Challenges, Risks and Threats
21 November 2012
The previous part of this series showcased the current and catching trends in the licensing and franchising industry worldwide. Even though this activity is at the top of the economy today, it is not untouched by the multifarious threats and challenges that the industry faces. Having analysed the advantages of the trade, it becomes imperative to dissect the challenges faced by the industry and ways to get around them. We direct our discussion on this topic in this part of the series.
Growing awareness and consumerism has undoubtedly made licensing and franchising a hot business proposition. The plethora of companies trying to get a share of the pie has cluttered the market, creating chaos among retailers and a danger of saturation. It becomes increasingly difficult to wade through heaps of brands to create meaningful and successful brands. This is one of the biggest challenges that the industry faces today. Creativity, innovation and originality leading to freshness in the products and brands and driving the market is the key wherein the issue can be easily won over.
Another challenge that brand owners face is convincing the retailer to trust a new brand which has yet to prove its worth and popularity in the market. It is seemingly difficult to make space for a new brand where the retailer already enjoys the success of an established super brand. The retailer needs to be able to adapt a brand quickly with the right licensing deals to keep up with the ever changing interests among the target consumers.
Third, finding the correct route to the market is an equally challenging situation. When caught in sticky situations where the retailers prefer their in-house brands and labels, internet and online shopping comes to the rescue of the brand owner. E-shopping and digital marketing are being viewed as great avenues for brand owners who wish to market and sell their products through alternate trade channels.
One of the biggest challenges by far is the maintenance of high-quality standards and developing products which speak volumes for the brands they are being used for. A lapse in quality of the products could tarnish the image of the brand forever. This could be easily be overcome by investing in product development and implementing stringent quality control measures.
Franchising is about commitment and relationships between the franchisor and franchisee, but the same is fraught with its own set of challenges and risks. The most strategic aspect which requires attention is the analysis of the “real picture,” i.e., track record and performance of the franchisor. Most franchisors exhibit a well-established and successful business, but a smart and responsible franchisee should make necessary efforts to get acquainted with franchisor’s business model, reputation, legitimacy and credibility, in order to review and assess the risks before taking the plunge into the business and putting millions of dollars on the line.
Another issue on the list is working in a confined and restricted environment and following close-ended, pre-laid guidelines, something which is essentially done to maintain a consistency and quality through all franchisees, but which may not be appreciated or liked by people who take up the franchise business thinking of working independently and picturing themselves as entrepreneurs.
Based on established successful franchisees, it is impractical and not advisable to create a picture of a successful franchising business and expect a miraculous success story instantly. It must be understood that there are no shortcuts to success in the franchising business, and in times of a tough competitive environment and an unstable economy, the success of the franchise would largely be an outcome of innovative, out-of-the box thinking initiative coupled with heaps of efforts.
There are constant changes in the trends across many industries. Some of these trends may call for a considerable amount of change in the manner a business is conducted, which in the franchise world means significant implementations throughout the entire franchise network (which likely has multiple owners) in order to adjust to the changing air. The franchisee must know its industry and have a crystal clear strategy to address these issues.
Licensing and franchising has had an unquestionable impact on the worldwide economy and is widely acclaimed for its contribution to GDP, retail sales, job creation and training. In light of this, these challenges should not be a deterrent, but rather should be viewed as opportunities for the betterment of the business. The business should be constantly updated in order to main the synergy with the industry and changing trends.
Lall Lahiri & Salhotra
LLS House, Plot No. B-28,
Sector - 32, Institutional Area,
Gurgaon - 122001, National Capital
Region, India
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E: Rahul@lls.in
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