and continue to be, many difficulties for this Franchise to firmly establish itself in the Italian territory due to an unsatisfactory number of openings, despite the existence of a development office, some direct points, and the investment of substantial advertising budgets on typical online and offline media channels in the sector.

Critical Issues.

1. Difficulty in recruiting target affiliates.
Unfortunately, a contact (potential franchisee lead) is not synonymous with “quality contact,” because, as we have seen, despite achieving broad coverage in the communication campaign, the media used did not involve the right target. In other words, the applications did not have budgets consistent with the investment required by the franchisor in question. Probably, a fundamental static data point has been overlooked, namely that in Italy, only 10% (according to the latest Assofranchising report, 2018) of affiliations occur with investments exceeding 150 thousand euros. Therefore, for commercial reasons, the known advertising media channels are more calibrated and effective for targets with much lower investments. Advertising a format costing over 200 thousand euros on traditional industry media often means wasting precious budget, in my opinion.
2. Difficulty in finding suitable locations.
The format in question also requires a very large area, over 300 square meters. Even when the right interlocutor (franchisee) was found, in terms of financial capacity and willingness to spend, the affiliation process has experienced slowdowns or, in some cases, stagnation due to the objective difficulty in simply finding a location with the right characteristics.
3. Not so effective trend of the franchising project in Italy.
Contracts, promotional documents, and economic reports were not immediately convincing and comfortable for the target.

Phantom identity

The hallmark of the phantom identity is one that communicates an ideal but unreal self, which is revealed over time, after the communication has been too far from the truth. The commercial promise expressed by the brand must never stray too far from what it can actually deliver to its target audience.

The extension flop

When a brand decides to undertake a product strategy in a new product sector, far from its core business, it capitalizes on its identity to increase profits. But if the territorial jump is incongruous, the brand image will suffer negatively. In franchising, an example is the world of capsule shops. Starting from the sale of coffee capsules and pods, we ended up with stores selling tea, water, beverages, and tableware. Why is this? To keep sales volumes interesting by expanding the product portfolio. However, the brand that emphasizes the centrality of coffee risks being seen as weak because it inherently implies that the core business alone is not enough to support the model.

Unwise brand stretching

We are talking about those cases where a brand historically known for a product/service ventures into completely different sectors; these are delicate operations, full of possibilities and often very successful, but also fatal and fraught with dangers.

While, on the one hand, the brand can become a real value multiplier, an alchemical transmuter, because if well-managed it functions like a philosopher’s stone, on the other hand, it does not turn everything into a business. Its development is associated with the progressive emancipation of intellectual property from the products it identifies.

It is a procedure of great diffusion and often successful, preferred by companies compared to internal production; however, without consistent positioning choices and a fundamental strategy, it can be risky and parasitic. It consists of licensing the use of a trademark to another company, in exchange for the payment of royalties.

The owner of the trademark as an intellectual and registered property is responsible for maintaining a uniform treatment of the licensed property; this means establishing image and quality standards that will serve as a guide for those who will apply them to other product categories.

In franchising, licensing is more common than one might think. It is the solution for those who do not have all the requirements to become a franchisee, but still have the basics of know-how embodied in a brand. The case may be. In this analysis of the risks “around the corner,” one can deduce a single true imperative: to think of a development strategy. Remember that franchising is neither a sector nor a product but a system, and as such, those who approach it must know its mechanisms and structural elements, such as the brand.