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SURVEY FOCUS:
HOW NZ FRANCHISES ARE TACKLING ONLINE RETAILING

by Simon Lord,
last updated 13/11/2012

13 November 2012 - Online sales represent a particular challenge for franchisors and, potentially, a threat for franchisees. The latest Franchising New Zealand survey from Massey University offers some specific information about how New Zealand franchises are tackling this issue.

Online retailing repesents both an opportunity for franchisors to increase sales and a threat to established distribution methods. If a franchisee already services a specific sales area but the franchise's website makes a sale direct to a customer in that area, how is the revenue shared - if at all? As online sales increase, it's an issue that can't be ignored and some  believe we are approaching a tipping point, as this article from Australian franchise expert Greg Nathan shows.

The 2012 Franchising New Zealand survey included a special focus on the topic, and the findings make interesting reading. More than a third of franchisors indicated that they are already selling their products and services online. Of those that don’t, almost half (47%) said they did not have any plans for an online distribution format. The main reasons given for not engaging in this distribution format included: current territorial restrictions and the possibility of encroaching on franchisee sales volumes; difficulties in developing an appropriate multi-channel retailing system (that is, product management system and profit distribution mechanism for existing franchisees); inappropriate fit between franchise products and e-distribution, and; a lack of customer demand for buying goods and services online.

Online Revenue Distribution Methods

42% of franchisors currently selling online had only been doing so for 1-3 years, while 19% had been doing so for over 10 years. The most popular methods of distributing revenue derived from online sales in the network included:

  • Enabling customers to pay franchisees direct (60%)
  • Paying profits on a commission-based or full-margin basis to franchisees in a defined territory (20%)
  • Returning profit margins from the franchisor to the franchisee (16%).

In one case, profits derived from online sales were returned to the franchise system marketing fund.

Online Revenue Distribution Model - Satisfaction LevelsWhile franchisors were generally satisfied or very satisfied with the model they used for distributing online revenue, it’s worth noting that only around 15% of franchisors had involved their franchisees to a significant extent in developing the model. This is an area where, as online sales increase and franchisee profitability pressures continue, there is scope for further discord. It is worth noting, however, that 73% of respondents believed that the introduction of online sales had had a positive effect on their relationship with franchisees.

About the Survey

The Franchising New Zealand 2012 survey was undertaken by Massey University in collaboration with the Asia Pacific Centre for Franchise Excellence at Griffith Business School. The authors are Dr Susan Flint-Hartle (Massey) and Professor Lorelle Frazer and Associate Professor Scott Weaven (Griffith). The survey was sponsored by FANZ along with Westpac, The Franchise Coach and Hayes Knight. The full report can be downloaded here.

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