In the franchise business model, the franchisee is an independent entrepreneur responsible for their own revenue.
They are also the guardian of the brand’s concept. The franchisee pays the franchisor to benefit from the brand’s reputation, know-how, ongoing support, and business tools.
The benefits and trade-offs of the franchise model are also reflected in terms of pricing.
The franchisee receives recommendations from the headquarters, which aims to ensure the brand’s price image is maintained. They can decide to follow these recommendations to a varying degree or deviate from them in order to gain competitiveness and/or profitability.
The adoption of a pricing solution, shared between the headquarters and the franchisees, facilitates internal communication and decision-making. It also allows franchisees to save time on a vital but underutilized expertise due to time constraints.
In this article, discover the benefits gained through the implementation of a pricing solution for both franchised stores and the headquarters.
A better understanding of pricing
The subject of pricing can cause misunderstandings between the headquarters and the franchisees.
On one hand, the headquarters aims to maintain a certain price coherence throughout its network. Significant discrepancies could potentially harm the brand’s pricing image and, more broadly, its pricing strategy.
On the other hand, franchisees sometimes feel that they receive inconsistent pricing recommendations from the headquarters in relation to their own product vision, seasonality, and especially their local competitive environment. They are concerned that if they follow these recommendations, they may not achieve the expected profit margin or remain competitive enough.
Implementing a pricing solution for its franchise network provides the necessary transparency to make the right decisions between the headquarters’ “macro” vision and the franchisees’ local perspective.
With a specialized solution, the franchise can centralize and combine all relevant information to determine prices:
- Internal price data flows,
- Competition data,
- Various influencing factors.
The pricing definition becomes more precise.
It relies on reliable data that accurately reflects the reality of the network and competitors. As a result, the headquarters has a greater capacity to justify the recommendations it provides to franchisees. The solution incorporates elements and influencing factors that franchisees do not have access to through their cash register software or Excel spreadsheets.
Since the information is accessible to franchisees, the approach to pricing becomes collaborative. Franchisees gain visibility, internal communication between the headquarters and franchisees on the subject of pricing becomes smoother, and trade-offs become easier to manage.
An increase in profit margins
Discussions between franchisees and franchisors regarding pricing often revolve around the question of the margins that the former can achieve. If a franchisee strongly opposes a recommendation from the headquarters, it’s because they believe that their margin could have been higher.
When a brand develops its pricing strategy, it takes into account many factors other than just the margin. By making efforts on promotional products, for example, it hopes to strengthen its price image, increase in-store traffic, and even raise the average basket size.
Without a comprehensive understanding of the expected impacts resulting from new pricing recommendations, franchisees often focus solely on the notion of product margins, unable to analyze their KPIs and sales data more thoroughly.
An appropriate tool enables the headquarters to justify their choices, and the store manager to understand their impacts. The store manager could then refine their prices more precisely, armed with a better overall understanding of pricing challenges.
On average, OptimiX partners achieve a 2.6% margin increase within the first 6 months after implementing the Pricing solution. This margin gain is the result of a granular and multifactorial approach to price determination. The improved precision and better contextualization indeed allow profitability to be maximized at all levels.
A valuable time saving for franchisees
Using a specialized pricing solution facilitates the operational management of prices for the franchisee.
If they choose to follow the recommendations of the headquarters, they have a unique control tool to monitor their in-store prices and, potentially, price changes among local competitors.
However, if they want to have more fine-grained control over their prices, they used to manually make adjustments in their own systems. With a dedicated solution, they can directly simulate price changes within the tool and assess the impacts based on different scenarios.
In other words, when the franchisee chooses to take action on prices, they do so with informed decision-making, based on contextualized information that is accessible in real time.
The solution provides the franchisee with greater freedom while delivering faster and more comprehensive information. Price management is largely automated and strengthened, allowing them to devote more time to operational tasks that they consider to be at the core of their business.
An improved management of price changes in-store
On an operational level, making a significant number of price changes in a short period can be risky for stores. When the head office makes such a request, the franchisee can feel overwhelmed as they often lack time.
With the help of a suitable tool, it is possible to better manage the timing of price changes based on the store’s profile.
Label changes can be spread out over the week, adjusted to the store’s footfall and team availability.
This way, the change can happen smoothly with minimal impact on employee productivity.
An overview of price management for the franchisor
Adopting a pricing solution enhances the head office’s visibility on the prices implemented in stores.
The franchisor can easily see if the franchisees have followed its price recommendations. They can potentially set up alerts if a franchisee has made a certain number of price modifications compared to the recommendations.
For the head office, this visibility helps to better track the impacts and acceptability of the recommendations by the franchisees. For example, if a franchisee chooses not to follow the recommendations, the central office can monitor the situation, analyze the impact on performance, and initiate a dialogue to change the prices if the performance is not satisfactory. To do this, it can also rely on the results of similar stores in terms of structure and competitive environment.
The franchisor can also track the price distribution, that is, analyze how the stores have responded to the given recommendation:
- how many franchisees have aligned themselves,
- how many have set a higher price, and
- how many have chosen a lower price.
Once again, for the franchisor, the objective is to ensure that the recommended price is fair. If it is followed by most franchisees, it is a sign that the recommendations are good and well-received on the ground.
A better management of responsibilities within the network
Managing pricing is delicate in franchise networks as it affects the level of leeway the headquarters must grant to the franchisees. While they are independent and should have a certain degree of freedom, a consistent pricing image for the brand is crucial for the franchisor.
Adopting a tool that meets the constraints of independent networks allows maintaining the freedom of the franchisees while ensuring price consistency within the network.
The headquarters must provide consistent prices through the pricing solution. It offers the franchisee a “turnkey” pricing management, as they may not be an expert in this area. In general, the franchisor sets the direction, but the franchisee remains free to apply the tariffs they consider most relevant.
To offer more choices to the stores, some franchises will propose multiple price ranges:
- One or more aggressive prices
- A price considered normal or average
- One or more prices offering higher margins
Based on their own perception of the environment, the franchisee will choose one of these options.
In summary, the headquarters oversees the pricing strategy through recommendations. The franchisee chooses the type of tariff they wish to align with. The information is then relayed back to the headquarters, which can evaluate the impact of these choices.
The adoption of a pricing solution strengthens communication and collaboration between the headquarters and the franchisees.
The franchisee remains free to follow or not follow the price recommendations, but in any case, they can rely on reliable analysis and simulations to make informed decisions.
On the other hand, the franchisor is better equipped to support its recommendations and manage the pricing strategy of the entire network.
In addition to the collaborative aspect, a specialized pricing solution offers significant time and efficiency gains for franchisees.
Do you want to streamline collaboration in your franchise network and meet the demands of franchisees for effective tools to make their daily lives easier?