Franchising and Licensing Two Powerful Ways to Grow Your Business in Any Economy_8 ppt

198 FRANCHISING AS A GROWTH STRATEGY weaknesses, opportunities, and threats have been identified, the last sub- section, ‘‘issues and concerns,’’ should discuss strategies and tactics for exploiting the franchisor’s marketing strengths and compensating for its marketing weaknesses. ❒ Marketing Objectives and Strategies. This section should define the goals and objectives identified by the managers of the marketing department with respect to market share, advertising/promotion expenditures, fran- chise sales, and promotional methods. Strategies should then be dis- cussed, outlining the specific steps and timetables involved to achieve marketing goals and objectives. Marketing strategy is essentially the game plan that must be adopted to achieve with respect to targeted markets, positioning of products and services, budgets for advertising, sales and public relations, and delegation of responsibility within the organization for specific projects. Because this section also involves dealing with sales and profitability projections, the franchisor’s marketing staff must work closely with the fi- nance department to ensure accuracy and consistency. As is true for all forms of planning, the statement of marketing objectives and strategies should be clear and succinct and not leave the reader (or user) hanging as to methodol- ogy. For example, a marketing objective of increasing franchise sales revenue by 10 percent could be achieved by increasing the franchise fee, increasing the total number of franchise units with the franchise fee structure remaining at current levels, or increasing fees and unit sales volume. Marketing manag- ers must identify which course of action will be taken, based upon informa- tion ascertained from the market research as well as data and input received from other departments within the organization. ❒ Execution of Marketing Program. This section of the plan should set forth timetables for achieving specific goals and objectives, identify the persons who will be responsible for implementation, and project the anticipated resources that will be required to meet the goals developed. ❒ Monitoring of Marketing Plans and Strategies. This section should discuss the establishment and operation of management systems and controls de- signed to monitor the franchise marketing plans and strategies imple- mented by the company. The relative success or failure of these programs should be measurable, so that performance can be properly assessed. Peri- odic reports should be prepared by the marketing department for distribu- tion to other key members of the franchisor’s management team. ❒ Alternative Marketing Strategies and Contingency Plans. This final sec- tion should address the alternative strategies available to the franchisor in the event of changes in the marketplace that have been identified in the plan. The ability to predict these positive or negative changes that may occur in the marketing plan and adopt alternative strategies in the event that they occur is at the heart of effective strategic marketing planning. Remember that the marketing plan will continue to evolve and may be changed as often as monthly or be revised for specific targeted markets. The 10376$ CH10 10-24-03 09:38:01 PS 199 DEVELOPING SALES AND MARKETING PLANS ability to quickly respond to consumer demands and prospective franchisee investment preferences is critical. Stage 2: Implementation of the Marketing Program Once market research has been conducted and a marketing plan prepared, the next step in the development of a marketing program is the actual im- plementation of the franchisor’s objectives and strategies. At most growing franchisors, a separate marketing department is responsible for the imple- mentation of the marketing plan. The franchise marketing director and his staff must constantly interact with other departments, such as operations, finance, and administration, as well as outside legal counsel, in order to coor- dinate marketing efforts and to keep the marketing program consistent with the overall strategic plans and objectives of the franchisor. This will require that the marketing department establish certain procedures and controls to monitor marketing performance and take corrective action where necessary to keep the franchisor on its course of growth and development. These peri- odic performance audits should also aim to make the franchisor more effi- cient by reducing unnecessary promotional expenditures and managing advertising costs. Early-stage and growing franchisors typically experience four distinct stages in the evolution of the department responsible for development and implementation of sales and marketing functions within the organization. At the inception of the company, all founders are responsible for sales and marketing efforts. During this initial stage, marketing plans are virtually non- existent, marketing strategies are developed with a ‘‘whatever works’’ ap- proach, and sales are to ‘‘anybody who will buy’’ the franchise offered. Eventually, the founders of the company are too busy with other demands to continue the sales function, and as a result a professional franchise sales staff is developed. As the franchisor reaches the third stage of its growth, all sales and marketing efforts must be centralized into a formal department. It is typi- cally at this phase that formal marketing plans start being prepared by top marketing executives with guidance and input from managers of other de- partments. As the franchisor experiences changes in its external and internal operating environment, the marketing department experiences the fourth and final phase of reorganization, during which modifications in organiza- tional structure are made in order to adapt and respond to these environmen- tal changes. Developing the Franchise Sales Plan The responsibility for managing the franchise sales program is typically vested with the vice-president of sales or the director of franchise develop- ment. This individual is responsible for development of the franchise sales plan, which is a critical step in the implementation of the overall marketing plan. The sales plan identifies the specific steps and resources required to attract prospective franchisees. Different sales plans will need to be devel- 10376$ CH10 10-24-03 09:38:02 PS 200 FRANCHISING AS A GROWTH STRATEGY oped for each type of franchise offered by the company. For example, design- ing a program to attract a qualified prospect to serve as a subfranchisor for the state of New York is quite different from attracting a candidate for a sin- gle-unit franchise for the suburbs of Des Moines. The key to developing a successful franchise sales plan is to ascertain a genuine understanding of the targeted franchisee. This requires the develop- ment of a detailed profile of the prospect, which includes an analysis of tar- geted age, gender, education, business sophistication, income levels, net worth, family size, health, communication skills, personality traits, hobbies, habits, and career objectives. Much of this information will be obtained through the use of a confidential franchise application and personal inter- views. See Figure 10-1 for a sample franchise application. Many sophisticated franchisors have turned to detailed psychological testing methods as part of the qualification process for prospective fran- chisees. If the tests reflect a personality that resists following rules and proce- dures or lacks a certain attention to detail, then many franchisors will reject the candidate regardless of business acumen or financial net worth. There are a wide range of qualities and characteristics that franchisors look for in developing criteria for the appropriate type of franchisee. Naturally, the crite- ria vary from franchisor to franchisor and from industry to industry. Neither the know-it-all nor the naive are likely to make very good franchisees. Those who understand the importance of rules and procedures and display a will- ingness to follow them are likely to make the best franchisees. The franchisor is looking to attract those individuals whose personalities and experience are more suited to serve as sergeants, and not generals. Using the Internet for Franchise Sales The federal and state laws that regulate the offer and sale of franchises clearly anticipated a paper-driven society and could not have foreseen the tremendous impact that the Internet would one day have on fran- chise recruitment. Franchisors today use the Web to inform prospective franchisees on the key elements of their program, gather data on pro- spective candidates, communicate via email regarding questions or clarifications, and some even now make their UFOC available online. To catch up with the times, NASAA developed a Statement of Policy on Internet Offers that provided exemptions from traditional registration requirements, which are then recommended to the registration states. Among the conditions for the exemption to apply include that the Web site must clarify that the franchise is not being offered directly to the residents of any registered state (unless that state has also adopted an exemption), and that the offer remains general in nature and not tar- geted to a particular individual group. Once an accurate and objective set of criteria is developed for identifying the ‘‘model’’ franchisee, a sales plan must be drawn up to attract this prospect. (text continues on page 206) 10376$ CH10 10-24-03 09:38:02 PS 201 DEVELOPING SALES AND MARKETING PLANS Figure 10-1. Sample franchise application. CONFIDENTIAL APPLICANT QUESTIONNAIRE FOR PROSPECTIVE FRANCHISEES Thank you for your initial inquiry about . The information you provide will help us consider your application to become a member of our franchise network. This application will be carefully reviewed by our Franchise Selection Committee and your responses will be kept confidential. The completion of this questionnaire in no way obligates either party in any manner. PERSONAL DATA Applicant Name First Middle Last Social Security ࠻ Date of Birth Marital Status Married Single Divorced Home Address City State Zip Home Phone ( ) Business Phone ( ) Is Co-Applicant your spouse? [ ] Yes [ ] No Co-Applicant’s Name First Middle Last Social Security ࠻ Date of Birth Marital Status Married Single Divorced Home Address City State Zip Home Phone ( ) Business Phone ( ) May we contact your business number? [ ] Yes [ ] No Best time to contact: THIS APPLICATION WHEN COMPLETED DOES NOT OBLIGATE EITHER PARTY IN ANY MANNER Why do you feel you are suited for the retail food and beverage business? (continues) 10376$ CH10 10-24-03 09:38:02 PS 202 FRANCHISING AS A GROWTH STRATEGY Figure 10-1. (Continued). What is your philosophy regarding retail food and beverage sales? What experience do you have with the retail food and beverage industry? Do you feel that you possess the qualities necessary to: 1. Train and supervise staff members? [ ] Yes [ ] No 2. Handle the everyday ongoing problems that arise when dealing with customers and staff? []Yes []No 3. Handle staff scheduling in both regular and flex-time modes? [ ] Yes [ ] No Briefly explain why: Who will operate the franchise? [ ] Self [ ] Spouse [ ] Other Will one of you continue to work at your current place of employment after the franchise is awarded? [ ] Yes [ ] No If yes, who? [ ] Self [ ] Spouse [ ] Co-Applicant [ ] Other In what city, county, and state would you like to own a franchise? City County State Do you have a specific mall or shopping center in mind? How soon would you be available to operate the Center? [ ] Immediately [ ] Within months Do you now own any other franchises or business? [ ] Yes [ ] No If yes, please describe: 10376$ CH10 10-24-03 09:38:03 PS 203 DEVELOPING SALES AND MARKETING PLANS APPLICANT’S EDUCATION HISTORY Dates of Attendance School/College Major Degree CO-APPLICANT’S EDUCATION HISTORY Dates of Attendance School/College Major Degree APPLICANT’S EMPLOYMENT HISTORY Dates From–To Company Position Annual Income CO-APPLICANT’S EMPLOYMENT HISTORY Dates From–To Company Position Annual Income Other business affiliations (officer, director, owner, partner, etc.) Have you ever failed in business or filed voluntary or involuntary bankruptcy? [ ] Yes [ ] No (If yes, please list when, where, circumstances, including any remaining liabilities.) Are there any lawsuits pending against you? [ ] Yes [ ] No If yes, please describe: Have you ever been charged with or convicted of a crime or act of moral turpitude? [ ] Yes [ ] No If yes, please describe: (continues) 10376$ CH10 10-24-03 09:38:03 PS 204 FRANCHISING AS A GROWTH STRATEGY Figure 10-1. (Continued). Are you a U.S. Citizen? [ ] Yes [ ] No If no, in which country do you hold a citizenship? Where will the funds come from to meet the requirements of the estimated start-up costs? Enter source and dollar amounts: Do you plan to have a partner (other than your spouse or co-applicant)? [ ] Yes [ ] No If you own your own home, do you plan to borrow against it? [ ] Yes [ ] No Amount of equity $ Amount of loan $ Do you anticipate obtaining a loan to assist you in funding this franchise opportunity? [ ] Yes [ ] No If co-applicant is other than your spouse, please copy the remainder of the form and have each co- applicant fill out the appropriate information. DEPOSIT ACCOUNT INFORMATION Personal bank accounts and savings and loan deposits carried at: Bank Contact Name Account No. Phone No. ( ) Bank Contact Name Account No. Phone No. ( ) Bank Contact Name Account No. Phone No. ( ) ASSETS Cash in Banks Savings and Loan Deposits Investments: Bonds and Stocks Accounts and Notes Receivable Real Estate Owned (see schedule) Automobiles: Year Make 10376$ CH10 10-24-03 09:38:03 PS 205 DEVELOPING SALES AND MARKETING PLANS Personal Property and Furniture Life Insurance Cash Surrender Value Other Assets–itemize Profit Sharing Retirement Funds True Business NET Worth Attach Current Financial Statement TOTAL ASSETS SCHEDULE OF STOCKS AND BONDS Non-Market Amount or Marketable (unlisted securities- No. of Shares Description (actual market value) estimated worth) SCHEDULE OF REAL ESTATE Description Date of Market % of Mortgage Monthly and Location Purchase Cost Value Owner Due To Payment LIABILITIES Notes Payable: Name Payee to banks to relatives to others Installment Accounts Payable: Automobile Other (attach separately) Other Accounts Payable Mortgage Payable on Real Estate (continues) 10376$ CH10 10-24-03 09:38:03 PS 206 FRANCHISING AS A GROWTH STRATEGY Figure 10-1. (Continued). Unpaid Real Estate Taxes Unpaid Income Taxes Secured Loans Loans on Life Insurance Policies Other Debts–itemize TOTAL LIABILITIES NET WORTH (Assets–Liabilities) TOTAL LIABILITIES & NET WORTH SCHEDULE OF NOTES AND ACCOUNTS PAYABLE Includes installment debts, revolving charge accounts, bank notes, etc. Specify any assets pledged as collateral indicating the liabilities that they secure: To Whom Monthly Assets Pledged Payable Date Amount Due Interest Payment as Security I certify that the information I have provided on this application is complete and correct. I hereby autho- rize or its authorized agent to obtain verification of any of the above information and I authorize the release of such information to or its authorized agent. Signature of Applicant Date Signature of Applicant Date Shots should always be fired with a rifle, not a cannon. For example, if expe- rience has demonstrated that a model franchisee for your franchise system is a college-educated executive female between the ages of 34 and 45, then an advertisement in Working Woman may be a better allocation of resources than an advertisement in Inc. magazine. The key elements of a franchise sales plan are as follows: I. Introduction A. Description of the targeted franchisee B. Overview of the techniques and procedures to be implemented to 10376$ CH10 10-24-03 09:38:04 PS 207 DEVELOPING SALES AND MARKETING PLANS generate the maximum number of leads and prospects whose charac- teristics match those of the model franchisee C. Procedures for meeting, disclosing, and closing the sale D. Postclosing procedures II. State of the Nation A. Why people buy franchises Explanation: Corporate restructuring and downsizing in corporate America and abroad has led to job security reaching an all-time low. A wide variety of well-educated and financially secure executives and professionals lack the dreams and excitement they so sorely need to continue the daily grind or the loyalty or sense of security from the current employer. Franchising offers these individuals an oppor- tunity to be in business for themselves, but not by themselves. It is an opportunity to be an entrepreneur, but without the risk and difficulty inherent in starting a nonfranchised business. It is an opportunity to avoid the job-loss risks of downsizing and restructuring by large corporate employers. For many of these individuals, franchising of- fers a happy compromise between being a middle-level executive paper pusher and a total maverick. In short, it is an opportunity to control their own destinies. Once you understand why people buy franchises, you need to figure out why they will buy your franchise. A common misconcep- tion is that people currently operating within their industry are the best candidates for their franchise offering. Remember that consider- ably more frustrated accountants have purchased quick-lube and tune-up centers than have trained mechanics. With the notable ex- ception of conversion franchising (e.g., Century 21), those with years of training and experience in a given industry are not likely to per- ceive the benefits of franchising in the same light as does a novice. B. Why people buy your franchise Explanation: As a general rule, people will want to buy your fran- chise because of one or more of the following reasons: 1. They have an interest in your industry but lack the training skills to pursue this interest without assistance. 2. They have a friend, relative, or business associate who is already a franchisee within your system. (Happy franchisees tend to lead to more happy franchisees.) 3. They have been consumers or employees of a franchise (or com- pany-owned store) within your system and were impressed by the quality and consistency of your products and services. 4. They recognize your underlying product or service as being at the leading edge and want to take advantage of a ground-floor oppor- tunity. 5. They were impressed by the quality and professionalism of your advertising materials, the integrity of your sales staff, and the en- thusiasm and passion of your management team. III. Lead generation and qualification A. Selection of effective media and methods 10376$ CH10 10-24-03 09:38:04 PS [...]... G Y development and problems of competitors; (3) remaining active in industry groups and trade associations; (4) regularly reading trade journals and industry publications; (5) meeting with key suppliers and customers to understand industry trends and preferences; (6) buying the products of competitors to observe pricing, packaging, labeling, and features; (7) keeping track of the information that... sale 5 Matching Experience and Skills with Your Opportunity An age-old question in franchising is how much experience, if any, do you want your ideal candidate to have in your underlying industry? Some franchisors prefer to train from scratch and look for strong general attitudes and business backgrounds Others prefer their candidates to have some direct prior experience in their core industry Other... lacking the resources and incentive to provide quality training and ongoing support The fee structure should fairly and realistically reflect the division of responsibility between you and your partner Impatience is another factor that has defeated many international franchising programs It often takes time for another culture to absorb and welcome your products and services and begin respecting and. .. live in China alone Furthermore, the consumer market is strong, with a growing middle class and strong economic growth rates Multinational corporations are finding receptive local businessmen and governments Several governments, including those of Malaysia, Singapore, and Indonesia, have taken steps to encourage franchising by introducing laws, developing programs, and establishing organizations to support... franchisors and their lawyers need to monitor on an ongoing basis Recent updates to existing franchising laws in Australia, Korea, and the province of Ontario need to be examined carefully and as of the time that this third edition went to print, possible national franchising legislation was being considered in Argentina, Belgium, Italy, Japan, and Sweden Region by Region Analysis We live in a global... initially adopted and implemented to attract prospective franchisees, measure the performance of those efforts, refine plans to adapt to changes in the marketing macroenvironment, and totally eliminate marketing strategies and sales techniques that have been a complete failure The key components of an effective monitoring and intelligencegathering system include (1) acquiring and maintaining sufficient computer... a company to establish its system in China without first franchising in Taiwan, Singapore, Japan, or Korea It is forecasted that this will be alleviated in the future, however, as the Chinese government has been genuinely trying to create regulations favorable to foreign investors Indonesia This country is gaining in interest among franchisors as a very attractive market because of its economic growth... rich and poor, and Indonesian law requires that foreign retail establishments be operated by Indonesians, leaving foreign partners to be involved only as consultants Singapore and Malaysia Franchising activity is actively growing in both of these countries This is bolstered by government encouragement and the belief by locals that investing in franchises has a greater chance of success than investing in. .. marketing process and follow-up system and not expect success with a haphazard advertising strategy and index card—driven follow-up system 8 Reality and Patience Another classic marketing mistake made by franchisors is the failure to carefully check the candidate’s willingness to work very hard and to be patient before enjoying a return on their investment and efforts The candidate who comes into the... receptive to foreign investment in general or to franchising in particular A given country’s past history of expropriation, government restrictions, and limitations on currency repatriation may all prove to be decisive factors in determining whether the cost of market penetration is worth the benefits to be potentially derived ❒ Business Formation The structure that the international franchising transaction . effective monitoring and intelligence- gathering system include (1) acquiring and maintaining sufficient computer equipment capability to manage and organize market data; (2) tracking the 10376$. much experience, if any, do you want your ideal candidate to have in your underlying industry? Some fran- chisors prefer to train from scratch and look for strong general attitudes and business backgrounds. Others. of Financing. The territory chosen may affect the ability to main- tain and sustain financing for the undertaking, as well as affecting the ability to receive risk insurance both publicly and