Territory planning from a Franchisee’s point of view

Franchise systems have an obligation to provide franchisees with a business operation that is a viable business. As part of the due diligence on new business opportunities, prospective franchisees should be comfortable that there has been logic used in establishing the territory or marketing area around the site to offer adequate business opportunity to make a profit.

The initial territory or market area planning is often what one of our clients called the Beer and Pizza approach. This approach is when a group of people stood around a map with beer, pizzas and a black texta, and cut the areas up. With this method some franchisees are fortunate and others come up short.

An ex-client of Spectrum Analysis told us that their territories were all OK. When the territories were mapped electronically, one had over 800,000 people and another (in the country) had 36,000 people.

Territory vs. Marketing Area

I am of the view that if you have a service business (not based in a retail shop), then a Territory is the way you should proceed. Usually this territory can be exactly defined on a map, and is a combination of postcodes or suburbs with very definite boundaries. Any lead generated within the territory is then passed on to you to service and the area is yours to promote and work, to the best of your ability.

If you are a retailer, then you do not have much influence on who will come to your store. In retail, we normally recommend you have a Marketing Area, or an exclusive area, which you have the right to promote your store within. This marketing area should also be seen by your Franchisor as an area within which another store cannot be located, at least for a certain period of time. The reality is you cannot or will not refuse a customer a sale if they come from elsewhere.

Who is our Customer?

Depending on if you are a B2C (Business to Consumer) or a B2B (Business to Business) seller there are 2 major methods that can be used in setting up territories of similar potential.

In some cases the two methods can be combined and the territories calculated based on 30% of the business coming from B2B, and 70% coming from B2C.

B2C Businesses

Usually, a B2C business is one where the product is something that is personally used, and the demand for the product mainly relates to the number of people or households in the area. The usual base of information is the Census 2006, where the number of people or households in the nominated territory or trade area can be seen. B2C businesses could relate to clothing or food sales, or leisure related business.

The idea is then to make some adjustment, so that if the type of person in the area is deemed as “good” for what you are selling, then you expect there will be less than the average number of people in the territory. If on the other hand, the type of people are not favorable to the business, then you will need more than the average number of people in the territory to give a similar amount of “Demand”.

B2B Businesses

The number of people living in the area may be some form of indicator if you are taking on a B2B business, but far more important is the number of business opportunities that are in the territory. Typical B2B businesses would be the printing business, couriers, leasing of business vehicles and sales of tools to tradesmen.

The Australian Bureau of Statistics provides information that we call The Australian Business Counts, providing us with the number of businesses, type of business, and the approximate number of employees in a specific area. This information can be used to give weighting to more favorable business types, and whether larger or smaller businesses offer more opportunity.

In some cases, you may have a business that has a very specific client base, so you can estimate how many of those types of business are in each postcode, and make it so each territory has similar potential.

Combinations of B2C and B2B

This arises in many cases, and the two databases can be used together to balance the territories to represent how much of the business is B2B and how much is B2C. The mortgage markets are an example of this, where you may ask for a broker to come and see you at home, typical B2C, or you may ask them to visit you at work, or go to their office near your work, therefore they are then acting like a B2B.

What should your Franchisor be able to show you?

If a professional territory planning job has been completed, you would expect the Franchisor to be able to explain the logic behind how the territories or market areas have been created. The Franchisor should have an overall map of the whole market, and be able to provide you with a relevant map of your territory. Many good Franchisors will also provide you with the residential demographics of your area, and if a B2B operation, then a business demographic of your area.

Many Franchisors can give you a Business Hit List for you to use in direct mail outs, or phone invitation to you prestigious opening to further assist in the opening of your business.

Summary

You are investing your money in a business opportunity that is being sold to you as a viable business operation. You really need to be comfortable that the Franchisor does understand the logic of how they have established the territories or marketing areas, and have used their best endeavors to have each territory or marketing area of similar potential for you.

Examples of Interactive Mapping and information can be seen on the Spectrum Analysis Website. Spectrum Analysis provide market and franchise analysis and franchise advice to assist businesses in better understanding the retail market from a territory planning view.