AJPark

Franchisees can be demanding. After all the reason they are buying a franchise business is to run an established business without the cost and uncertainty associated with a start up business.  They are paying for a ‘hassle free’ start to owning a business.  The franchisor needs to be aware of this and minimise tension in the franchisee and franchisor relationship. 

Getting the agreement right
The franchise agreement will reflect the arrangement between the parties.  It is a not a ‘one size fits all’ situation.  Each franchise differs from the next.  It is important to seek expert help when putting together a franchise agreement.  All contractual franchise documents must be accurately drafted to reflect the scope of the franchised system and to clearly identify the duties of both the franchisor and franchisee.

We often get involved in advising on franchising issues. We are asked to advise on what intellectual property (IP) rights the potential franchise business has and could protect.  What surprises us most is the lack of thought given by businesses to creating strong IP rights, particularly around branding.  It is not uncommon for a franchise business to have little or no trade mark protection at all. 

Trade marks, brands and marketing are amongst the most important considerations for a retailer looking to franchise their business.

Licensing the trade marks
At its most basic, a franchise is a trade mark licence.  The franchisor allows the franchisee to use its valuable brands for the franchise business.  This should be focused on and adequately covered in every franchise agreement.  For a retail franchise, the trade mark licence will mainly cover use of the store name.  Other brands connected with the retail business should also be protected. 

There is no limit to what brands should be considered for registration.  But to be registrable they must meet certain criteria.  Specific product or service brands provided as part of the franchise should be registered, as should colours of the business, get-up, livery, packaging, product and packaging shapes to name a few.  But not all brands are registrable as trade marks so getting advice early will clarify what can and can’t be registered.

How is a franchise promoted and who is responsible?
Like any business, it is difficult for a franchise business to survive unless it is promoted. Marketing and advertising is vital.  Franchise marketing is specialised and not as easy as you might think. 

Who has responsibility for the marketing of a developing franchise business? 

There are several ways that advertising and marketing can be dealt with under franchise agreements.  One way is for the franchisor to charge an advertising levy and to manage an advertising fund which is then used for the benefit of the whole franchise system.

It is not uncommon for the franchisor to set up an advertising or promotional committee which consists of the franchisor and some of the franchisees.  Some agreements require the franchisee to arrange their own advertising and promotion.  In such cases, it is common for the agreement to require a certain percentage of turnover to be spent by the franchisee in advertising and promotion.

The most common arrangement is for the franchisor to handle marketing and promotion with levies paid for by the franchisee. When money is involved this changes the dynamics of any relationship.  A franchisee will want to see that its levies are well utilised to the advantage of the franchise business.  This is especially so if the levies are significant.  

It is important for the franchise agreement to spell out what the franchisor will and will not do to market and promote the business.  If the franchisee thinks more should be done, then this can be a negotiating point in the franchise negotiations.  If the franchisee does not want to do more, then the franchisee must decide what it can do itself without falling foul of the franchise agreement.

Using the Internet
Increasingly retail franchise businesses are looking to the Internet as the medium to promote and market their business, sometimes with little thought about how this activity fits with the overall image of the business.  It is important for a retail franchise to show consistency in everything that it does.

Key areas to focus on when using the Internet as a marketing tool are:

• Presentation – perception is reality and presentation is everything. You have about 30 seconds on average to sell a potential buyer on whether they should continue through your website
• Search engine optimization – the primary purpose of a search engine is to help the user get to the content they are interested in quickly. Therefore it is important to find out what your customers are typing into search engines to find your business.  Once this has been found, you can embed your website with all of those keywords.   It is important to ensure that your retail franchise business is on the first page, because that is where your competition will surely be.

Watch out for the Advertising Codes and fair trading laws
There are many aspects to advertising and promoting a business.  However your retail franchise business is promoted, you need to be aware of your duties under the Advertising Standards Codes and the Fair Trading Act. 

If you offer products or services online, it is important that your website is kept up-to-date about product and service offerings.  You must be able to provide what it is you are advertising.  Attracting customers by advertising goods and services that you cannot supply is called ‘bait advertising’ and its illegal.  If for any reason product cannot be supplied, then you need to clearly rain check it and provide it when it does become available.  

Pricing is also critical.  You must supply advertised goods or services at the advertised prices for a reasonable time, or for a set period, and you must have them in reasonable quantities. 

Any description of the goods and services that you advertise must be accurate.  Any claims made about your products or services or their benefits need to be truthful.  

Keeping the above points in mind when marketing and promoting a retail franchise business will lead to a successful business. Make sure you have these basics covered!

An edited version of this article was published in NZ Retail April 2008

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  Corinne Blumsky

  Partner