Subscribe to our blog

Back to blog

What Franchisors Can Learn About Buying Behavior From Latest Harvard Business Review

March 25th, 2016

The Internet has changed how people buy. But has it changed how you sell?

Harvard Business School faculty member Frank Cespedes and automobile marketing and technology thought leader Jared Hamilton penned an article in the March 16, 2016, Harvard Business Review titled “Selling to Customers Who Do Their Homework Online.” They pointed out how self-directed research is altering the car buying process, and what auto dealers need to do different to stay relevant. A lot of the changes mirror what has happened in franchise sales over the last 5-6 years. Here are some changes in buyer behavior the article highlighted, and what we believe are the franchisee recruitment implications.

 

 

1. Auto buyers do massive amounts of research BEFORE they are willing to talk to a sales representative.

Cespedes and Hamilton write, “Although consumers do a lot of online research — the average U.S. car shopper now spends 11 hours online and only 3.5 hours offline, including trips to dealers — the vast majority still end up purchasing their cars in person.”

Therefore, if it takes 14.5 hours to buy a car, more than 70% of the auto buying process occurs online.

Implications for franchising

Franchising does not currently have transparent sources of information that buyers can trust (example: Consumer Reports, Kelley Blue Book, etc).  However, we do know that franchise candidates are spending more time online researching franchisors and franchising thought leaders than 10 years ago.

Franchisors need to develop a talent for creating online content streams that give franchise candidates what they need, answer their questions and address their concerns, and at the same time drive them deeper into the funnel and break down any barriers to conversations. Franchise buyers are starved for content and information they can trust, which tells them the good and the bad. Franchisors have traditionally been stingy with information. That’s why negatively biased sites such as UnhappyFranchisees.com and BlueMauMau exist and draw significant readership.

2. Buyers want to negotiate

Cespedes’ and Hamilton’s research indicates, “Only 13% of car shoppers say, ‘I don’t like to negotiate and I would like to buy a vehicle that is market priced and everyone pays the same,’ while 45% said, ‘I like to negotiate until I get the vehicle to a price I feel is fair to pay,’ and almost one in five people said, ‘I like to negotiate and will grind hard until I’m confident I’m getting the lowest price possible.’”

Implications for franchising

As more transparent streams of content become available, franchise candidates will better understand their value to the franchisor. We are just now starting to see this shift in power and influence occurring within the QSR industry, which will soon permeate all all other sectors in franchising as well. Large multi-branded franchisees are in the cat-bird’s seat negotiating sweet deals for their themselves and their companies. The IFA has its second franchisee Chairman. When a franchisor has less than 500 units, franchisees, or locations, the bottom line is franchisors need highly capable and qualified franchise candidates more than the candidates need the franchisor.  But for some strange reason, too many franchisors think they’re God’s gift to the franchise candidate instead of the other way around. Smart franchisors already know that candidates don’t want the franchise, they want the results.  They know the results any franchise candidate wants are already available to them across multiple brands in multiple industries. Put another way, the franchise-buying public won’t miss the decline or demise of any one short-sighted franchisor.

Each year, 300 or more new franchisors enter franchising. The franchise-buying public needs exactly zero new franchisors to achieve their individual objectives. Over the next 10 years, expect franchise candidates to drive harder bargains and stop mindlessly succumbing to the “one size fits all” deal franchisors falsely blame on the FTC and FDD.  

3. Buyers demand transparent and trustworthy information on the dealer’s website before engaging with a sales representative.

Cespedes and Hamilton assert, “Nearly 40% will not patronize a dealer whose website doesn’t list vehicle prices; a slighter higher percentage will leave a dealer if prices aren’t posted on the vehicles.” In other words, the tactic of “hold back information and make them talk to you” doesn’t work in auto sales. Conversely, it creates negative experiences and trust issues.  

Implications for franchising

The “less is more” franchisee recruitment content strategy breeds failure. In this case, “less is death.” Franchise candidates will only request information and discuss the opportunity with franchisors who meet their minimum threshold of information online, a trend that appears to be increasing rather than diminishing.  

Franchisors need to learn how to weave content, videos, infographics and memes into the front end of their process to meet the franchise candidate’s demand for accessible, transparent information, and at the same time they need this content to create emotional engagement that drives the franchise candidate deeper into the franchise sales funnel.

4. Automobile dealers require more highly skilled and experienced salespeople than ever before.

“Consumers prefer dealing with one responsive, knowledgeable, and trusted representative to help them evaluate what they found in their own research, manage the test-drive experience, and efficiently complete the sale,” Cespedes and Hamilton tell us. Furthermore, they write, “Turnover compounds the issue. According to NADA’s 2015 Workplace Study, the average annual turnover among dealer sales reps is 72%, with 50% of new hires leaving after three months. Female sales turnover is 90% annually.”

Implications for franchising

LIke the auto industry, there is a massive shortfall of skillful recruiters who have what it takes to recruit franchisees under the new franchise buying paradigm. We have for too long been an industry that confuses “years of experience” with “skills and competency.”  Other industries would look at a marketer or salesperson who has held 8 jobs in the last 20 years and has not been with a company longer than 4 years as a “job hopper” and they take a pass.  Yet, franchising considers them “impact players” and mindlessly promotes them to positions of authority such as Vice President of Franchise Sales for 3 years, then they quit or get fired.

This is obviously unsustainable and therefore will change. This year I’ve heard more franchisors than ever refuse to hire “franchising retreads.” Expect much of the next generation of skilled franchisee recruiters to come from related fields outside franchising, such as consultative selling environments or executive recruitment.  Also, we are seeing a massive trend where franchisors are hiring former or existing franchisees to work with candidates.  Dave Buzza, CDO of Alphagraphics, was a high-volume print shop franchisee. He built a high-performance franchisee recruitment team of skilled former printing franchisees. They can talk to franchise candidates about what it’s like to run the business from the trenches. They become trusted sources of real-world information, much more so than the traditional hard core “feature-benefit-close” salespeople who tout theories about the advantages of owning a business but have never actually owned a business.

5. Prepare for disruption.

Cespedes and Hamilton assert, “You need to nurture and adapt a sales effort aligned with buying behavior to do something about it… Profitable growth is determined by how the buyer buys today and tomorrow, not yesterday.”

Implications for franchising

The above quote says it all. Franchisors need to wake up, prepare for disruption created by permanent changes in franchise buying behavior, and design their content streams, recruitment processes and franchisee recruitment training programs from the context of where things are going rather desperately clinging to the past.

 

Want to start a conversation with Franchise Performance Group?

You can click here to contact us, or download our free franchise sales strategy eBook: How to Create a Franchise Sales Breakthrough. Guaranteed.

 

JoeMathews

About Joe Mathews

CEO of Franchise Performance Group, Joe has more than 30 years of franchising experience with such national chains as Subway, Blimpie, MotoPhoto and Entrepreneur’s Source. Joe specializes in franchisee recruitment, franchise sales and franchisee performance. He is a regular presenter at IFA conferences, and has served as an instructor with the ICFE (Institute of Certified Franchise Executives). Joe is author/co-author of four books on franchising, Street Smart Franchising,  Franchise Sales Tipping Point, Developing Peak Performing Franchisees, and How to Create a Franchise Sales Breakthrough. Guaranteed.

Comments(2)

  • 05/04/2016, 6:57 pm  Reply

    Joe,

    This is a great article…for car dealerships. I am not so sure that the extrapolation to the franchise industry is as absolute as you make it out to be. Cars are not franchises, and vice-versa. Cars are basically commodities with figuratively small changes “around the edges”, whereas franchises represent lifestyle changes and can meet several different needs of those seeking a new business. Also, most people who seek franchises are not as familiar with franchising as car – buyers are with car buying. There are differences.

    I could be wrong, but I am not sure the IFF’s will soon be negotiable. I find that most of my candidates like about some of the “structured” aspects of a franchise offering, such as a uniform agreement, IFF’s, royalties, etc. There is almost a sense of relief that they do NOT have to negotiate. They get the same deal as the next candidate.

    I do agree that franchisors need to update their franchise marketing and awarding processes to better inform candidates with “the straight scoop” about their business offering. And yes, successful franchise growth programs do indeed need to keep abreast of–if not direct–changes in the entire franchise development process. An intelligent formulation of a cohesive marketing and awarding program, that provides a continuum of straight information will serve the franchisor well in today’s world.

    Looking back over our respective long careers and selecting some tried and true components of our franchise awarding processes can be valuable, IF combined with an update of our skills sets based on what franchise-seekers look for today. Many of the same principles of genuine “relationship selling”, assessing a candidate’s REAL reasons for seeking a franchise, accurate assessment of a candidate’s REAL financial capabilities are still valuable assets in a franchise awarding program. This has been true for at least 30 years and continues to be true today…and tomorrow. Right?

    Car dealers do NOT even make an attempt to do any of this. They are only interested in “making the sale”. And, as you note, any franchise company who acts like a car dealership, will not be very successful for long…if at all.

    Keep up the good work.

  • Joe Mathews
    05/06/2016, 4:41 am  Reply

    1. You say cars are commodities. That would not explain why people buy SUVs…are there that many housewives that go off-roading? Why do people buy Lexus instead of Camry? Data shows more decision complexity and ego drivers than your generalization. They are similar in the sense that both cars and franchises are large emotional investments that provide solutions. I find home buying and auto buying trends eventually make there way into franchising which is why I track them. Takes a few years.
    2. You wrote “I am not sure franchise fees are negotiable.” You may have never tried to recruit large, multi-unit restaurant operators. Fees and development schedules are already being negotiated. Royalties should not be negotiated as a general rule as much of a franchisor’s valuation is a function of long term predictability of royalties. Short term royalty abatement to encourage more rapid development can provide a good return on investment for franchisors if you do the math. As long as these are short term, franchisor equity evaluations should not be impacted and in the long run will be enhanced.
    3. You write how relationship selling (as you defined it) has more or less been timeless. I agree with the approach as you defined it. However, franchisors are intersecting the investigation process later than any point in both our careers. That is why our ability to reach candidates has fallen from 85-90% 15 years ago to 50% today. Candidates want more transparent information early on and less conversation. According to the article in Harvard Business Review, 75% of the time invested in making a decision to buy a car is self-directed. This is a complete paradigm shift in auto sales. Franchising does not have the sources of transparent information that homebuying and auto buying has. But I predict that day will come and shake up franchising the same way realtor.com and autotrader and kelly blue book shook up auto buying. So Mick, I don’t believe the way we did business in the past is today’s winning formula. It’s a recipe for mediocrity and in the near future it will be a recipe for failure

Leave a Comment