By Evan Hackel
Mobile franchising is an increasingly popular model, offering flexibility and lower overhead compared to traditional brick-and-mortar establishments. However, it introduces a unique challenge known as the “territorial trap.” This issue arises from the inherent conflict between the franchisee’s desire for expansive territories and the franchisor’s need for densely penetrated markets.
The Franchisee’s Perspective: Room to Roam
From the franchisee’s viewpoint, larger territories appear beneficial. Equipped with a vehicle, franchisees find it feasible to serve customers within a 20 to 30-mile radius. The expansive territory promises more potential customers, greater revenue opportunities, and less competition from other franchisees. It’s a straightforward equation: more area equals more opportunities. But this seemingly simple logic can lead to significant operational and strategic issues down the road.
The Franchisor’s Dilemma: Maximizing Market Penetration
Franchisors, on the other hand, need territories with high market penetration to justify their investments in marketing and support. When franchisees spread thin across vast areas, it becomes challenging to achieve the density needed for effective marketing campaigns, brand recognition, and efficient service delivery. This imbalance not only hampers the franchisor’s growth but can also impact the overall brand strength and customer satisfaction.
Initial Territory Allocation: The Root of the Problem
The territorial trap often begins with the initial allocation of territories. Eager to attract franchisees, franchisors may award large territories to entice early adopters. At the outset, this strategy has minimal negative impact as the perceived availability of unlimited territory masks the potential issues. However, as the franchise network expands, the impracticality of maintaining such large territories becomes evident.
Large territories can lead to several problems:
- Underperformance: Franchisees may achieve financial success without fully exploiting their territories, leading to underutilized market potential.
- 2. Lack of Growth: Franchisees comfortable with their earnings might lack the motivation to expand their customer base, inhibiting market penetration.
- Management Challenges: Franchisees may struggle with the operational demands of large territories, lacking the managerial skills to effectively oversee such extensive areas.
Balancing Franchisee Satisfaction and Franchisor Needs
Resolving the territorial trap requires a strategic approach that balances the interests of both franchisees and franchisors. Here are several strategies to consider:
- Data-Driven Territory Design: Use market analysis and demographic data to design territories that align with both franchisee capabilities and franchisor goals. Territories should be large enough to be attractive but not so large that they are unmanageable or underutilized.
- Incremental Territory Expansion: Offer smaller initial territories with the option for franchisees to expand based on performance. This incentivizes franchisees to fully develop their current markets before expanding, ensuring deeper market penetration.
- Performance-Based Metrics: Implement performance metrics tied to territory expansion. Franchisees who demonstrate high levels of market penetration and customer satisfaction can be rewarded with additional territory.
- Enhanced Support and Training: Provide robust support and training programs to help franchisees manage their territories effectively. This includes marketing support, operational training, and management coaching to ensure franchisees have the tools they need to succeed.
5.Regular Territory Reviews: Conduct regular reviews of territory performance and market conditions. Adjust territories as needed to reflect changes in market dynamics and franchisee performance.
- Engagement and Communication: Foster open communication channels between franchisors and franchisees. Engaged franchisees who feel their input is valued are more likely to strive for the brand’s overall success.
Best Practices for Addressing the Territorial Trap
Several best practices can help franchisors effectively manage territory allocation and avoid the territorial trap:
- Define Market Share Goals: Establish clear market share targets and have the flexibility in your franchise agreement to adjust territories if these targets are not met within a specific period. This approach ensures territories remain productive and aligned with broader business objectives. It’s critical that the methodology be very clearly stated in the franchise agreement.
- Buy Back Underperforming Territories: Offer to buy back part of territories from franchisees who are not optimizing their market. This allows franchisors to reallocate these areas to new franchisees who may be better equipped to develop them. This works really well when the franchisee is not focused on the entire territory that they have. Typically, franchisors offer half of the going rate for territories for the part of their territory that they are giving up.
- Sell Optimized Territories from the Start: From the beginning, only sell territories that have been optimized based on market analysis. This proactive approach prevents the issues associated with overly large, underperforming territories. Still have market share targets to maintain the territory to avoid underperforming franchisees who are hindering growth.
- Reserve Adjacent Territories: Sell optimized territories and reserve adjacent areas for franchisees to purchase if they meet performance targets in their current locations. This strategy encourages franchisees to maximize their existing territories before expanding. It’s key that the timing for the expansion is clear and reasonable.
- Educate Franchisees on Market Share Importance: The most crucial step is educating franchisees about the importance of market share and the economies of scale that benefit both franchisor and franchisee. Often, franchisees may not realize how underperformance in their territories can negatively impact their business and the overall brand.
The Role of Culture and Engagement
A strong franchise culture that promotes engagement can mitigate many of the issues associated with the territorial trap. When franchisees feel part of a cohesive, supportive network, they are more likely to work towards common goals, including achieving high market penetration. A culture of partnership and mutual respect, where franchisees see themselves as partners rather than merely customers, is crucial.
Conclusion: A Collaborative Path Forward
Navigating the territorial trap in mobile franchising requires a delicate balance of strategic planning, robust support systems, and a strong culture of engagement. By carefully designing territories, incentivizing performance, and fostering a collaborative environment, franchisors can align their growth objectives with the aspirations of their franchisees. Ultimately, the success of the franchise network depends on the ability to create territories that are both manageable for franchisees and densely populated enough to support sustained brand growth and market presence.
This comprehensive approach ensures that both franchisors and franchisees can thrive, driving the franchise network toward greater success and stability.
About Evan Hackel
As author, speaker and entrepreneur, Evan has been instrumental in launching more than 20 businesses and has managed a portfolio of brands with systemwide sales of more than $5 billion. He is the creator of Ingaged Leadership, is author of the book Ingaging Leadership: The Ultimate Edition and is a thought leader in the fields of leadership and success.
Evan is the CEO of Ingage Consulting, Delta Payment Systems, and an advisor to The Learning Network. Reach Evan at ehackel@ingagen.net, 781-820-7609 or visit www.evanhackel.com.