"Using Co-Branding to Reduce Costs and Boost Sales. Page 512
Have you ever stopped at a gas station and caught a quick lunch at an Arby's or a Blimpie sub sandwich inside? Or have you ever noticed that Baskin-Robbins and Dunkin' Donuts often share the same building?
If either of these two scenarios applies to you, then you have witnessed co-branding firsthand. Co-branding takes place when two or more businesses are grouped together. Co-branding is becoming increasingly common among franchise organizations that are looking for new ways to increase sales and reduce expenses.
As we describe next, there are two primary types of co-branding arrangements that apply to franchise organizations. Two Franchises Operating Side by Side The first type of co-branding arrangement involves two or more franchises operating side by side in the same building or leased space. This type of arrangement typically involves a franchise like a donut shop that is busiest in the morning and a taco restaurant that is busiest at lunch and dinner.
By locating side by side, these businesses can increase their sales by picking up some business from the traffic generated by their co-branding partner and can cut costs by sharing rent and other expenses. Side-by-side co-branding arrangements are not restricted to restaurants. Sometimes the benefit arises from the complementary nature of the products involved, rather than time of day. For example, a franchise that sells exercise equipment could operate side by side with a business that sells vitamins.
By locating side by side, these two businesses could realize the same types of benefits as the donut shop and the taco restaurant. Two Franchises Occupying the Exact Same Space The second type of co-branding arrangement involves two franchises occupying essentially the same space. For example, it is increasingly common to see sub shops inside gasoline stations and other retail outlets. The relationship is meant to benefit both parties.
The sub shop benefits by opening another location without incurring benefits by having a quality branded food partner to help it attract road traffic and by collecting lease income. Having a sub shop inside its store also helps a gasoline station become a "destination stop" for regular customers rather than simply another gas station serving passing cars.
Important Considerations Although co-branding can be an excellent way for franchise organizations to partner for success, a firm should consider three questions before entering into a co-branding relationship:
- Will the co-branding arrangement maintain or strengthen my brand image?
- Do I have adequate control over how my partner will display or use my brand?
- Are there tangible benefits associated with attaching my brand to my partner's brand?
For example, will my partner's brand have a positive effect on my brand and actually increase my sales?
If the answer to each of these questions is yes, than a co-branding arrangement may be a very effective way for a franchise organization to boosts sales and reduce expenses.
Questions
a. Do you think co-branding will continue to gain momentum, or do you think it is a fad that will wane in terms of its popularity? Explain your answer. Provide in-text citations for your sources.
b. What are the potential downsides of co-branding? What might make a franchise hesitant to enter into a co-branding relationship with another franchise organization? Provide in-text citations for your sources.
c. Consider the College Nannies & Tutor's Opening Profile on page 495. (see below). Suggest some cobranding relationships that College Nannies & Tutors might consider forming. Provide in-text citations for your sources.
d. Suggest several types of businesses that might work well together in a co-branding relationship. Several initial examples include (a) a quick oil change and a tire store, (b) a bakery and a coffeehouse, and (c) a florist and a candy store.
Find examples on the Web to support your suggestions.
Provide in-text citations for your sources. OPENING PROFILE COLLEGE NANNIES & TUTORS of page 495 for question C Franchising as a Form of Business Ownership and Growth Web: www.collegenannies.com Facebook: College Nannies & Tutors Joseph Keeley grew up in a small town in North Dakota.
After graduating from high school in 2000, he moved to St. Paul, Minnesota, to attend St. Thomas University. One of Keeley's passions was hockey, which he fulfilled as a member of St. Thomas's varsity hockey team. While playing hockey, he became acquainted with a couple who had two young boys and a girl.
As the summer following his freshman year approached, the couple asked him if he'd be interested in watching their kids as a full-time summer job. Keeley jumped at the chance. While his two roommates spent the summer digging pools for a local contractor, Keeley engaged in fun activities with the children while acting as their nanny and role model The summer job got Keeley to thinking about how young kids could benefit from being around positive role models and how college students are uniquely capable of filling that role. The idea was so compelling that during his sophomore year he launched a company called Summer College Nannies.
Matching college students with families that needed part-time or full-time nanny services was the firm's core service. Early on he viewed himself more as a matchmaker than as a potential franchisor and thought of his business primarily as a way to earn extra cash. But as time went on, two things struck Keeley.
First, rather than just a means of earning extra money, he started to see real potential in the college nanny idea. For many parents, a service wasn't available to help them find a safe and reliable nanny. He also liked the idea of making a positive difference in the lives of families and young children.
Second, he found that working on a "real" business enhanced his classroom experiences. "I feel I had 10 times the education that anyone else did because I had a working, living project everyday," Keeley said, reflecting on this point.1 As the business picked up steam, St. Thomas provided Keeley with office space, and he turned Summer College Nannies into a self-made internship. To get advice, he started dropping in on St.
Thomas entrepreneurship professors, who urged him to enroll in the entrepreneurship program-which he did. As time went on, Keeley entered and won several business plan competitions with the Summer College Nannies business idea. He also won the 2003 Global Student Entrepreneurship Award, which is presented by the Entrepreneurs' Organization and included a $20,000 prize.
At the awards ceremony, Keeley met Peter Lytle, an angel investor and well-known Minneapolis entrepreneur. Although he had interviewed for traditional jobs, by this time Keeley had decided that he would devote his time and energy to his own business venture after graduating with his college degree.
Lytle was so impressed with Keeley and his business idea that he offered to invest, and Keeley accepted the offer. At this point, Lytle helped Keeley expand his vision for the business to include tutors, and College Nannies & Tutors was born. Lytle has since passed away, but was instrumental in the most formative years of the business. Following graduation, the money Lytle invested provided Keeley the time and resources to more fully develop the College Nannies & Tutors business idea. The company started generating some buzz, primarily through media coverage and word of mouth.
One of the things that interested the media was the fact the Keeley, a male and a recent college graduate, was starting a company in an industry-childcare-that traditionally females dominated. The first College Nannies & Tutors center was opened in Wayzata, a suburb of Minneapolis. In college, Keeley took a class in franchising and learned about the potential of this form of business. As Keeley fine-tuned his business idea over two long years of testing and planning, it became clear that College Nannies & Tutors could be a viable franchise. Interestingly, part of the firm's franchising process included proprietary ways for screening nannies through background checks, interviews, and psychological assessments and matching them with families. Commenting on the suitability of College Nannies & Tutors for franchising, Keeley remarked, "[And] there's value there as a franchise because we've figured it out.
You (a potential franchisee) don't have to go through the learning curve."2 Currently, College Nannies & Tutors has approximately 79 franchise locations across several states, and its franchisees had combined sales of $18 million in 2010. The company's goal is to boost systemwide sales to $100 million in five to seven years. As for Keeley, he remains as passionate about College Nannies & Tutors as he was in 2003 when the company started.
His success as an entrepreneur hasn't gone unrecognized. In 2010, he was named Ernst & Young Entrepreneur of the Year for the Upper Midwest Region. As with College Nannies & Tutors, many retail and service organizations find franchising to be an attractive form of business ownership and growth. In some industries, such as automotive and retail food, franchising is a dominant business ownership. Franchising is less common in other industries, although it is used in industries as diverse as Internet service providers, furniture restoration, personnel staffing, and senior care.
There are instances in which franchising is not appropriate. For example, new technologies are typically not introduced through franchise systems, particularly if the technology is proprietary or complex. Why? Because by its nature, franchising involves sharing of knowledge between a franchisor and its franchisees; in large franchise organizations, thousands of people may be involved in doing this.
The inventors of new technologies typically involve as few people as possible in the process of rolling out their new products or services because they want to keep their trade secrets secret.
They typically reserve their new technologies for their own use or license them to a relatively small number of companies, with strict confidentiality agreements in place. Still, franchising is a common method of business expansion and is growing in popularity. In 2007 (the most recent year reliable statistics are available), 765,723 individual franchise outlets were operating in the United States. These operations accounted for 7.6 million jobs and a combined economic output of $654.2 billion.
Each of these numbers is expected to be stronger for 2011 and beyond, as the U.S. economy appears to be making progress with its efforts to pull out of the recent global recession.5 You can even go to a Web site (www.franchising.com) to examine the array of franchises available for potential entrepreneurs to consider.
This Web site groups franchising opportunities by industry, location, type, eco-friendly, women based, and several other criteria. These categorizations highlight the breadth of franchising opportunities now available for consideration. Unfortunately, not all the news about franchising is positive. Because many franchise systems operate in competitive industries and grow quickly, the failure rate is relatively high. In one highly regarded study, 45 percent of all retail franchises included in the study failed in their first four to seven years. Plus, despite its proliferation, franchising is a relatively poorly understood form of business ownership and growth.
While most students and entrepreneurs generally know what franchising is and what it entails, the many subtle aspects of franchising can be learned only through experience or careful study.
We begin this chapter, which is dedicated to franchising as an important potential path to entrepreneurship and subsequent venture growth, with a description of franchising and when to use it.
We then explore setting up a franchise system from the franchisor's perspective and buying a franchise from the franchisee's point of view. Next, we look at the legal aspects of franchising. We close this chapter by considering a few additional topics related to the successful use of franchising.