Part one of a two-part series
Question: I am a retail franchisor, and have a website focused primarily on recruiting new franchisees. Several of my franchisees have set up their own websites to attract customers into their locations. Some have begun to sell merchandise over the web. Should I start to offer products on the web? Do I need to establish any policies for my franchisees on setting up websites for their locations? If I do, what are the best methods to control the content on their sites?
Answer: Many franchisors today are asking themselves the same questions. In order to answer them properly, in this Part 1 we will look generally at e-commerce and its potential benefits and risks to bricks and mortar companies. In Part 2, we will examine how franchisors are protecting their brands and creating benefits for their franchise systems through the use of the Internet.
Most dot-com failures of e-commerce companies had little to do with the technology of the internet, but rather with the business models employed by those start-up companies and the amount of money they were allowed to experiment with. They fell into a belief that “burn rates” were an acceptable alternative to “profits.” Burn rates only allow us to measure how long a company can stay in business given the amount of cash they have left to burn. Profits are really the only way to judge whether a company is going to prosper and survive. The dot-com failures pretended they could survive on growing market share alone, and ignored the reality of capitalism that success is measured by bottom-line profit.
Despite all that has been written about the use of the Internet, no one is really certain of the size of the marketplace – except that it is still growing. A majority of consumers with access to the Internet use it regularly to make purchases. Others use the Internet primarily to research available merchandise and services. Standards and expectations have been established for information security, the speed and accuracy of fulfillment, and reverse fulfillment.
What this means to a brick-and-mortar franchisor is that developing, controlling, and supporting their brand on the Internet is essential.
According to research conducted by Jupiter Media Metrix:
- 59% of buyers would like to pick up their online purchases at offline locations, and,
- 83% of online buyers would like to return their online purchases to offline locations.
There is significant benefit for brands that can effectively link their online presence with their offline locations. The ability of brick-and-mortar companies to fulfill orders quickly and accurately from their existing warehouses and retail locations; the ability for consumers to return unwanted merchandise easily to their local stores; and, for most consumers, the ability to research online what is available at each retailer and simply go down to their local store to make their purchases provides an advantage to those retailers that had retail stores in place before converting their business to a “clicks and mortar” consumer strategy.
The risks of poor online performance by retailers that adopt a web strategy to their offline locations are high, though. According to Jupiter Media Metrix:
“Poor online customer service from a clicks and mortar retailer will drive 70% of U.S. online buyers to spend less at the merchant’s offline store.”
What this means to franchisors is that how our brands are presented in cyberspace is no less and potentially more important than how they are presented in the “real world” of bricks and mortar. Just as the quality and consistency of our customer service on a local level impacts how well each store performs, the quality and consistency of our websites has a dramatic impact on our overall brands.
For franchisors the message is clear:
- If you want to stay competitive or even viable, not having a web presence that meets your customer’s needs is not an option.
- Without a retail web offering, both franchised and non-franchised competitors that have retail websites will strip you of market share.
- You must control how your website functions, and that means quickly putting policies in place for how your franchisees can make use of the website, and whether they are allowed to set up website of their own.
- Since your e-commerce success will rest to a great extent on the support of your brick-and-mortar locations, and since many of those locations are owned by franchisees, your e-commerce strategy needs to benefit your franchisees.
There are some limitations and potential pitfalls for franchisors in establishing a website for their franchise systems. There are also a host of issues that must be addressed, including whether a franchisor’s existing agreements with its franchisees allow them to enter into e-commerce, and, once established, how the website will benefit not only the franchisor but its franchisees. We will take a look at these issues in Part 2.
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