Q:
I'm looking into a number of franchise opportunities, and they
all seem to have a mandatory marketing program that I would have to
put money into. My problem is that it appears I will have little or
no control over how the money is spent. Is this typical of
franchising?
A:
Mandatory marketing programs are probably one of the greatest
strengths of franchising, but they can also be one of the biggest
sources of conflict between franchisees and franchisors. These
programs usually have a required contribution from the franchisee.
This can be either a fixed amount or a percentage of the gross
sales of the unit. In either case, the money is usually deposited
into a fund that the franchisor has total control over in terms of
deciding expenditures. The only caveat is typically that the money
must be spent for "marketing" purposes, though this can
sometimes be defined very broadly by a franchisor.
The reason this is such an advantage for franchises is that the
strategy of pooling these funds from all the franchisees gives them
much greater marketing power and clout in the marketplace to build
the brand. This fund can do things, like run TV campaigns, that no
single franchisee might ever be able to afford. The fund can also
hire experts to produce advertising materials that are far better
quality than what could be produced by an individual owner.
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The conflict that can arise out of a program of this type always
relates to franchisee feelings that the money is not being spent
correctly. This can be a huge issue in any franchise system.
One common complaint focuses on the ratio of production costs to
actual advertising costs in the fund. Any marketing effort needs
quality materials to make a favorable impression on the consumer.
On the other hand, if all the money is spent on producing great
commercial materials, there isn't any money left to deliver
these materials to the consumer. There obviously needs to be a
reasonable balance between these two needs.
Another common complaint focuses on the amounts spent to promote
"brand building" advertisements vs. the amount spent on
"customer attraction" advertisements. Many franchise
company corporate marketing department executives seem to favor the
first approach, while most franchisees seem to favor the latter.
This can lead to massive conflict if, again, there is not a
reasonable balance between these two needs.
It is essential that you find out whether the marketing program
is a benefit or a source of conflict in any company you are
considering. You can determine this by asking the existing
franchisees and looking for a preponderance of opinion.
If you find a franchise system where the majority of the
existing franchisees are unhappy about the way their marketing
dollars are being managed, you can safely assume that you will end
up unhappy as well. On the other hand, if most of the franchisees
appear to be very pleased with the way this fund is being handled
by the franchisor, it is probably a company where they are happy
about most other factors as well.
There is a real benefit to most franchisees to have
professionals handle the marketing needs of their business. This
can be a strong benefit of any franchise system, but make sure that
it is working like it should by thoroughly researching the company
prior to making a commitment to the franchise.
Jeff Elgin has almost 20 years of experience in franchising,
both as a franchisee and senior franchise company executive. He is
currently the CEO of FranChoice
Inc., a company that provides free consulting to consumers
looking for a franchise that best matches their needs. He can be
reached at jelgin@FranChoice.com.
The opinions expressed in this column are those
of the author, not of Entrepreneur.com. All answers are intended to
be general in nature, without regard to specific geographical areas
or circumstances, and should only be relied upon after consulting
an appropriate expert, such as an attorney or
accountant.