Five reasons franchisors can’t avoid online

One of the most commonly stated (but probably not really believed) reasons for avoiding developing a robust online strategy is ‘online is just a fad’. Perhaps I’m not quite so polite as Darryl Kerrigan Esquire when he says “tell him he’s dreaming”. The  ‘fad’ argument is just so far removed from reality it’s hard to believe those that hold this view actually believe it themselves – perhaps it is just a cover for a lack of activity or understanding of how to deal with the challenges online presents. So, here  are just a few reasons franchisors shouldn’t avoid the online space and need to develop a robust online strategy.

BUYING BEHAVIOUR IS CHANGING

There can be little doubt that consumer behaviour is rapidly changing. Consumers have proven themselves more than willing to purchase many items online or at least research major purchases online and then purchase in-store. For many years  customers have purchased low value items (books and CDs) online but the trend is clearly to higher value items – many of which conventional wisdom says consumers want to ‘touch and feel’ before they buy. Take, for example, The Iconic (see  www.theiconic.com.au) a fashion business selling at full price, promising free shipping overnight (three hours in Sydney), free returns for 100 days and all for products which many retailers would assume customers wanted to “try before they buy”. The emergence of businesses of this type simply disproves conventional thinking and wisdom. Consumer behaviour is changing – perhaps as the online savvy generations represent an increasing proportion of the population. Who cares why, the issue is  consumers want to engage with companies online but they don’t want to be forced to do so against their will.

CUSTOMERS BELIEVE OTHER CUSTOMERS

We all know that the most valuable recommendation is word-of-mouth. Traditionally, the term ‘word of mouth’ has literally been true – you heard a recommendation from a trusted friend, relative or somebody that knew somebody. Today, the notion  of ‘trusted friend’ has also changed to a significant degree. Not only does it include friends, work colleagues, neighbours and relatives but now includes complete strangers. A great example of the strength of this type of referral is Trip Advisor (see  www.tripadvisor.com). Here, people review, recommend (or otherwise) accommodation facilities, tourist attractions and activities and complete strangers (this writer included) take their views seriously. eBay and other trading businesses rely heavily  on this type of interaction to weed out undesirable participants. The implication is that businesses need to be online so they can engage with customers and react effectively to the good and bad comments that will undoubtedly come across a range of  forums. And here’s a word to the unscrupulous. Don’t mess with consumer comments! Consumers will react like feral dogs if their comments are manipulated or, worse still, edited or removed.

PROFITABILITY AND BUSINESS VALUE

It would be difficult to find a bricks and mortar retailer that hasn’t, at some point, looked at their operating costs and shaken their heads in disbelief. Just speak to any significant retailer in the U.S. and watch their reaction when you tell them the cost  of labour on a Sunday afternoon in the retail industry here – it’s actually a fun thing to do just to see their reaction. Retail lease space and labour costs in Australia are arguably amongst the highest in the world (depending on location of course) and it  is precisely these costs which online retailers can mitigate to a large extent. As a consequence, there is a significant potential to produce higher profits and, as a result, improve business value. Ask yourself why online businesses are earning  significantly higher values upon sale compared to retail businesses? Not only does the online world provide the opportunity to build significant business value, it could easily be argued that such businesses are easier to run due to the fewer number of staff they require.

BRAND LEVERAGE AND EROSION

There can be no doubt that brands like eBay, Amazon and the like are now almost ubiquitously known even though they have been in business for such a comparatively short period of time. They are just two well-known examples of how quickly  businesses can build a brand in the online space compared with those operating in the physical space. And the point for franchisors and other bricks and mortar based businesses? Your competitors can build an online brand quickly and, therefore,  you only have a relatively short window to leverage your brand and create a presence online.

If you fail to take advantage of that window you may find yourself having to invest heavily to (re) build a brand or, worse still, recover the brand position from an eroded starting point. Myer and David Jones have, for decades, been amongst the leading retailers and brands in this country. However, what does their seeming inability to effectively embrace the online world say about their brands? There’s no doubt that they have created online stores and offers but to what value?

Recently Myer advertising promoted sales instore with the rider – offers not available online. Why? An outsider’s view is that Myer simply doesn’t understand the online space at all and risks brand erosion as a result. And that would be a difficult  position from which to recover.

MARKET COVERAGE AND SHARE OF WALLET

Perhaps the most persuasive factor when discussing developing an online presence is that of coverage. The internet is effectively available everywhere and that means market coverage. Further, the internet is typically available (depending on your  provider of course) 24 hours a day, 7 days a week, 52 weeks a year and doesn’t care about public holidays. Increased market coverage gives access to new customers, better access to current customers and the potential to drive upsell and cross sell  far more consistently. Consider the ‘customers who bought this, also bought that’ type of prompting that occurs on many sites. This writer has certainly been prompted to purchase additional items when the original intention was to only purchase  one. Imagine what could happen in your business if you managed to increase the number of customers or the number of items purchased by just one or two per cent.

ISSUES FOR FRANCHISORS

Despite these compelling arguments, many franchisors are not adopting the online space in an effective manner. This doesn’t mean that every franchisor needs to be selling products online. Far from it. This simply means that every franchisor should  have an online strategy to capture opportunities this new channel provides. Whether that strategy is to drive customers to the physical store network, to build brand awareness or transact business, the issues involved are clearly business and  commercial issues, not technology ones. Despite this, many businesses (franchisors included) allow their online strategy to be driven by technology rather than the other way around.

Perhaps the single biggest issue for many franchisors is a fear that an online offer will alienate or cannibalise sales in the franchise network. Often, franchise agreements haven’t even contemplated this issue in any form, let alone the myriad of ways in  which an online strategy might manifest itself. Franchisees will almost certainly perceive adoption of a transactional online strategy to be “stealing my customers” (as if customers ever belonged to anybody anyway). Cannibalisation of sales is certainly a possibility if the online strategy is not thought through properly – just as cannibalisation of sales is a possibility if physical channels are not planned properly. The issues at play are fundamentally channels related and need to be viewed in that way.

SO, WHAT SHOULD FRANCHISORS DO?

Franchisors need to firstly understand their market, customer segments, associated buying behaviour and the value that each segment brings to the business. From there, a clear channel strategy will define the purpose and objectives of the online  presence. Does that presence need to drive customers to the physical stores in the network, or is it to build brand awareness, or are online sales a possibility? If the latter, how will the distribution of goods be accomplished? Is the strategy, buy online  – pickup in store, or buy online – deliver from store, or…, or…, or… Only once the channel strategy has been determined can a logical and robust plan be developed for implementation. Then comes the discussion of budgets, infrastructure,  technology, suppliers and all those related issues. But it doesn’t end there! Every business adopting an online strategy must measure and monitor the outcomes of that strategy to know if the investment is producing acceptable returns – just as it  should measure and monitor all investments in channels and marketing. We hear a lot of business talking about having so many Facebook ‘likes’. Sounds impressive and might bolster your marketing manager’s ego but, if the strategy is to drive foot  traffic to stores, aren’t customers served, or customer visits, or incremental sales more relevant measures? Make sure the measures and metrics you use are actually measuring the right outcomes.

TO WRAP IT UP

Despite the many issues associated with implementing a robust online strategy, it is becoming increasingly apparent that a failure to embrace the online space places many businesses at risk. Changes in consumer behaviour and the emergence of  purely online businesses are challenging the notion that bricks and mortar is the be all and end all of business in this country.

However, the key issue for any business contemplating an online strategy is this: do not believe the hype, jargon and nonsense that online is all about technology – it’s not, it’s all about good business strategy first – and you can take that piece of  advice “straight to the pool room!”

For more than 20 years, David Stafford has worked in key management roles and as a strategic advisor with leading organisations in Europe, Asia and North and South America covering a range of industries, sectors and businesses.

David leads the Melbourne consulting team at DC Strategy with a focus on the practical application of channel strategy and management as a key method of achieving sustainable business growth.

Contact David at:

Phone: 03 8615 7207
Email: david.stafford@dcstrategy.com
Web: www.dcstrategy.com