Pricing at the heart of franchisee challenges

The European economy is undergoing a major transformation: major retailers are giving increasing importance to their franchise networks.

This evolution, catalyzed by rapid changes in consumer behavior and a fluctuating economic climate, positions the flexibility and economic efficiency of the decentralized model as key advantages, particularly in highly competitive sectors such as FMCG.

In France today, the distribution market is dominated by independent groups, a sector that has shown sustained growth and unwavering vigor for over two decades, with the food sector leading the way
growth of 15.1%.
compared with 2022. The franchise model, in particular, is attractive for its promise of a ready-to-use business.

In the retail market, there are three main forms of commercial organization: independent boutiques, integrated chainsand independent groups (whether franchised or cooperative). The self-employed group model is gaining ground, although it requires a pricing approach tailored to the specific characteristics of this type of organization.

In this article, we’ll look at the complexity of pricing in these independent networks, which is crucial to their long-term success and competitiveness. In detailing this issue, the aim is to understand how an adapted pricing strategy can support the growth and resilience of these important economic players.

Understanding the decentralized franchise model

Franchising and cooperatives are at the top of the list when it comes to choosing a strategy for developing an independent business.

Increasingly popular with business start-ups, franchising is attracting a growing number of French people. A survey reveals that of the 32% of French people interested in entrepreneurship, 43% consider franchising to be their preferred option. By signing a contract with the franchisor, the franchisee obtains the right to use the franchisor’s brand, concept, know-how and corporate culture, in exchange for a fee. This contractual relationship also includes ongoing support.

The advantages of the decentralized model

Entering into a franchise offers a degree of security and confidence for the new entrepreneur. Although this implies a certain limitation in terms of freedom of action, this model can be used to prove to be a godsendespecially for those who don’t feel experienced enough to go it alone. Although the initial concept and name are not of your own making, and certain processes are already established, there is still room for originality, particularly depending on the sector of activity. One of the great advantages of franchising is the security it offers.

By adopting a successful concept, you benefit from a substantial safety net, thanks to the reputation and constant support of the franchisor, which allows you to navigate the world of entrepreneurship with greater serenity.

Understanding the decentralized-franchisee-model

Associated trade

At the heart of organized commerce is the concept of associated commerce, based on the collaboration of independent entrepreneurs united by common economic interests.

The primary aim of this union is to achieve economies of scale, whether through a central purchasing unit, or by pooling costs linked to training, communication or other services.

The advantages of associated trade

There are many advantages to this formula. Firstly, the entrepreneurs in the network play an active role in shaping development strategiesgiving them a sense of belonging and more direct control over the group’s direction.

They are also responsible for electing the network’s leaders and deciding on financial contributions, such as royalties, ensuring democratic management of the organization.

What’s more, pooling resources not only offers economies of scale, but also enables members to retain significant entrepreneurial independence. This model balances the advantages of an organized network with the flexibility of independent entrepreneurship, providing a framework for entrepreneurs to grow and prosper in a competitive market.

The importance of price for a franchisee

Balancing autonomy and strategy

In alliances of franchisees or independents, it is crucial that each member can set its own rates without falling into the trap of an illegal agreement with the network’s organizers. This freedom to set prices, while attractive in theory to enable each member to find the rate that seems ideal to them, raises a major challenge in practice.

Indeed, it is unrealistic to expect a member who is already busy with his or her various activities to also find the time to develop and implement an effective pricing strategy. Not only is this task time-consuming, but when carried out in isolation by each member, it leads to a massive waste of time at network level.

To counter this inefficiency, member networks have chosen to centralize their pricing strategy. Specialized teams at head office work to formulate price recommendations. These are not obligations, but rather suggestions that each store can adjust according to its specific context.

This method encourages each member to to take a critical look at price recommendationsThis is done by ensuring that they reflect local market conditions, consumer trends and the specific objectives of each store. For prices to be relevant, they must be adjusted to take account of local competition, customer preferences and the specific aims of each brand.

Balance-between-autonomy-and-prcing-strategy

Local alignment and adaptation

To ensure that store prices reflect the company’s global strategy, while remaining competitive locally, it is crucial to strike a balance between national guidelines and local realities. This represents a real challenge, especially in networks where each store is free to set its own prices. Without being able to directly impose rates, the key lies in convincing managers of the importance of following price recommendations. This requires a deep understanding of each local situation, including the nature of the store, its location, and the competitive context.

A
pricing strategy
must therefore be flexible and adaptedWe’re always looking for ways to improve our products, taking into account the specific features of each sales outlet. This means setting sales prices not uniformly for all products and all stores, but finely tuned to specific needs and local competition. For example, in the food sector, where the choice of store can be influenced by many local factors, it is essential to adapt the offer to the expectations of local consumers.

To achieve this, it is important to a detailed analysis of the local market of each store, including direct competitors and customer preferences, in order to position each product optimally. In additionThe use of store-specific price indexes can help can help to adjust prices more accurately, by better reflecting local realities and facilitating dialogue between central management and stores.

Promoting the development of each partner

Independent contractor networks are characterized by heterogeneouswith stores varying in size and cost structure. This diversity calls for an adapted management approach that takes into account the specific features of each entity, particularly with regard to transfer pricing between stores. By integrating these specific features, it becomes possible to break down and analyze in detail the different levels of profitability within the network. This detailed analysis is essential to maintain a healthy balance between member profitability, plant-level profitability and the network’s overall economic performance.

Identifying and understanding these dynamics is essential to developing an effective pricing policy that supports both the competitiveness and sustainability of the independent network. Taking these factors into account ensures that the pricing strategy adopted is not only fair, but also optimized for the collective and individual success of network members.

Strengthening cohesion through price transparency

Group members must be aware of suggested prices and understand why these prices have been chosen. Clear, direct communication on pricing is crucial. This helps build trust around pricing and standardizes approaches across the group. Each member must have the opportunity to contribute his or her expertise and skills to the overall strategy, thus enriching the collective know-how. However, convincing everyone is not easy.

In a cooperative, this task is made all the more complex by internal political dynamics, which are not present in franchise networks. Pricing managers therefore need to be able to explain clearly how prices are set, what strategy is followed, what the results are, and how they can be improved.

reinforce-cohesion-through-price-transparency

Encouraging dialogue is essential to make the most of the network’s strength, offer the best prices while maintaining brand consistency and guaranteeing economic viability. In this context, concrete proof is the best ally for convincing.

Optimix simplifies the development of your pricing strategies

Pricing is a complex task, which involves taking into account the needs of the company, its managers and its customers. To achieve this, it’s crucial to use precise analysis and artificial intelligence. Optimix Pricing AnalyticsPricing
pricing management solution
based AI, analyzes local and enterprise-level data to provide pricing recommendations that best match everyone’s objectives. Unlike owners who adjust their prices individually, a centralized approach allows you to see the company as a whole.

At Optimix, we believe that effective and consistent pricing strategies require a holistic understanding of the business, helping retailers to implement optimized pricing approaches tailored to their specific context.

Editeur de logiciels de Pricing et Supply chain
Pricing and Supply chain software Editor

Trade news

Immerse yourself in the latest Pricing and Supply Chain news!