Franchisor Advantages and Disadvantages: What’s New

franchisor advantages and disadvantages franchisee open sign

Franchising is a cost-effective way for small businesses to grow faster with less risk associated with expansion. Franchisors provide the core business model and franchisees execute the plan. And as every franchisor knows, the franchisee-franchisor relationship is unique. The widespread challenges during 2020 caused stress to some franchise relationships. Franchisor advantages and disadvantages changed during the COVID-19 pandemic.

It was reported in The Wall Street Journal that the pandemic is straining many franchisee-franchisor relationships, including leading franchise brands like Subway, Wendy’s, and Choice Hotels. To successfully repair these relationships, there needs to be buy-in and respect from both sides. Let’s look at some of the ways franchisors can strengthen relationships with their franchisees and grow the business.

Local Market Analysis

Franchisors know there is strength in numbers. Building a larger franchise network increases purchasing power and achieves economies of scale with suppliers and vendors. Every time a new location or unit is added, you also are diversifying your revenue stream. The investment you make in each location is critical to the success of the franchise.

Local market analysis (LMA) can shine a light on ways to maximize business in specific locations, both when setting up a new franchisee and when obstacles threaten an existing one. LMA includes quantitative and qualitative research to assess what’s going on within the local market. At minimum, franchisees and franchisors should work together to analyze the:

  • Market – the size and value specifically in that location at near real-time. This establishes a foundation for “what good looks like” at each unit.
  • Customer – consumer segments, their buying patterns, the customer journey, and how consumers feel about engaging with your business (which during the COVID-19 pandemic is important for both “essential” and “non-essential” businesses). Knowing the local customer base uncovers the way to personalize communications and speak to their values, needs, and wants.
  • Competition – the local economic environment (which, again, during the pandemic can vary considerably), marketing, and market pricing. Whether it is other regional players or strong, local independent competition, success for the franchisee depends on knowing who else is after the same customers and how to surpass them.

LMA provides details about the region that not only provide valuable insights for the local management team, but also demonstrate to the franchisee that the franchisor is a partner in building and sustaining the business.

Customer Intelligence and Quick Action Surveys

While LMA is great for fine-tuning the overall marketing strategy, the broader definition of “customer intelligence” helps your brand build up loyal customers and pivot faster when needed.

If your business has ever needed a quick response to a catastrophic event (e.g., pandemic-related challenges or a public relations incident), customer intelligence can make a world of difference. Having rapid consumer insights, knowing how your customers feel about what’s happening, and understanding the true voice of your customer can help the business recover faster.

Especially during times of urgent need, quick-action surveys can provide the insights needed to redirect your brand strategy faster. Quick-action surveys, particularly when paired with an ongoing voice of the customer (VoC) program, deliver confidence during disruption that the steps your team is taking match with customers’ expectations of your products or services. These tools can even help build your brand during difficult times.

To conduct gap analysis and validate key assumptions, often at Martec, we utilize online bulletin boards and surveys. Online bulletin board research is an efficient way to gather in-depth interviews. Those insights are then coupled with online quantitative survey data, completed by a much larger sample size. This methodology allows for a deep dive into issues adversely impacting performance — in a short amount of time.

Franchisee Satisfaction Tracking

Prosperous franchises treat their franchisees as customers as well as partners in the business. Listening to franchisees on a regular basis is critical to increasing satisfaction and productivity. Franchisee satisfaction can be defined as how well franchise owners’ experiences compare with their expectations. Measuring franchisee satisfaction is crucial for long-term success.

For this type of research, we recommend qualitative data — in-depth, confidential interviews. Franchisors who regularly track franchisee satisfaction have a better understanding of:

  • Franchisee attitudes and job satisfaction
  • Important franchisee support criteria
  • Strengths and weaknesses within the franchisee-franchisor relationship
  • Ways to maximize franchisee skills, productivity, and motivation

If a franchisee does leave the business, it’s important to learn from them as well. Franchisee exit interviews provide valuable insights. Understanding the main reason franchisees depart can help you prioritize franchisee support criteria. You also can ascertain:

  • The average tenure of your franchise businesses
  • Their reasons for leaving – personal reasons or weaknesses within the franchisee-franchisor model

These insights can help strengthen your franchisee relationships, which ultimately impact your business’s success.

The Bottom Line

Franchises come in all sizes across all industries; and, there are benefits to being a franchisor and a franchisee. Franchisor advantages and disadvantages have clear themes – but specific pros and cons are distinct to each business. For franchisors in a post-pandemic economy, the key will be unlocking your market’s potential:

  • What does your market look like now?
  • Where are the opportunities for growth?
  • How can your product or service compete?

Ready to discover new wins for your business? Let us know how we can help – or ask us for redacted studies. We’re happy to provide additional information.

Bonus read: Market Sizing Amid COVID-19

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