The Franchise World Finally Gets the Whole 'Big Data' Thing Franchises are using big data to customize marketing, select locations and manage staffing.

When you were ordering pizza in the late '80s or early '90s, you probably didn't realize that you had reached new levels of technological sophistication. Yes, you were contributing to the early stages of the Domino's Pizza data-collection empire. At that time, the company was gathering whatever customer information it could get: ZIP codes, order frequency, delivery times and anything else that could be gleaned from the door slips generated from deliveries. Back then, Domino's used simple databases to crunch the numbers and try to figure out who its customers were, what they wanted and how to keep them calling for more.

Thirty years later, the Ann Arbor, Mich.-based pizza franchise is still gathering information, though on a much bigger scale. "What kind of data do we collect? Everything we can get our hands on," says Domino's chief information officer Kevin Vasconi. "That's not hype. Even if we don't immediately know exactly how to use the data, we do know we have some really smart data scientists. If we start looking at data we've never looked at before, some insight will occur."

Domino's is one of the most advanced companies in business when it comes to harnessing "big data," a buzzword that refers to how companies collect customer information and then analyze and use it to tailor marketing to individuals, decide where to open stores and even to make staffing decisions.

For example, it's possible to learn that your core demographic isn't the 18- to 35-year-old men you've been targeting, but rather, suburban moms. You might deduce that Ms. Smith on Oak Lane is a vegetarian and will respond to discounts on veggie pies. And you'll figure out that on game days, the high school students in the 68022 ZIP code inexplicably crave pineapple on their pizzas.

Collecting and analyzing data can be a powerful business function, and the world's most progressive companies have been investing in it for years. But the franchise world has been relatively slow to realize the power of big data -- ironic, as data has the potential to aid franchises more than other types of companies, since franchisees can benefit from unit-level metrics that let them harness the ideas and strategies that are working for fellow franchisees, while corporate can customize systems for various regions or cities.

"It isn't easy. You have to deal with the franchisee community, and they have opinions," explains Taylor Bond, founder of Franalytics Group, a consulting firm that works with CEOs and management teams to develop data plans. "It's a partnership. Franchisors have to communicate to franchisees how important this is -- that if they don't make changes to their system, they're eventually going to wake up and realize they aren't relevant anymore, that their competitors are doing things more efficiently and cheaply. Your gut is better with data -- I believe in informed gut decisions. How companies use and manage data is critical to their survival. Franchisors need to understand that without data, their left flank is wide open."

But getting that data can be a challenge. As hardware stores, ice cream shops and websites increasingly ask for email addresses and other personal information, consumers are becoming stingier about providing it. Vasconi says there is one tried-and-true method for acquiring such information: Be respectful and give value.

"Domino's has had a 50-year relationship with customers, and because of delivery we require them to give a lot of information," Vasconi says. "We've been good custodians of that data. We don't sell it to other companies; we treat it as our own. Because of that, they continue to volunteer information, and the more they give us, the more value we can provide through promotions and targeted marketing. It's a symbiotic circle, and something other companies in QSR [quick-service restaurants] are just trying to figure out now."

Minneapolis-based Great Clips, the 3,900-unit haircutting franchise, began seriously crunching customer data around the same time as Domino's. In the past 17 years, in particular, Great Clips has noted customer frequency and kept track of the hairstyles they like and what days and times they prefer to come in. What was once confined to localized databases is now in the cloud, so any salon on the globe can download customer data. This has helped franchisees retain business.

"We keep track of how many times customers come in -- who has been in once this year, who's been in four to six times, who's been in seven to 10 times or more. Then we figure out how to market to these different buckets of customers," explains Great Clips president Steve Hockett. "What we found was that franchisees were spending a disproportionate amount of their marketing on people who already come in many times per year. We were able to tell them to focus on customers coming in one to three times and help move them along.

"It also helped us focus on weekend hours," Hockett adds. "We realized that many customers come in on weekends, and units that had 30 percent of their staff hours scheduled on weekends were doing really well. Spreading that to other units led to powerful growth."

Of course, other franchisors can't get in the DeLorean and head back to the late '80s to start collecting data. That's why multiple services have emerged to help them get up to speed. Reston, Va.-based FranConnect, which helps franchises manage almost all aspects of their businesses, is pushing hard for its clients to begin gathering and analyzing data. The FranConnect analysis model is based on modules that track sales, marketing efforts, royalties, staffing and other metrics.

"Our modules allow franchisees to compare themselves to other units, and they can use this systemwide data to see where they stack up," explains CEO Christopher Fountain. "It helps them create better programs for same-store growth, and makes franchisees and franchisors happy."

Information Builders, a business intelligence and analytics company based in New York City, has a similar platform, WebFocus. Ace Hardware uses the software to collect information from point-of-sale and inventory systems.

"Franchisees can see the top 50 items sold at Ace Hardware stores similar to their own. So if they're not carrying those products, they can order them," explains Jake Freivald, vice president of corporate marketing at Information Builders. "If your franchise is within 10 miles of a body of water, and it turns out that other franchisees in similar locations are carrying marine-grade equipment and you're not, you can figure out that you might be losing sales from boaters who walk in and walk out disappointed. This type of data helps franchisees decide what to carry, what prices they should charge and even where [store] locations should be."

Mark Ryski, founder and CEO of Canada's HeadCount and author of Conversion: The Last Great Retail Metric, works with a different type of data. His Edmonton, Alberta-based company crunches data about who is coming through retailers' doors, how they behave while inside and whether they are likely to make a purchase.

"If a prospect crosses the threshold of a store, there's a probability you can convert that visitor into a buyer, full stop," Ryski says. "Therein lies the opportunity. If you are converting 25 percent of those people into buyers, then you need to figure out how to get to 27 or 28 or 29 percent. It takes things like understanding how to staff according to customer traffic, which is a no-brainer when you have the data. But you'd be shocked by how many retailers don't do this. They just let customers wander around and leave without buying because there was no one to help them."

While third-party solutions can help get a franchise into the data game and significantly boost business, franchises should eventually look into building their own software, some experts say.

"These places make their own unique pizzas and hamburgers, and a data system is as unique to individual franchises as anything else they do," says Bond at Franalytics. "All franchise systems operate differently. One person can't have the same solution for both."

The top brass at The Cleaning Authority, a Columbia, Md.-based brand with 195 franchisees, knew data would be important from the time they launched in 1989. Now the company has a proprietary data package and pays more than $1 million in in-house IT salaries.

"Our founders knew how much more efficient and effective the business could be with tech, so they started talking about how they wanted to capture and use data," says Iric Wexler, vice president of franchise development. "They knew one day tech would allow them to execute their vision." That vision today includes a sophisticated call center and automated marketing department.

Franchisees also delve into the numbers. "They have access to all the information from their phones or iPads," Wexler says. "They can see how many times Mrs. Jones has called, who cleaned her house, what marketing drove her to us, whether she was referred or whether she referred anyone. We can dial down to ZIP codes and even mail-carrier routes, and market directly to Mrs. Jones and neighbors in her income level, age group and ethnicity. As a territory matures, we can home in on what works."

While data capabilities are already powerful, they will only gain in strength. Toledo, Ohio-based Marco's Pizza, which has been upping its activities in data collection year by year, is looking forward to the next steps.

"I'd like to become as "just in time' as possible," says Jim Boswell, director of financial planning and analysis. "For instance, I'd like to use inventory to manage discounts, and vice versa. If we see people ordering a lot of a product, it would trigger something in inventory that tells us it needs to be restocked. Or if we have too much of an item or sales are lagging, it would tell us to change an offer in increments of X to drive sales that evening. I'd like to marry all our systems for an omni-channel approach."

Boswell is also interested in how data can help manage labor. "If things get busy," he says, "it would be great if we had a system that automatically sends a text to the next person in the queue to come in for a shift. This is where we're headed in the next couple of years."

But that type of functionality is just pie-in-the-sky for systems that have not even begun investigating the promise of big data. Fountain at FranConnect believes that when more franchises see what other systems -- including their competitors -- can do with data, there will be a rush.

"We don't have a picture of all 2,500 franchisors in the U.S., but there are leaders and laggards and everything in between," he says. "People contact us when they're ready to start thinking about the information they're collecting holistically. We start them with a few modules and go from there. We don't want to start trying to boil the ocean on the first day."