Newer Franchisors usually face this problem. The Franchisor’s brand is very well known where the business originally started and where certain clusters of Franchisees are operating. However, the brand is unknown in undeveloped and newly developing territories.
Sound familiar? The good news is that branding strategies for new territories present interesting challenges and opportunities for innovative approaches.
Most franchise agreements anticipate this issue by providing for some combination of a "national" advertising fund to be formed in the future and a requirement that the Franchisee expend a certain amount of money for local advertising. The underlying premise is that a "national" advertising fund would not be practical until a critical mass of Franchisees are contributing to the fund. In the meantime, territories with a few Franchisees are branded mainly through local advertising and a new territory with a new franchisee has no branding. The first franchisee or developer in a new territory gets first dibs on locations or territory, but brand recognition will often be solely the new franchisee’s responsibility through local advertising and marketing because there is no national ad fund yet. However, the sheer amount of advertising and marketing dollars needed to establish an unknown brand in a new territory may be too much of a financial burden for the pioneer in that territory.
The use of area developers or regional representatives in new territories presents a similar challenge. In many of these structures the developer is expected to open and operate a prototype, build brand recognition through marketing and advertising and recruit franchisees in the territory. The developer needs to advertise the brand and "advertise" for franchisees.
A way to address this problem is by using a "system-wide" advertising fund – such that the contributions begin to a fund controlled by the Franchisor regardless of whether the advertising is on a national scale. Ultimately, brand recognition in one territory sooner benefits all franchisees later, wherever located. However, that is an issue that needs to be clearly disclosed and reiterated in the franchise agreement up front.
Regional cooperative advertising is another solution where a new territory can be combined with a territory with an existing group of franchisees using a common fund. Such regional cooperative advertising can also assuage the relationship issue of advertising dollars paid by the Franchisee for marketing and advertising that the contributing franchisees may perceive as being of no benefit to them.
The regional advertising cooperative presents its own issues, included among them are the administration of the fund and governance. Certainly, the Franchisor will always retain a right of final approval on any advertising and marketing done by the cooperative, but should the Franchisor have a vote? In addition, the Franchisor should have the contractual right to disband regional cooperatives, and that right to dissolve a cooperative should be not limited by anything other than the Franchisor’s reasonable business discretion. There are too many reasons why a regional cooperative may become passé in any particular franchised system.