Successful franchisors drive value for franchisees and customers by crafting product and service offerings that provide greater perceived value to customers than they spend in money.
FPG has identified 14 distinct ways customers perceive value. Iconic brands have historically staked out positions in one or more of these areas in order to dominate their competition in the marketplace.
Those attributes are:
- Innovation. Customers acknowledge these brands sell the most advanced products and services.
- Necessary to the customer. Customers simply cannot do without these products and services. Example: Home healthcare. Food.
- Price leaders. These are brands that sell products cheaper than everyone else. Examples: Taco Bell and Subway
- Service leaders. These concepts include a unique customer experience or higher service expectation in their customer offering and often charge a slight premium for the value-added experience. Example: Starbucks.
- High perceived risk for change. These brands have an opportunity to lock up their customer base as long as they meet their customers’ minimum satisfaction threshold. Examples of these business include maid service brands.
- Customer intimacy. These brands build deep and committed personal relationships with their clientele. Examples: Cross Fit, OrangeTheory and tribal fitness concepts.
- Speed and convenience. These brands focus on getting customers in and out fast, minimizing life disruptions and playing off the high value their time-starved customers place on convenience. Time-crunched customers look to stay in a small shopping orbit and do it all in one trip. Examples: Great Clips, AlphaGraphics.
- Lifestyle. Lifestyle brands often have high ego appeal. People connect with these brands on an identity level. Example CrossFit. Lifestyle brands can also promote shared values with their customers, such as faith-based Chick-Fil-A.
- Aspirational/luxury. These businesses sell premium services and luxury brands, such as Expedia CruiseShipCenters.
- Disruptive. These brands reinvent products and services, altering what customers value and how they shop. Planet Fitness disrupted the highly commoditized gym model through a high-value/low-cost offering. Jiffy Lube disrupted car maintenance service by inventing a method for oil change and basic car care in 30-minutes or less.
- Socially responsible. These brands have a reputation for being solid corporate citizens who give back to the community or the planet. Example: TOMS Shoes.
- High value/affordable luxury. These are premium brands with products or services still within reach of middle-income America. Example Massage Envy.
- Expertise/thought leadership. These brands are highly focused and have deep domain knowledge within their industry. For instance, Fleet Foot is a specialty retail store for runners.
- Customization and personalization. These brands offer customers a unique and precise combination of what they want, how they want it, and when they want it. This business model is often explained as mass customization, meaning they have developed a scalable model that allows customers to cost effectively tailor their product or services to unique specifications. Examples: Blaze Pizza, self-serve frozen yogurt chains, Chipotle/Subway-style assembly line restaurants.
Value Proposition of the Franchise Opportunity
FPG asserts winning brands craft a franchise offering encompassing all the following attributes:
- Unique products and services. The business model has to offer customers something different, better, and more valuable than comparable businesses. If not, the market will quickly become inundated with copycat concepts, commoditizing and devaluing the products and services, killing opportunity for franchisees, and perhaps forcing them to compete with no real competitive advantage.
- Profitability. The model must consistently exceed the expectations of the franchise candidates most likely to invest in it. How franchisees define acceptable financial returns will vary by brand, franchise buyer profile, and category.
- Defensibility. The franchisor’s consumer-facing model must present high barriers to potential competitive entry by being difficult or too expensive to copy. Otherwise, the market will rapidly attract new entrants, oversaturating and commoditizing the franchisees’ product or service offering, driving down the price and eroding margins, and devaluing the brand. “Defensibility” answers the question, “How well will this brand hold up to competition?”
- Value to customers. The brand has a clear understanding of how their target customers define value, and the underlying business model consistently delivers value that exceeds the price points customers pay. FPG details 14 different consumer value propositions later in this work.
- Value to franchisees. Franchisors create value for franchisees by perfecting a business platform which adds more perceived benefit to franchisees than it extracts in royalty dollars and other costs. The franchisor’s business platform includes such things as marketing, training, processes, systems, strategic relationships, and support.
- Sustainability. The brand position has proven it is defensible against competitive threats such as disruptive technologies or similar business models. Additionally, the brand’s product and service offering must continue to stay relevant well into the foreseeable future.