How the digital future can improve franchisee performance

In a recent article on this website, Greg Nathan and Zhanna Kremez commented on the threat that online sales pose to some forms of franchising, particularly in the retail sector. While franchises desperately need to address the online challenge to remain profitable, the danger is that their franchisees, who have invested in the brand, the system and the real estate, will find themselves squeezed out of the chain.

New technology raises issues that many franchises are struggling with. Introducing new technology can be both expensive and disruptive (Novopay, anyone?) and, at a time when many franchisees are still suffering following the prolonged downturn, investing in and learning new systems can be a hard sell for franchisors. Yet if franchises don’t make the most of the latest advances, existing competitors may leap ahead and new competitors arise.

It’s not just about online sales, either; franchises are increasingly using social media to engage with customers. Those that get it right, such as Auckland-based KiwiYo (which has achieved over 27,000 Facebook ‘likes’ from just two shops) are finding it a valuable marketing and brand development tool which supplements their franchising strategy. On the other hand, the recent dispute between Club Physical and a defaulting franchisee was increasingly played out in public thanks to both parties’ use of social media, the public responses from members and the professional media’s resulting ability to create news stories for a mass audience. How franchisors and individual franchisees engage with their customers in such a public forum therefore needs to be carefully managed – another challenge.

One franchise that is grasping the nettle when it comes to social media is Domino’s, which recently launched a new app in New Zealand that allows customers to rate their experience with the brand in real time on Facebook. At the end of every order placed online, customers are able to rate their experiences on everything from the online ordering system used to the presentation of the store, the delivery driver, product quality and service they received. The order ratings are to be displayed in real time on the Domino's Facebook page, allowing people to view the score and customer comments for their local store, recently-rated stores and also see the top five rated stores in the country.

This struck me as a very interesting approach. Of course, Domino’s are presenting it as a means of empowering their customers but it also has a big effect upon managing the performance of individual franchisees. The ability to benchmark your performance against others in the same group should be one of the key benefits of buying a franchise, but any honest franchisor will tell you that franchisees are not always keen to part with information, or to respond effectively to advice. By gathering information independent of the franchisee and making it available so publicly, the franchisor is effectively able to pressure the franchisee to accept the need for improvement. In fact, Domino’s itself acknowledges this in their press release, commenting that. ‘Any Domino's store that receives a rating of less than three out of five will receive additional training to improve their standards… We will be working closely with stores to improve their product, service and quality by acting on the feedback from customers immediately.’

Of course, Domino’s is not alone. I was recently researching some of the growing trends in franchising overseas and looking at the prospects for the same sectors in the much smaller market of New Zealand. One of the people I spoke to was Greg Nathan, who is increasingly working around the world as a specialist in improving franchisee performance. He told me, ‘Most franchise systems in the US are now using the Net Promoter Score (NPS) method of measuring customer loyalty as a simple measure of customer satisfaction. As a result of feedback gathered through this process, franchisors and franchisees can easily see what action is needed to turn unhappy customers into happy ones.’

The NPS approach is increasingly replacing mystery shopper programmes, which many franchisees never liked and which they were often reluctant to fund. By moving the process online, franchisors are finding a cheaper, simpler alternative with a much larger sample group. As franchisors strive to restore sales and profitability levels through improved customer service, this becomes another valuable addition to their armoury.

But while online technology may be used in various ways to help many businesses survive and thrive, as I said at the beginning of this column it will create possibly terminal problems for others. My research into international trends was aimed at answering the question, ‘What’s the next big thing in franchising?’ You can read the resulting article in the latest issue of Franchise New Zealand magazine, but it will probably come as no surprise to learn that we identified six hot sectors with one thing in common – they all offer something that can’t be delivered via the internet. Franchises have always been traditionally strong in the food and service sectors, and many of these continue to be strong performers despite the online challenge. The speed of change, however, means that new investors need to be more canny than ever; that 3D protein printer could be just around the corner…

A version of this article first appeared in NZ Business magazine May 2013