FRANCHISE: Market intelligence sets brand for success

Thursday September 6 2018

Wambugu Wa Gichohi

Wambugu Wa Gichohi 

When you start franchising, your entire business, packaged into a carefully-crafted franchise system becomes your single product. In-depth market research seeks to unearth several aspects, without which your franchise rollout would hit headwinds.

Eighth is competition. A thorough understanding of competition helps in positioning your franchise to take advantage of market opportunities better than competition. Research should establish who the competition is, what they are doing currently and what could be done differently in order to capture and keep majority market share. New developments are continuously fed to the franchisor by franchisees.

Ninth is the operating costs of the franchise outlets. Some locations have higher operation costs than others. Establishing these before franchising ensures your franchisees fall within your expectations and enables you to figure out means to minimize the costs, advise which is most welcome by franchisees. Tenth is the financing costs of the franchise. How much will it cost the franchisee to set up and operate the franchise in the locality? Is equipment and other materials of the approved standard needed to set up available in the locality and at what cost? What about labor?

Eleventh is initial franchise fee payable per identified territory. The fees paid by potential franchisees to join your franchise system is determined not just by the value of your brand, but also by results of a carefully executed market research. Sometimes it is easy to fix a uniform joining fee. This disregards the dynamics in play in each franchise territory. Research findings might necessitate different rates for different territories. Before deciding on a formula for setting the initial fees, in-depth market research enables a potential franchisor to make an informed decision.

Twelfth is the monthly royalties payable by franchisees. Just like in determining the joining fees, market research reveals the appropriate monthly royalties payable per franchise territory/size of outlet. Where demand is high, turnover is expected to be high, meaning that even if the franchisor imposed a lower loyalty than in territories with lower demand, they would still make money driven by the higher volumes.

Thirteenth is the monthly marketing and support fee payable by franchisees. Franchisees operating in smaller territories expect to pay lower marketing and support fees than those in larger territories.

Finally, the profit potential for each of the proposed territories is established by running financial models for each. Placing costs against revenue projections determines projected financial scenarios, then an optimum position is established and pursued. Carrying out a sensitivity analysis on your projections ensures you can see through the corners and that nothing comes as a surprise in future.

Some international franchisors entering East Africa do so without carrying out detailed market research. It is foolhardy to assume the market will automatically accept your brand. When you know the inner happenings of your potential market, it is easier in future to fix problems when they arise than if you plunged into a market to franchise without understanding it in detail. Some international brands have folded up in East Africa due to this.

Ongoing market intelligence should form part of the franchisor’s DNA during the entire life of the franchise brand. Using the franchisee network and the Field Consultant, brand owners keep abreast with market developments and take appropriate measure to keep ahead of competition.

The writer is a Franchise Consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment.

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