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Jane is a retail and small business writer with a special interest in emerging companies and entrepreneurs. She covered the financial services industry before moving into general business journalism and has written for The Age and The Australian Financial Review.

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Fast franchises modernise marketing but web opportunities remain untouched

Published 17 April 2013 09:22, Updated 17 April 2013 12:31

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Fast franchises modernise marketing but web opportunities remain untouched

Enhanced marketing budgets combined with the use of social media are directly boosting franchisor revenue, according to the country’s fastest-growing networks.

For most companies on BRW’s Fast Franchises list, marketing is no longer viewed as a segmented division of the business. Instead, marketing across the brand, to new franchisees and to customers, is more commonly incorporated into a single strategy.

Rod Young, founder of leading franchise consultancy DC Strategy, says the internet has significantly increased the opportunities available to companies selling to both customers and new franchisees.

However, less than 5 per cent have properly incorporated their marketing strategies with their web strategies, he estimates.

“The huge sea change in marketing has been the internet,” Young says. “It has forever changed the way that franchises interact with customers, [and] with potential new franchisees.

“But probably less than 5 per cent have a brand strategy that properly incorporates online. There are huge opportunities in leveraging the power of the web . . . but most franchises haven’t even touched the sides.”

PwC’s annual Franchise Sector Indicator found that of the franchises that boosted their marketing budgets in 2012, 5 per cent said they were achieving revenue growth as a direct result of the investment.

Quest Serviced Apartments chairman Paul Constantinou says his business learnt the hard way that a good single-unit franchisee doesn’t necessarily make a good multi-unit operator.

More than 80 per cent of franchises on BRW’s Fast Franchises list used marketing strategies such as multi-unit franchise agreements, low fees, referral bonuses, flat ongoing fees and mini-versions of the franchise to attract new franchisees.

Offering multi-unit franchise agreements – where franchisees own two or more outlets – for example, was a marketing strategy that became popular during the global financial crisis, according to Young.

A different approach

Recruiting new franchisees from outside the business during the GFC was a painstaking task for many franchisors. Forced to think outside the box, many began offering new incentives to their existing franchisees to purchase additional outlets, or become multi-unit franchisees.

Young says that while multi-unit franchising – a “product of the GFC” – is in most cases a legitimate expansion strategy, the degree of risk for franchisees increases with each outlet purchased.

“The degree of difficulty and challenge increases with every unit,” he says. “There’s a risk of pushing a franchisee past their competency, and we have seen good franchisees, with one store, stretched too far [taking on additional stores] to the point where it affects the profitability of their first store.”

Other marketing strategies to recruit new franchisees, according to BRW’s Fast Franchises companies, include offering low start-up costs, flat ongoing fees, referral bonuses, funding assistance and offering mini versions of existing businesses.

Young says the days of having separate marketing strategies for customers and potential franchisees are over. Franchising directories, which in the past were used to direct would-be franchisees to franchising opportunities, are also outdated, he says.

In the United States, about 90 per cent of franchise inquiries come via company websites, according to Young. More franchisors are using social media sites such as Twitter, YouTube and Facebook to increase their interaction with customers and franchisees and many are marketing through mobile devices such as smartphones.

Quest for success

After 25 years in a corporate accommodation franchise, Quest Serviced Apartments needed to re-evaluate and invest in its marketing strategy.

“Sometimes when you hire people from the same industry, it is very hard to change their view on how things should be done.”

Founder and chairman Paul Constantinou says changing market conditions and Quest’s ambitious expansion plans into regional Australia forced the company to look outside the business for new franchises and expand its offering to its customers.

Previously the company, which has more than 150 properties, tended to rely on internal referrals and multi-unit franchisees to run any new properties. However its decision to expand into new regional areas, combined with its preferred strategy of having owner-operator franchisees running its apartments, limited its growth.

Quest also wanted to attract new blood to the business and “better quality” franchisees. The lack of a marketing plan in the past equalled a “lost opportunity” for the company in terms of finding and recruiting new, experienced business people as franchisees and adding value to the company, Constantinou says.

“We looked at the business and said ‘the philosophy and the values haven’t changed, what we’re doing is taking it from an internal perspective into the external’,” he says. “We asked ourselves, ‘what material do we need to show to people who are looking for a change in life . . . and how do we present Quest as a franchised business in a meaningful way?’ ”

Constantinou says the business also learnt the hard way that a good single-unit franchisee doesn’t necessarily make a good multi-unit operator.

“It’s the same when bosses recognise that a good employee doesn’t necessarily make a good manager.”

While there is some scope for multi-unit franchisees within his business, Constantinou says only a select few business owners pass Quest’s strict criteria for selection.

Part of the new strategy has involved management putting themselves in new and existing franchisees’ shoes and asking what they needed in order to succeed. Quest prefers appointing franchisees with business and managerial experience as opposed to people who come directly from the hospitality industry.

“Sometimes when you hire people from the same industry, it is very hard to change their view on how things should be done,” Constantinou says.

“We wanted business people with business acumen that can use the systems that we have built to be successful in this industry.”

Finding the target

In an industry as broad as hospitality and accommodation, targeting the right customer can be difficult. As part of its marketing strategy, Quest partners with accounting associations and chambers of commerce in order to attract “business-savvy” would-be franchisees.

“Our potential franchisees are people who have reasonably good business skills who have interacted with accountants and other professional groups in the past,” Constantinou says. “If you’re aligned with good business associations, it lines you up with people who are good in business.”

Quest also advertises in industry-specific magazines, such as human resources publications, to ensure the people within a company who make travel arrangements see its ads.

“Corporate travellers view travel very differently to leisure travellers,” Constantinou says. “They think, ‘it’s hard bloody work, I need to get my work done, I want to get home and I don’t need to see the beautiful scenery along the way’.”

The internet is also playing a key role in Quest’s marketing strategy. While the company is yet to establish a Facebook page, it uses popular international travel review site www.tripadvisor.com and responds to users’ queries.

Quest has also redefined its marketing to customers, pitching its apartments at families wanting flexibility rather than a single hotel room while they travel. The strategy also takes into account the fact that a growing number of professionals now bring their families on work trips.

While advertising, social media and finding new franchisees is important, Constantinou says direct communication with clients remains the core part of its brand. Quest regularly has one-on-one interactions with its 200-300 corporate clients to ensure they are getting what they want.

Over the next 12 months, that will become an even more time-consuming task. By June 30, Quest will open another four properties and in 2013-14 at least 14 new properties will open.

Despite his company’s growth trajectory, Constantinou is clear that a company is only as good as the people within it. “If you’ve got the wrong franchisee in your business, it doesn’t matter how good your location is, that business is going to fail,” he says.

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