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Why Franchisors Should Evaluate Their Franchise Competitors

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During these challenging economic times, individuals seek the greatest return on their franchise investment. In order to grow their system franchisors need to offer the best opportunity and value to prospective franchisees. For these reasons, itís important for franchisors to perform a competitive analysis of franchisors that are direct and indirect competitors.

Itís a given, that all businesses should do a competitive review on a regular basis. However, franchisors may do a competitive analysis of other franchisors prior to or after launching their franchise program. Thereafter, some franchisors fail to see how well they match up to similar franchise programs. Just as franchisors expect their franchisees to be aware of their competitors and new programs or promotions, franchisors should do the same.

There are important reasons why franchisors need to be on the top their game when it comes to franchisee value:

  1. The current economic client has made the sale of new franchisees much more difficult.
  2. Individuals are more savvy and knowledgeable about finding and purchasing the right franchises.
  3. It makes good business sense to maximize the value of the franchisee investment.
 

There are two types of competitors that franchisors should review: direct competitors; who represent franchises in their own business segment and indirect competitors; which represent franchises in a related segment. For example, in the Childrenís franchise sector, childrenís fitness and enrichment programs could represent direct and indirect competitors of each other.

Given the number of potential franchises that could be considered direct and indirect competitors, itís best to begin with those that most closely match up to your particular franchise opportunity based upon investment, size and maturity. Once youíve identified the franchises, set up a spread sheet and rate and compare the following items to your franchise opportunity:

  • The initial franchise fee. What does the franchisee receive for their fee?
  • The quality and size of the franchisee territory. Is it truly exclusive and protected?
  • Royalty fee. Any incentives to pay a reduced royalty by increasing revenues?
  • Advertising fund. Is in force, what is the payment and how is it structured and administered?
  • The initial and renewal terms of the franchise. What is the renewal fee?
  • Franchisor training and start-up support.
  • Litigation is an important comparison among franchise programs.
  • Ongoing franchisor support. Are there differences in terms of services and support?
  • Marketing programs and the use of social media. Technology can provide an edge if properly used and franchisors on the cutting edge of new technologies can have a competitive advantage.
  • Operational efficiencies. Franchisors that provide their franchisees the operational tools that allow them to run their business more easily will provide their franchisees more value for the fees that they pay.

There may be other items you can add to the list. The important thing is to see how your franchise stacks up against the others.

Individuals looking to purchase a franchise expect to receive the most value for the money that they are investing. Since franchisors compete with other franchisors for many of the same investment dollars itís important that they be aware of their strengths and weaknesses versus other similar franchise opportunities.

© 2011 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com 

 

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