Salon Franchising: Benefits, Challenges and Risks

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Table of Contents

Introduction
Benefits
Risks
The Challenges
Reference

Introduction

A franchise is an outlet that is authorized to sell or distribute services or products in a specific location on behalf of another business. Given the past successes of Natural Beauty and the strong demand for your firm’s products, I would strongly recommend you to run franchises instead of floating new businesses as that would come with additional starting and running cost as well as management costs. Growth of business calls for additional capital to finance and run new outlets. Managing these new business outlets also becomes more hectic especially if they are spread across vast regions. Franchising will help you overcome these challenges by having Natural Beauty brand-name associated with the franchises hence giving you a solid take off and opening new opportunities to make it in the market.

Benefits

High Leverage for greater expansion and revenues

Franchising will guarantee you wider distribution of your beauty products and increased revenues, larger market share, brand name recognition and economies of scale as Francis (2009) points out. A new franchise offers you a better chance of securing your desired territory and the same quality standards at a lower cost than the existing competitors. Franchising is a mark of good financial standing and a desire to expand Natural Beauty operations. With an established customer base already in place, this would ensure good performance from the beginning.

Knowledge of the local markets

During expansion of your business, it will be highly unlikely for you to understand the prevailing local market conditions and the business environment in a new market. The franchisee will give you a touch of the local market due to their closeness to the consumer. By taking up a new franchise it means incorporating into operations a venture that is already on a strong footing with all the operational bottlenecks already eliminated. He already has his market curved out from the long experience in operations and hence your main task will be to streamline your operations

Business growth and more working capital

Growth is achieved much faster as compared to the regular businesses because there is no limit to the number of franchises that can be formed under the umbrella of natural beauty brand. This translates to a higher working capital for the business. Besides these, due to bulk purchase tendencies the companies gets to enjoy discount from vendors, better lease options and better discounts on equipment and raw materials. The company is also able to source funds from varied sources as compared to individually owned companies (Brooke, n.d.).

Possession of knowledge and special skills by the franchisees

Staff in a franchise possesses a wide pool of varied skills that can be exploited to the benefit of the business. Solutions to any problem are addressed expeditiously within the franchise chain. Technical support and any other assistance are sourced within the ranks of the business. Most of the issues to do with group branding and advertising are handled internally in addition to marketing, customer relations, accounting, staff training and business operations

Economies of Buying, Advertising and Marketing

Purchase of inventory products in bulk and extensive advertising is an expensive affair for individual business owners. Your franchises will enjoy these economies through increased purchasing power and advertising besides enhanced ability to negotiate effectively for discounts. Most of the marketing needs are already catered for by franchisees that employ staff for you. Your role will therefore be limited to supporting franchisees with marketing materials as well as marketing guidance. With the increased number of franchisees, comes a rise in public awareness of the franchise which can be a huge advertising advantage. Those situated near each other can also engage in joint advertising further minimizing costs (Burrows, 2007).

Economies of Research and Development

In a franchise research and development of products is facilitated by the wide pool of staff across the chains and close proximity to the consumer. Strategic planning, product research, business expansion activities and market surveys are handled within the collective chain and not individually as Cengage (2006) observes. The cost of this research will be spread across the franchises hence reducing the financial load to the Natural beauty. The close proximity of the individual franchises to the consumer also eases the burden of carrying out market research since response is fast and reliable.

Risks

High degree of risks and conflicts

Franchises run a considerably high risk of dispute between the franchisors and the franchisees. On engaging the services of franchisees there is a risk that on the long run there could be disagreement which could cripple progress of your business as Siebert (1999) comments. As a result of business ownership, the franchisee largely determines the success of the venture. Natural beauty might be big and in possession of a strong brand name but in the end much of the risk is borne by the franchisee.

Inconsistency in quality service delivery

There is a huge risk of a franchisee delivering services against your intended goals hence undermining the businesses image, reputation and brand name. For example, your resolve to stock 100% natural and chemical free products might be diluted by a franchisee who decides to include other types of products hence damaging your brand name. A bad franchisee will not only tint your reputation, but also pull down your overall brand. Effectiveness on service delivery is also not guaranteed in this arrangement. The franchisee might operate far below your set standards hence dealing a huge blow to your business.

Loss of Control of customer relationship

Engaging a franchise will result to ceding your customer relationship control to the franchisee. Closeness of your business to your customers enables you to address effectively your customers’ quarries and concerns which in return enable you to improve on service delivery.

Measuring Return

As much as your franchises will be obligated to some form of disclosures, information on business return will be difficult to obtain. Poorly performing franchisees will be at pains to disclose their profits while others will withhold the information altogether to evade taxes thus providing you with manipulated figures. An accurate analysis will be essential in order to measure your returns in a consistent manner, as Siebert (1999) observes.

The Challenges

Competition

Your business will be operating within a very competitive environment where your rivals are expected to utilize any means available to protect and build their market share. You ought therefore to be wary of the hostility that comes in an environment full of combative competition. Intensified price wars risk drowning the revenues of the business and thus making inroads in such an atmosphere will not be a walk in the park for Natural Beauty. You need operate more efficiently, use high yielding initiatives, and differentiate your business from competitors by laying more emphasis on natural products.

False Expectations

Starting up a franchise with expectation of instant success while riding on the success of other franchisees may not be automatic. You will realize that these accomplishments come with a lot of effort. Just like other businesses it requires heavy time dedication, personal initiative and creativity. You should be in a position to explain to your prospective franchisees requirements of operating the business.

Business Management

Preparedness to manage a business varies from one individual to another. Some possess more business experience than others and easily get along with people. You should keenly asses the franchisees ability to run a business before settling on an individual franchise opportunity and engaging them (Francis, 2009). Their skills will therefore need to be properly horned to achieve the objectives of Natural Beauty.

Reference

Burrows A. (2007) 7 benefit of franchising. [Online] EzineArticles.com. Web.

Cengage G. (2006) Advantages and challenges of franchising. [Online] 2009. Web.

Francis (2007) “Intermediaries & Electronic Channels” weak 10 lecture notes

Bob, Brooke (n.d) Benefits Outweigh Risks In Franchising. [Online] 2009. Web.

Siebert, M.C. (1999) Risk versus reward. [Online] Successful Franchising. 2009. Web.

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