The trials of franchise territory allocation

Most franchise systems offer territories that are defined geographically. Typically, the franchisee will have exclusive rights to market and develop the business within this area.

Although it sounds simple in theory, for many franchisors allocating these territories can be an uncoordinated, complicated and time-consuming process. Indeed, any franchisor that has tried to manually define territories based on paper maps and disparate statistical data will appreciate the Herculean nature of the task. In addition, the consequences of poor territory allocation decisions can adversely affect both franchisee and franchisor in ways that might not be expected.

For an industry that is built on the systemisation of business processes it can be amazing how little time is sometimes spent by many franchisors on properly defining the franchise territories they plan to sell. Many still allocate territories on ‘gut-feel’ or they ‘cherry pick’ the best locations.

These strategies, while frequently fine in the short-term (no franchisor worth its salt would have achieved anything without some level of business intuition) they do not represent a sound long-term strategy. First, it is not fair on a franchisee when the franchisor gets it wrong and second, the franchisor may be selling itself short.

Believe it or not, it is not uncommon for franchisors to be overly generous with regards to territory allocation – particularly in the early days.

When allocating territories, it is important to remember that every territory decision impacts the franchise system’s future marketing opportunities.

Significantly, a territory that is too large does not necessarily mean a franchisee will be better off. More likely, the area will be under-serviced and simply represent a missed opportunity for the franchisor.

To be fair, many franchisors do use some form of mapping when allocating territories. However, this frequently involves scribbled lines on photocopied street directories. Consider how many franchise agreements have a barely legible directory map attached to them.

But it doesn’t have to be this way. In fact, savvy franchisors are successfully avoiding many of these problems by undertaking a simple digital mapping exercise early in the piece.

These days a wide range of software tools and data is available to help ensure a scientific, defendable approach to territory allocation. And the best news is that you don’t necessarily need deep pockets to take advantage of them.

Geographic information systems (GIS) vary in functionality from simple postcode-based systems to more complex packages incorporating detailed demographic and business data at the micro-geographic level. As always, functionality is reflected in price and the systems that provide the detail needed to make complicated territory decisions can be expensive.

However, for most people the major deterrent is the time investment required to learn and maintain the software. As one franchisor I spoke to recently put it: “Ok, so I bought this software, now what do I do with it?”

Fortunately, for those that shy from the expense and steep learning curve associated with performing research and analysis in-house, there are a number of experienced consultants that specialise in the field. Generally they offer the service at a fraction of the cost of an in-house solution, and as such leveraging their expertise can make good business sense.

Whether you decide to ‘do-it-yourself’ or engage a consultant, the first (and most important) step in any territory-mapping project is to identify the specific criteria to be used to allocate territories.

Examples of territory mapping criteria include:

l A definition of the spatial (geographic) unit to be used. This might be suburbs, postcodes or micro statistical areas such as census collector districts (neighborhoods of approximately 200 households)

l Demographic data such as total population, households or specific population segments. Rather than raw population figures, a franchise may base territories on the numbers of a particular market segment. For example, a mortgage broking business may set a requirement for the number of homeowners in a territory.

l Business counts, which can even be classified by sector and are useful for B2B franchises.

l Competitors. The number of direct and secondary competitors will affect the sales potential of an area.

l Household income and expenditure profiles can be used to refine the sales potential of an area.

l Geographic considerations. Physical barriers, transport routes and accessibility will impact the size and shape of the territories.

l Service level considerations. For example, a mobile service franchise may have specific service level criteria in relation to how long it should take a driver to reach any destination within his/her territory – say, one hour. This will limit the size of the potential territory.

Once the criteria are settled on, equitable territories can be developed by using the software tools to aggregate chosen spatial units and their associated attribute data.

The result is a series of balanced territories that should provide optimal market coverage for the franchisor while also ensuring that the given territories have sufficient potential for franchisee success.

For franchisors, digital territory mapping offers many benefits, among them:

l A fair distribution of prospects and potential profits among franchisees

l The future management of territories, including comparative performance analysis, is simplified

l The resultant territory maps can form an excellent marketing tool and add significant value to the franchise system’s offering.

l Territories are typically based on Australian standard geographic classifications such as census collector districts or postal areas, which means they can be further enhanced with detailed demographic and expenditure profiles.

l Franchise territories are created using distinct criteria relevant to the particular franchise system.

Digital territory mapping should not be seen as a luxury. Indeed, it is increasingly becoming a necessity. Franchisors can no longer afford to miss opportunities through poor territory allocation. Franchisees demand evidence of sound territory allocation methodology – and they certainly will no longer be satisfied with a hand-drawn map. l

Business Geographics is a market research company specialising in the analysis of geographic (location-based) information to assist companies with marketing and strategic planning.