George Cohon, renowned businessman and founder of...
Franchisors often ask us for advice concerning adding e-commerce functionality to their website. Typically, the franchisor’s main objectives are increased revenue without any additional hassle.
When discussing fulfilment, franchisors evaluate two primary structures. The first option is a centralized structure where all orders are fulfilled by the franchisor - typically via a centralized warehouse or by dispatching orders to suppliers for drop shipment. The second option is a distributed structure where the orders are dispatched to the most appropriate franchisee that packs and ships the order. Proximity to the customer is the driving factor but product availability may force the order to be fulfilled elsewhere.
Most franchisors who are already involved in the supply chain (with a centralized ordering system, for example) will prefer a centralized structure whereas most franchisors that do not will opt to delegate the orders to the franchisees.
To decide on the best supply chain structure, our recommendation is always to consider the following facets, in order, before moving forward with an e-commerce project:
Alignment with your customer`s expectations is a critical component of a successful e-commerce project. In most franchise systems we posit that the centralized structure is the best option in most scenarios based on the following observations:
In most retail franchises, consumers expect the e-commerce system to offer a large selection of products as it acts as a complement to the inventory found in each store. Verifying if an item is in stock should be trivial and should not require manual verification within each franchisee's inventory.
Some franchises only offer a subset of products on their website – those that are driven by their centralized warehouse and not third party suppliers. Although a good starting point, we believe that the e-commerce system should eventually carry most products to ensure customers are loyal to your brand.
Customers also expect that items which are ordered online will be shipped to them. Allowing orders to be dispatched to the individual franchisee increases the likelihood of an item being unavailable for shipment as retail store`s stock quantities are always imperfect. As an example, think of an online user buying the last copy of a product which happens to be in an on-site customer`s shopping cart at the moment of the online transaction.
A hybrid approach, allowing customers to peruse stock at their favourite locations (for in-store pickup) in addition to online ordering is also interesting, although a bit more complex to implement.
Although some franchises require that all franchisees offer items at the same price, most franchise systems give their franchisees some pricing flexibility because of the differences between certain markets.
When ordering online, consumers expect pricing to be consistent. We have heard first-hand accounts where customers were infuriated after learning their most recent order would have cost 20% less if they had ordered from another store. This type of customer dissatisfaction can easily be pre-empted with consistent pricing.
In establishing such pricing, it is important that the franchisor acknowledge that the online store should not attempt to cannibalize retail store sales via online promotions not available in store. As such, the franchisor`s pricing should remain at the suggested retail price unless promotions are standardized across the board.
Consumers expect their orders to be fulfilled quickly in today's economy. A well-oiled warehouse can pack & ship online orders within minutes whereas a franchisee with a low throughput and no dedicated staff may end up delaying orders because an online order is never as important as an in-store customer. Because picking, packing and shipping orders is not the franchisee`s core expertise, it makes sense for most franchises to have a centralized structure – which also reduces order processing and shipping costs!
Customers expect that it will be easy to return inadequate or defective items. When a centralized structure is in place, franchisees are somewhat reluctant at allowing in-store returns because they did not make the sale.
However, as the customer comes first, returns should be allowed in-store and a consistent franchise-wide return process must be instated. Often, this process matches the return process for items purchased in another retail location. Still, many customers prefer to ship the items back themselves instead of visiting a store. This process can easily become complex to manage when orders are dispatched to suppliers for drop-shipment and the return address may be different for each order. This complexity should never be transposed onto the customer`s shoulders: instructions should be clear and consistent.
Up to this point, we've discussed the advantages of a centralized structure, but a franchisee`s first objection will be “What's in it for me?”. We believe the best answer to this question is to give the franchisees a commission on all e-commerce sales made in their area. The specific rate depends on the context but this agreement makes it clear that the franchisee`s commercialization efforts in their local market do not go unnoticed. Their efforts generate brand loyalty, which indirectly is responsible for many online sales. Furthermore, in the case where a customer visits a store to collect information before eventually placing an online order, this aligns everyone's interests: the franchisor receives a profitable order, the franchisee receives their fair share and the customer is free to order from their preferred location without pressure.
Many franchisors are hands-off and do not want wish to be encumbered with additional responsibilities. Managing an e-commerce system is a non-trivial task! Although the effort can be reduced by automating order fulfilment via third-party suppliers, franchisors should not underestimate the energy which needs to be invested into the website's marketing campaigns.In this day in age, it is simply a fact of life that a franchisor must be involved in order to give customers what they're looking for and ensure that all franchisees are profitable. Everyone loses if a customer choses to order online from another retailer because the franchise does not offer online ordering.
This article focused mostly on traditional retail franchises. However, online ordering systems affect all types of franchises. Forward thinking franchises must evaluate how technology can improve franchise-wide sales.
As an example, a quick-service franchise could offer an online application which allows groups (offices, schools, etc.) to send in their customized orders for later pickup. Restaurants should offer online reservations or gift card purchases. Service or learning franchises should offer online quotes & bookings. In conclusion, the alignment of the customer`s interest with those of the franchisee and the franchisor are critical to a successful e-commerce roll-out.