No longer the dumb waiter

11 March 2010 | By MaryLou Costa

Relationships between brands and franchisees are a little like marriages. They take patience, understanding and, above all, communication. Accordingly, franchisees are now being treated by brands as business partners rather than as subservient employees. To make sure the partnership is productive, franchisees must receive clear communication from the central brand when new initiatives arise, and have a voice in the marketing and product strategy.

But as with all partnerships, a breakdown in communications can lead to conflict which in the case of franchises, can put the brand at risk. In the US, the franchisees of KFC have been making headlines since January, when they filed a lawsuit against the company. They claim that KFC management has gone against franchisees’ concerns that its new grilled chicken product didn’t warrant so much of the company’s advertising budget, forsaking promotion of its core fried chicken products. They sought an injunction to protect their rights around their input into marketing decisions.

The situation has attracted unwanted internal discord and legal fees, not to mention bad press for KFC. The chicken restaurant’s situation illustrates the effect a potential lack of communication and understanding between company and franchisees can have on the brand. So how should companies operating a franchise model avoid similar problems?

British Franchise Association marketing manager Tom Endean warns that those companies adopting a strong “take-it-or-leave-it” approach when introducing franchisees to their marketing are simply asking for trouble. “If you take the line, ‘we don’t care what you say, we’re going ahead with it anyway’, you risk a backlash,” he warns.

Endean says the smartest companies are those which have marketing committees with franchisee representation. “Franchisee involvement might be on a small level or a bigger one but it’s important to communicate clearly when changes happen,” he says. “In a lot of companies, a percentage of the franchisee’s fee goes into a marketing fund so they should have some say in regards to how the money is spent.”

Communication doesn’t just serve a token purpose of encouraging warm, friendly feelings across a business – it makes a company’s strategy stronger. Endean claims a company is not doing itself any favours if its franchise network doesn’t buy into what it is doing. “If an entire network thinks something isn’t going to work, it is not in the company’s best interest to go ahead with it – even though it is legally entitled to do that,” he says.

Companies with a majority franchise base might even try one “pilot” store for testing new products and branding before a wider store rollout. Activities from the pilot store can then be used as a case study to prove the success of the scheme to franchisees as a way of winning their support. This way, says Endean, franchisees don’t feel they are being forced into stocking a product or supporting a promotion they feel unfamiliar with or dubious about. And, most importantly, they can see first-hand how their business benefits.

Both pizza chain Domino’s and Intercontinental Hotel Group (IHG) have recently faced the difficult task of getting franchisees on board with big company changes. At the beginning of this year in the US, Domino’s launched its revamped pizza recipe, which hadn’t been touched in 50 years, overhauling everything from the dough to the sauce and cheese.

The brand took the tack of easing the franchisees into the new concept with a thorough explanation of the reasons for the changes – consumer demand for change and the promise of a new competitive edge. Domino’s also showed off the results of taste testing and explained what training support was on offer. Despite each pizza costing more to make than the old version, franchisees were won over by the buzz generated by the new recipe, whipped up by the company’s large scale advertising campaign.

For IHG, the challenge was more tricky: it had to ask its Holiday Inn franchisees to part with £1m each for a global refurbishment project, and also convince them that its “stay two nights, get one free” summer promotion was good for business rather than simply a cost to the hotel operators.

IHG chief marketing officer Tom Seddon says getting the franchisees on board was a real turning point for the campaign. The summer promotion has since been hailed as the company’s most successful to date.

“One of the things I’ve noticed with all of the franchisees is that they need convincing, but they’re willing to take gambles as well,” says Seddon. “With the summer promotion, we asked them to take quite a big risk with how it was set up, but they wanted to do it.”

If a new product or promotion can gain the full support of franchisees, the chances of success are greater, meaning proactive franchisee engagement pays off. But there has to be a limit on how much franchisees are involved, argues Burger King EMEA vice-president of marketing David Kisilevsky.

Burger King fell foul of its US franchisees at the end of last year when it was sued by The National Franchise Association, representing 80% of its franchisees. The organisation claimed that its $1 cheeseburger promotion was causing them to lose money. Chief marketing officer Russ Klein left the business shortly after the lawsuit was filed.

Kisilevsky has not faced these issues with franchisees in the EMEA region, but he admits: “We don’t present creative concepts to franchisees upfront. The first sight they get of a campaign is when it’s finished. But generally speaking, franchisees have been supportive and positive towards most of the things we have done.

“Occasionally, there is a TV campaign or poster they feel uncomfortable with; and it’s absolutely their prerogative to flag that up, even though we are not contractually obliged to take their feedback on board.”

Franchisee perspectives are considered, Kisilevsky claims, but if personal taste is guiding their issue with the marketing, the company will listen but reiterate why it has decided on a certain approach. “However,” he says, “if the reason is that it would upset local customers and cause them to lose business, we would take it seriously.”

Burger King franchisees can also set their own menu prices and are not obliged to honour all voucher promotions the company releases. “We would be wrong to mandate something like that as it would erode our good relationships,” Kisilevsky explains. And new product concepts are shared as early as possible with franchisees through quarterly meetings. The aim is to inspire franchisees to maximise any promotional efforts.

Franchisees also need to be inspired to generate unique local marketing activity, albeit within the construct of the brand and its values. This is a necessary part of doing business, Kisilevsky claims, as local activity can increase a restaurant’s share of a local trading area.

“Our business is more competitive than it was 20 years ago because of this,” he says. “The way a typical franchisee looks at it is that the franchisor has the responsibility to develop the brand’s strength. At a local level, individual restaurant marketing activity is necessary to bring people in, on the back of the strong brand.”

Conducting local marketing activities has become more important as consumers now have more influence on companies than ever before and are quick to leave their opinions with staff, on forums or blogs. Being at the coalface of the business, franchisees are exposed to direct customer information, reactions and behaviours, and are well placed to drive local marketing initiatives that in turn drive footfall and sales.

Brands are steadily placing more of a focus on this, says Andy Wheatley, marketing director of customer management agency Snowball, but not enough. He says that typically, 20% of marketing activity happens at a local level, with 80% of advertising budgets being spent on national campaigns. He argues that a reversal of these figures would be more effective for brands.

“The speed of communication between brands and customers is now such that head office is unlikely to be able to respond to marketing conditions as quickly as a local franchisee,” says Wheatley. “Consumers expect an almost instant rapport with the brands they interact with, so companies need to equip their franchisees with the tools to be able to do this.”

Starbucks and McDonald’s are brands that are using local tactics as part of a strategy to get closer to customers. Both brands have refurbished stores in the past couple of years in an attempt to move away from the past doctrine of making all stores identical. They have pledged to make store decors reflective of the local neighbourhood. Wheatley says strategies from such major brands is the beginning of a “sea change” that will see more resources poured into local marketing – and greater involvement from franchisees.

Bang & Olufsen, Citroën and Volvo have all commissioned Snowball to facilitate local marketing tactics based on individual franchisee requirements. Snowball obtains individual customer databases which tells each branch how many prospective customers they may have for a specific product or service. Local marketing techniques are a way of giving franchisees more power, presided over by the company but without the franchisee feeling they are being controlled.

“Online marketing toolkits allow each franchisee to create marketing material that is both specific to their local area and compliant with national brand guidelines, as well as working across multiple channels – direct mail, email, websites, mobile and point of sale,” Wheatley explains.

Ultimately, franchisees do have to be aware that they have bought into a brand as much as their end consumers. Their brand identity is owned by a company with fineprint that reveals how much – or how little – say they have in a brand’s marketing strategy.

“The company must protect their brand and business, so there is a good reason for a swing of power towards the company, because inconsistency in brand and marketing could damage the business,” says British Franchise Association’s Endean.

Burger King’s Kisilevsky agrees: “A ship can only have one captain. Otherwise it’s a recipe for anarchy. Our marketing directive is built into the franchise agreement.”

But companies must avoid alienating franchisees with what they consider a “dictatorial brand policy”, Snowball’s Wheatley warns, as in the case of KFC in the US. He says that local marketing strategies can help give more weight to the opinions of franchisees without diluting a brand. Hopefully, this means companies can hold off from calling in the relationship counsellors in 2010.