How to Prioritize Franchise Marketing Fund Spending

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Jan Muhleman
June 2, 2016
June 2, 2016

This post is the second in a series of posts exploring topics related to franchise marketing funds. To get some background on what a marketing fund is and answers to common questions, read our first blog post in the series Frequently Asked Questions About A Franchise Marketing Fund.

In this post, you will learn steps to prioritize your advertising dollars and factors that will influence your spending both locally and nationally.

The Factors

There are many factors involved in deciding whether or not to spend advertising dollars locally or nationally, and many channels to consider. Factors include things like:

  • Marketing objectives and performance metrics
  • Location distribution and market saturation
  • Individual territory definition
  • Available marketing dollars at the national and local level
  • Target audience definition, segmentation and value
  • Customer transaction data and search/purchase behavior
  • Category and competitive spending
  • Media costs and efficiency by channel

But before you decide how to prioritize your advertising monies, it’s important to understand the role of a franchisor and franchisee in a franchise system and why it’s beneficial to centrally manage marketing campaigns and funds.

Spend It Wisely

Franchisors are responsible for defining and building the brand, franchisees for supporting and growing the brand (and their sales) within their own territories. How that is done and the channels used to do so will evolve over time as a system grows and matures. The most successful marketing programs are the ones that are integrated and consistent across multiple channels, where there is a national campaign or brand message that is supported at the local level. These are programs that may be developed by corporate marketing or the advertising council, which are enthusiastically embraced by the franchisees and supported with their individual or market co-op time and money.

Even small systems can find efficiencies in corporately developed creative campaigns and social/web content that are locally implemented, whether through social channels, web pages, blogs or radio spots. Larger systems can realize considerable buying efficiency when the markets are sufficiently covered to support national traditional or digital media buys.

We recently helped a 400-unit franchise establish a national marketing fund, with a national paid search and advertising spend, in part because we could demonstrate that they were missing leads coming from outside their defined territories. But, we also used funds for programs to increase their local presence. Ultimately, the program will be evaluated based on how many new customers can be attributed to our efforts.

So how do you figure out how to prioritize your advertising monies? It helps to understand your markets, target audience, their customer journey and their lifetime value.

Define the Customer Journey

How does a customer find your business? Is it a considered purchase or an impulse decision? Do they actively search online for your service or do they think of you as they drive by your business? Does the transaction require face-to-face sales and relationship-building or is it more impersonal? You can use your customer and prospect research and consumer search and transaction data to build a model that identifies the customer journey. It will help you define your communications objectives, strategies and tactics.

Determine Lifetime Customer Value and Communications ROI

It is important to look at margins, purchase frequency and lifetime customer value in order to define how much you might be willing to spend to acquire a customer. A franchise such as a service business, that has a customer value of $10,000, might be willing to spend $200 or more to acquire that customer. One that has an average ticket of $10 and a smaller margin may be less willing to invest a lot to gain a new customer and might prioritize retention and repeat business. Ultimately you have to look at lifetime value not just transaction value. Advertising can get the customer to the door; great operations and engagement programs help keep them.

Support the Transaction at Point of Sale

Depending on the type of transaction, the first priority for most businesses is to ensure there is support at the point of sale. Do the front-line staff have the tools (brochures, phone scripts, sales presentations, CRM technology, etc.) they need to close a sale, or upsell an add-on purchase? It is really important to make sure you are converting as many customers as possible and inviting them to engage with you.

We recently conducted research for a franchise that had a central call center that sent leads to franchisees. When we followed up with recent customers we found that nearly 25% of the leads had never been responded to. And these people were angry that they were never called back. Needless to say, that prompted a redesign of their CRM and lead management system. Had we moved forward with developing marketing to drive more people into their call center without fixing the problem, we would have only been creating more disappointed customers.

Test Your Model and Assumptions in Different Markets

The reality is that markets are different and may require different strategies to be effective. It can also be difficult to track and measure the value of awareness and relationship-building media channels such as television, radio, social media and public relations. There has been an increasing emphasis on digital media in part because it is easier to track and measure. However used alone, it may not be the most effective medium to use alone.

The best way to determine a good media mix is to conduct market tests using different media in multiple markets. We have found the best response rate is usually where multiple media are used. You can often recruit influential franchisees to participate in test markets. They may even be willing to help fund the test, track results and serve as advocates of the program once it is rolled out to the system.

Define Equitable and Appropriate Uses of the Franchise Marketing Fund

There are a lot of ways to spend marketing fund money including paying agency fees, developing creative and production and paying for media costs. Some franchisors even use it to pay for salaries for internal marketing staff, but most do not. Corporate staff costs are usually covered by the franchisor’s operating budget. Most franchise marketing funds are held separately and must be transparent and audited annually. There is usually a marketing advisory council that oversees spending decisions although corporate is the final authority.

It is important to establish up front whether there is an expectation that all franchisees will benefit equitably from any paid media purchases. It is relatively easy to ensure that digital media buys are delivered to each market area. Broadcast media is more difficult as national cable and radio networks may not be distributed evenly but, they can still be attractive due to purchase efficiencies.

One of our clients has a “no franchisee left behind” policy. That means that we buy a combination of networks in order to ensure that national media is delivered into all of their markets. For another franchise client we purchased local media in order to “fill” under delivered markets and ensure not only market coverage, but equitable media weight delivery. Having a policy that requires equitable delivery of media weight can result in a lot of extra work and expense and has the potential for missed media opportunities that don’t meet the equitable criteria.

Evaluate Media Options — National, Local, Co-op

FDDs are often written with some percentage of gross sales going to national, local and co-op marketing fees. Some franchisors choose to not collect those monies because it takes time to administer the program and/or they feel their current distribution or market saturation does not warrant a “national” program.

We generally recommend the franchisor collect the monies even if they end up rebating some of them back to the individual franchisee. There are lots of centrally coordinated programs that can increase purchase efficiency even on the local level. If developed in concert with a robust CRM system these programs can provide behavioral data to make strategic product and pricing decisions. And collecting and administering the advertising royalties up front defines and sets expectations for what the franchisor will provide and what a franchisee must provide now and in the future.

The debate over whether and when to collect and spend funds on behalf of the system usually centers around the ability of centrally purchased media to efficiently target prospects within the franchisee’s territory. There are lots of paid and unpaid media options that provide targeted message delivery, including paid search, digital advertising, direct mail, email marketing and paid social media.

Traditional broadcast and print media can also be targeted to specific audiences and geographies, depending on how you buy it. In order to develop a system media plan we look at the percentage of population and/or territories covered by each medium and evaluate whether it is better to buy it locally or nationally. The goal is to reach the target within individual territories as efficiently as possible, what changes is how you make the buy.

Track, Measure, Adjust

Regardless of the marketing tactics or purchase approach, you need a way to evaluate the effectiveness of your efforts. Defining performance metrics upfront is a must. It can be difficult to get franchisees to accurately report or attribute results to your marketing efforts. A centralized website with individual franchisee pages and an integrated lead tracking and point of sale system can help. Periodic target audience research to track awareness, usage and attitudes is also useful.

The more touch points of the customer journey you can impact and measure, the more defensible your marketing efforts. The ultimate measures of course, are top line sales and bottom line profits of your franchisees.

Stay tuned for our third blog post in the series where we will talk about how to implement change in a system that does not have a franchise marketing fund.