Unlocking Franchise Economics: Pt 3
Have we ever wondered how the consumer views our real estate industry franchises? If we are going to unlock franchise economics and truly understand the value propositions inherent in franchising we must also see them (franchises) as the consumer sees them and we must ONLY value them as does the consumer.
If you were to create a list of distinctions…real ones…dynamic ones…that separate one franchise brand from another in the eyes of the only true client, the consumer, what would those distinctions be and how are they manifest in the process of transacting business?
Enjoy the PhotoBlog below. Read it carefully and ask yourself what might happen if the consumer could place all franchises into one blender and extract the best. What would the “best” be? What are the clear distinctions between franchise A, B and C?
If franchises have any value, and REALonomics believes they do, what is the empirical value to the consumer? Is franchise value a black-and-white proposition or, will we see living color coming out of the recession in 2009 and beyond? What changes do franchisors need to make to create distinction in local markets? Can distinction even be created and sustained? Do we need to blend the franchises? Do we need fewer franchises? Will franchises be blended out of economic necessity and through mergers and acquisitions?
If a Broker/Owner adopts a franchise model what is the set of “measureable” distinctions derrived from the relationship that will impact the consumer? Specifically, how do franchise distinctions create revenue for Broker/Owners in the crowded marketplace?
In the post “Unlocking Franchise Economics,” Part 1, we opened the door to asking relevant questions that will help owners analyze the economics of real estate franchising.
In this series of posts REALonomics has one primary objective it would like to accomplish on behalf of owners and that is as follows:
…to help owners unlock the door to franchise economics so that gain an understanding of the substantive value propositions that exist and how a franchise name and associated promises can be quantifed in real dollars that are converted to a profit equation that is greater than it would be if the brokerage firm operated without the franchise.
Franchising is an Add-On Toolkit, with Limitations
At its most fundamental economic level a real estate franchise is a brokerage toolkit. Yes, there are all sorts of issues such as marketing, relocation, referrals, training, conventions, etc. But for now, we are setting those aside. A real estate franchise is an economic toolkit, at least it should be. Franchisors spend a great deal of time butter-balling brands, numbers of offices, growth, name recognition, relocation, referrals, etc., and that is how most franchise sales people will present their proposition to an owner. It’s the owner’s responsibility to translate the presentation into real economic reality and performance and to insist that the franchisor do the same.
As a toolkit, there are some things a franchise can do, there are many things it cannot do and there are more things it does not want to do for a brokerage firm because to do them will harm the franchisor’s bottom line. Let me be clear on this last point. At some point in the franchise relationship, an owner may find the franchisor a competitor for market territory, referrals, relocation and even local business.
Although relatively new, franchising has a powerful presence in the historical flow of the real estate industry and has shaped many outcomes and market realities since its inception.
Some broker/owners would claim that a franchise has made them incredibly successful, while others would say they have failed miserably with respect to leveraging a franchisor’s brand and its prima fascia value propositions.
However, despite the predominance of real estate franchising a large number of real estate brokerages still prefer their independent status and some of these have become their own franchised brands, capitalizing on the economic dividends available to them through leveraging themselves.
Although franchising is a powerful force within the industry, REALonomics believes there is still too little careful analysis and quantification of franchising’s market and economic value on the part of owners.
Quantifying a Franchise Value Remains Elusive
In addition, the ability to create economic performance models for a franchise, judge its market impact on a forward moving basis (trending), fully understand the costs and benefits to owners, agents and most importantly, to understand with as much certainty as possible the way in which consumers view franchises, remains quite elusive.
Franchising is a powerful economic consideration for broker/owners and an initial term can represent as much as fifty percent of the life cycle of a contemporary brokerage firm. For some time, franchisors have been negotiating initial franchise commitment terms that will run more than a decade. Another perspective is to consider the lifespan of an executed franchise agreement in terms of the changes that will occur within the industry during this “initial term” of a franchise agreement.
REALonomics will be posing questions, analysis, insights and extending some limited advice regarding how broker/owners can unlock the door to franchise economics. It’s this door that we believe is the key to identifying the benefits to adoption of a real estate franchise.
In true fashion, we will steer our spotlight of analysis and critique on the not-so-oft understood downsides of franchising. We will highlight and accentuate the benefits as we see them. We will ask the powerful questions that should be asked of franchisors who in turn ask broker/owners to pledge their companies to a particular brand at a cost that can sometimes be astronomical.
Framing the Franchise Analysis Correctly
We will help frame questions broker/owners can use to ask franchisors to quantify their economic delivery, their stated marketing value propositions and to clarify the broker/owner’s recourse for sub-standard performance on the part of a franchisor. We will suggest ways for franchisors to remodel some of their old propositions and presuppositions that cannot and do not create value for owners and how they can and should be delivering transparent, consumer-centric solutions that can differentiate them with owners, the market and consumers.
This will be fun, challenging and perhaps a little ugly at times. At the end of the day we hope REALonomics delivers some value to broker/owners, to its general readership and to franchisors.
We want our readers to be a part of the content, so your posted comments, insights, experiences (good or bad), together with private emails and other communication with us will be welcomed by everyone.
Our objective is to see if we can unlock the door to franchise economics, since the state claim of real estate franchisors is their delivery of an economic enhancement and a stronger overall market asset. Broker/owners need to know how a franchise can and should perform on their behalf and how to make the critical judgments associated with the cost versus benefit relationship.
Some initial questions about franchise value might include the following:
- What is a franchise worth to an owner, i.e., what should today’s initial and ongoing cost be? How do franchises differ from one another, if at all?
- What is the preeminent economic value of a real estate franchise to Broker/Owners and to agents? Why have new franchises such as Keller Williams and EXIT Realty been successful in the midst of a very crowded playing field?
- Do consumers have predisposition toward franchise names or, are consumers neutral when it comes to loyalty?
Broker/owners, franchisors and agents are invited to post comments about their franchise experiences, good, bad or indifferent. If you wish to communicate but do not want to post a comment you can use our traditional Contact Form.
Yikes! What have we started now?