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Franchise System Advertising

July 04, 2011

There are many good reasons for businesspeople to pursue opportunities in franchising, however one of the most typical reasons is for the brand name recognition. Individuals who want to start their own businesses trade off a certain element of control over the operation of their business in exchange for the security of an emerging or established brand that, ideally, customers associate with a certain level of quality.

That reliable level of quality is what creates value in the brand. However, for the franchisor to ensure that consistency for the brand across the city, province or country, certain system controls have to be in place, and this becomes particularly apparent in the area of advertising.

Franchisors need to be certain that any advertising being conducted by a particular franchisee does not vary from the message and brand which the franchisor has expended much time and resources to develop and sustain. As a result, most, if not all, franchise agreements will stipulate that all of the franchisee’s advertising activities must be approved by the franchisor, as well as typically requiring a certain percentage of the franchisee’s gross sales to be spent on advertising.

This will generally mean two things: 

  1. the franchisee must expend a set amount of its gross sales (typically 1 – 2%) on local advertising within its territory. This may be as simple as creating flyers or purchasing a print ad in the phone book or local community newspaper, however the objective is to promote that particular franchisee’s location and business; and/or
  2. the franchisee must contribute a set amount to the franchise system’s advertising fund. The fund will be administered by the franchisor and sustained by the financial contributions of franchisees across the system. The franchisor will then use those dollars to create advertising programs and promotions that tout the brand generally and aim to benefit the system as a whole, as opposed to one particular franchisee.

Tags: Franchising