As part of many agreements, franchisors require their
franchisees to contribute to a national advertising fund that pays
for the development and placement of ads for the company. Sounds
like a good idea...unless you're a franchisee in a new
territory that advertising has yet to reach, or if you're a
franchisee who believes the franchise is benefited more by this
advertising push than you are.
Franchise Zone spoke with Philip Friedman, president of deli
franchise McAlister's Corp., about how his franchise operates
its advertising fund and addresses franchisees' concerns about
the fund, as well as what any prospective franchisee should know
about advertising funds before buying a franchise.
Franchise Zone: Why did McAlister's
institute an advertising fund?
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Philip Friedman: First off, an advertising fund is
standard. We are not an extensive marketer or advertiser, so we
employ a minimum advertising fund to develop local marketing
materials and to fund research into our concept and our
performance.
How does the advertising fund benefit
the system?
It provides a consistency in our marketing/advertising programs.
It also fosters internal communication between the company and
franchisees, since we have a committee represented by [both
parties] that works on the marketing plan and the allocation of
funds.
How does it benefit your
franchisees?
They get the benefit of the research, the interpretation of the
research, the benefit of the marketing programs themselves. They
don't have to develop their own programs. They have programs
that are consistent throughout the system available to them.
Many franchise systems don't have
an advertising royalty. Is that a good thing or a bad
thing?
I would say it is a mistake. First, it should not be called an
advertising royalty, since the purpose of the advertising fund fee
is to market the system. The fee is not income to the
franchisor--it's used to finance a franchisor-led marketing
effort designed to benefit all stores in all markets of the
system.
Without a marketing fund, there's a high probability
systemwide marketing won't be developed. Or if such an effort
is started by the franchisor with the help of only some
franchisees, all franchisees won't be required to participate,
and the effort will either fail or cause discontent in the system.
If an advertising fund fee didn't exist, it would indicate to
me that the franchisor hasn't thought through the system's
needs or is not willing to lead such an effort.
How does McAlister's advertising
fund work?
Our franchise agreement requires a contribution to an
advertising fund. There's a minimum of 0.5 percent to a maximum
of 2 percent, and we are actually funding it at a much lower level
[than the maximum], because we've developed a budget and
determined what the allocation should be. Every franchisee comes
into the system knowing they will be contributing to the
advertising fund; they know what the maximum is, and every year
they know what the current [contribution] is.
What specific things do McAlister's
franchisees get from the advertising fund?
We're not an aggressive media marketer, so most of our
effort is geared to in-restaurant, in-market promotion. The
franchisees get development, research and production of all
materials; local market planning; menu development and production;
customer satisfaction research and reporting; focus group research
and reporting; an annual marketing plan, and annual budget
preparation and reporting. The fund is also responsible for brand
development and new product development, and fulfillment for all
marketing materials and uniforms. We've produced radio spots,
and we're working on TV spots.
Does anybody ever object or want to opt
out?
The objection would be more of a decision of whether they want
to join the McAlister's system or not. After they're in,
they have a chance to discuss through the marketing committee what
they feel the proper allocation and use of the funds is. Opting out
is not an option.
What kind of reaction do the
franchisees have to the fund's performance?
Overall, our franchise community is happy with the way we
approach marketing, the way we use the fund's dollars and the
level of spending. As I said, we try to keep the fund low, so they
tend to be happy. I think they feel the materials are good.
Do some of your franchisees feel they
might not be helped in their market by the advertising
fund?
Some franchisees feel they don't need the marketing help,
that their restaurants are doing well and they'd rather go it
alone. In every system, there are different approaches toward
spending, and you always have some people who just don't want
to spend money.
What does the company say to those
franchisees?
They have to comply. We try to explain this is established for
the benefit of the system--the programs are well thought out,
they're consistent with our marketing plan and marketing
strategy, and they have value for the individual restaurants.
How much of an opportunity do the
franchisees have to contribute their ideas or
thoughts?
The committee meets every three months, and we have quarterly
franchise operating meetings. Most franchisees are able to comment
on the marketing on almost a quarterly basis. There's a lot of
involvement and open discussion. We're still a small
system.
Because you are still a relatively
small system, how does the advertising fund benefit franchisees in
a completely new market?
Since we're so research based, [that information] folds into
site selection. A big part of marketing is to pick the right
location in the right area. We know from the development of the
marketing materials what works in different types of market
situations, from experience and from research, so we're able to
apply that knowledge to specific situations.
For a prospective franchisee of any
system, how important is the presence or absence of an advertising
fund?
This depends on the importance of marketing to the concept. I
believe it is extremely important and would be very concerned if
one did not exist or the mechanism to implement one was not
addressed in the franchise agreement.
Franchisees in other systems have
objected to their advertising royalty, because they don't feel
they benefit from it. Can you comment on that?
Once again, if the franchisees or the franchisor think of it as
a royalty, that's probably where the difficulty lies. If done
correctly with an approved marketing plan, sound franchisor
leadership, systemwide cooperation and budget reviews, an
advertising fund should produce recognized sales building and brand
building benefits.
When prospective franchisees are
researching a franchise, what questions should they ask about the
advertising fund?
Is there a fund committee with strong franchisee participation?
How often does the committee meet? Is there an annual budget
reviewed/approved by the committee? Has the marketing been
effective? Can I call members of the committee to discuss the use
of the funds? Has the fee remained the same over the years? Has it
changed recently?
If a franchise doesn't have an
advertising fund, how can the franchisor and franchisees decide
whether they need to institute one?
By determining the importance of systemwide marketing materials
and the value of a consistent brand image/presentation to the
concept. If franchisees are spending significant money on
marketing, what is the value of a joint effort? Evaluate competitor
activities and their approach to customers. Look for successful
models to emulate.
What makes an advertising fund
successful?
Good direction--a strong team that understands franchising and
realizes they're working with groups of owners as much as a
system or a concept. Also, strong, research-based marketing
plans.