Franchise/Dealer Survey. Trust and the Channel/Corporate Relationship
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1 Franchise/Dealer Survey Trust and the Channel/Corporate Relationship
2 Executive Summary Brands that are delivered through independent franchise and dealer networks are an important and high-profile part of our economy. According to the Rosenberg International Franchise Center (part of the University of New Hampshire s Whittemore School of Business and Economics), franchising represents over $1.5 trillion of the business conducted in the world annually. This impressive figure does not include revenue generated through independent dealer networks a business model used in many categories. A 2007 McKinsey & Company research study of U.S. automotive dealers confirmed that dealership performance has a significant impact on the automakers profitability. They found that top performing dealers are 3x more profitable than average ones 1. Their results stated that the key to enhanced performance for both parent companies and dealers is increased collaboration. Unfortunately, collaboration in channel networks is rare. Even worse, these networks are often wrought with conflict, much of it dysfunctional. No matter the business. No matter the brand. The cause of most channel network dysfunction? Our experience and internal research point to one major source: Trust Gaps. For example, corporations might not trust that franchisees and dealers are making the right operational decisions. And franchisees and dealers don t trust that the parent company understands their local challenges. Trust is the glue of life. It s the most essential ingredient in effective communication. It s the foundational principle that holds all relationships. Stephen R. Covey Jan Kelley partnered with Ipsos Reid to survey 125 franchise owners and 125 dealership owners in Canada. Our goal was to better understand: why people get into this business model; what makes a franchise or dealership successful in Canada; the specific sources of conflict between local operators and the parent corporation; and the marketing environment for local franchises/dealerships. Where this common business model is used, channel network performance is a strategic go-to-market pillar. SURVEY HIGHLIGHTS: 65% of dealership owners and 69% of franchise owners state that the corporation needs to improve in respecting their input. More than 2/3 of all owners thought that the corporation needs to get better at following through on commitments. Less than 1/3 of dealership and franchise owners feel that the corporation does a very good job providing the research and intelligence they need on their local market. Listening to your concerns/responding to your needs at the local level was listed as the second most important relationship issue. Less than 30% of both groups indicated the parent corporation did a very good job on this issue. Less than 1/3 of dealership and franchise owners feel that the parent corporation does a very good job at providing full disclosure on conditions of sale, ensuring the financial relationship is fair, and offering financial transparency. Nearly 2/3 of all owners felt that success or failure of a franchise or dealership rests on the local business owner; the majority of respondents (58% dealership, 59% franchise) view customers as being loyal at the local level. 1
3 Trust in the Channel In order to drive measurable sales results, establish loyal customer relationships and build strong brands, parent corporations must deliver an integrated set of closedloop programs to and through their channel network. This involves delivering the right training and education about the brand, products, services and support programs available to the channel. It s also about helping channel members drive demand generation; build and manage customer relationships; and enable their local sales and marketing efforts, by providing the right programs to deliver a consistent brand experience through the channel to the end customer. Delivering on these core elements is critical to building trust in the network. << Engagement << But what we ve found in working with channel networks is that building strong, ongoing channel partner relationships is challenging. << << Demand Generation Relationships Education CORPORATE Inventory CHANNEL CUSTOMERS Programs Local Sales Marketing Enablement Trust Gaps Our research and experience have taught us that there are five key factors that contribute to distrust all of which need to be overcome. We call these factors Trust Gaps: The Say-Do Gap The Communications Gap The Financial Transparency Gap The Local Sales and Marketing Gap The Brand Gap Let s now take a look at each of the gaps in greater detail. The Say-Do Gap The Say-Do Gap occurs when partners (both at the parent and local network level) within a channel make commitments and fail to follow through on them, often because they lack information or the right tools. Without the right processes and information, other business priorities will take precedence over channel issues that are not quite as pressing. This can erode trust as commitments turn into broken promises. Overarching Say-Do Gaps develop when partners make commitments to deal with issues and opportunities and fail to do so. Most often, promises to take action are made in good faith, but over time are pushed to the back burner eventually becoming broken promises. More than 2/3 of dealerships (66%) and franchisees (69%) felt that the corporation could do a better job of following through on promises and commitments made to them. The system itself tends to generate conflict. We recognize conflict naturally occurs within a channel network environment. Conflict can be either functional or dysfunctional. Functional conflict is healthy, constructive disagreement between groups or individuals. Conflict becomes dysfunctional when more attention is turned inward, focusing on emotional or behavioral issues, rather than positive outcomes for the organization as a whole. Corporate management is often dissatisfied with the operational, technical and marketing performance of channel partners. And channel partners are often dissatisfied with the operational, technical and marketing support they receive from the parent corporation. This perspective typically generates distrust within the value delivery chain. 66% OF DEALERS 69% OF FRANCHISEES feel the corporation could do a better job at following through on promises and commitments made to them.
4 Why does this happen? Our experience and research have found that most often, partners don t do what they say because they: 1. Lack information or are not actively listening to the information provided. Over 2/3 of dealership and franchise owners feel their parent corporation needs to treat them more as partners and respect their input. Plus, dealerships and franchisees feel that the corporation needs to do a better job of listening to their concerns and responding more effectively to their needs less than 30% of dealers and franchisees feel that their parent corporation is doing a good job on this issue. 2/3 OF DEALERSHIP & FRANCHISE OWNERS >30% OF DEALERS & FRANCHISEES feel their parent corporation needs to treat them more as partners and respect their input. feel that their parent corporation listens to their concerns and responds effectively to their needs. 2. They don t have the right tools to identify and document needs, to plan and implement solutions or to track and report progress. Both dealership and franchise owners (69% and 73% respectively) feel their parent corporation needs better reporting tools in order for them to communicate progress/challenges they face at the local level. In the absence of active listening and the implementation of well-documented communications, feedback and response processes, other business priorities begin to supersede channel issues that are not pressing at the time. Naturally this leads to increased conflict between the channel and corporation. The Say-Do Gap is heavily influenced by the Communications Gap. The Communications Gap A Communications Gap isn t about volume; it s about the level of importance or relevance in each piece of communication. This gap exists when partners feel that they receive either too much unimportant information or too little important information. This pushing of unimportant information can be overwhelming and can lead to channel partners ignoring all communications from head office and potentially missing out on critical information. When it comes to the Communications Gap, dealership owners feel there s a larger gap in communications than franchise owners. The most critical need for communication between head office and channel partners is in objectives and priorities: channel partners need to know where their primary focus needs to be to move the business forward. Nearly 2/3 of both dealership and franchise owners feel that the parent company could do a better job of communicating annual objectives and priorities. 2/3 OF DEALERSHIP & FRANCHISE OWNERS When channel partners are unclear on parent corporation objectives and priorities, it is unlikely that their focus and actions will be aligned, which leads to Say-Do gaps. Channel members also believe that there is great need to better harness the spirit of innovation within the network, while still managing a systemized environment. Less than 1/3 of dealership and franchise owners feel that the corporation does a very good job providing the research and intelligence they need on their local market. >1/3 OF DEALERSHIP & FRANCHISE OWNERS feel that the parent company could do a better job of communicating annual objectives and priorities. feel that the corporation does a very good job providing the research and intelligence they need on their local market. For dealerships, this was the largest area of concern, with 46% of dealership owners versus 30% of franchise owners indicating this was very important.
5 The Financial Transparency Gap Channel partners must be margin-conscious if they are going to compete, prosper or, in certain circumstances, survive. They believe that their costs represent parent corporation profit. Nothing will erode trust faster than a franchise or dealer network whose operators are struggling to turn a profit while they perceive that the head office, manufacturer or master franchisor is flourishing. Less than 1/3 of dealership and franchise owners feel that the parent corporation does a very good job at: Providing full disclosure on conditions of sale of franchise/dealership; Ensuring the financial relationship between the franchise/dealership and corporation is fair. The Local Sales Support and Marketing Gap Typically, independent channel partners know their local markets better than anyone else. Over 2/3 of dealership and franchise owners feel they know more about their local market than their parent corporation. Unfortunately, they often lack the marketing knowledge, skills, tools, resources or even time to capitalize on local market opportunities. Conversely, franchisors and manufacturers often possess marketing knowledge and skill sets, but they lack local market intimacy and the proper tools to help franchisees and dealers. This is confirmed by the fact that 2/3 of dealership owners and 3/4 of franchise owners feel that the parent corporation could do a better job at providing marketing support. feel that the parent corporation does a very good job at: Providing full disclosure on conditions of sale of franchise/ dealership; >1/3 OF DEALERSHIP & FRANCHISE OWNERS Ensuring the financial relationship between the franchise/ dealership and corporation is fair. 2/3 OF DEALERSHIP OWNERS 3/4 feel that the parent corporation could do a better job at providing marketing support. Trust will erode when a franchise or dealer network perceives that the parent corporation is not fully disclosing revenue usually seen as a cost to the local operator which explains dealership/franchise owner sensitivity to product costs. As a result, the Financial Transparency Gap can turn channels inward instead of outward and pull focus away from the very markets capable of generating the profit that everyone is looking for. OF FRANCHISE OWNERS Within the marketing environment at the dealership and franchise level, the majority of dealership and franchise owners feel that they re doing a good job of local marketing, with 30% of dealership and 25% of franchise owners who control, develop and pay for their own marketing efforts. Even though channel partners feel they re doing a good job at local marketing, marketing support is ranked as one of the top three issues that a parent corporation can support them with.
6 The majority of dealership and franchise owners are not fully taking advantage of marketing technologies; less than ¼ of dealership and franchise owners are currently doing so. However, they recognize the importance of these strategies in their marketing efforts. Content marketing was ranked the most important and effective marketing activity, followed by social media, search engine optimization and online lead generation. Our experience and research clearly indicates that, most often, national brands succeed or fail locally. A strong operator with deep community and customer ties is a foundational component of long-term success. Local marketing relationship development coupled with marketing and sales program delivery is a key part of that equation. The Brand Gap WHO OWNS THE BRAND? Channel partners deliver the brand and service to the customer. While some operators within these networks see themselves as being a critical part of the brand or even the exclusive owners of customer relationships, some do not. Nearly 2/3 of dealership and franchise owners feel that success or failure of a franchise or dealership rests on the shoulders of the local business owner and nearly 60% of dealership and franchise owners view customers as being loyal at the local level. 60% OF DEALERS & FRANCHISE OWNERS view customers as being loyal at the local level. Conversely, head office executives may see the channel network only as a sales arm for a brand that they have worked hard to develop, treating the network as a conduit to the market and not a brand partner. One-quarter of dealership owners feel that the corporation treats them with lip-service, and that they are considered as sales by their parent corporation. More franchise owners felt the corporation respected them and recognized their part in delivering the brand to the consumer, through local marketing efforts and day-to-day client service. Conclusion Delivering consistent brand experiences across a network of operators requires constant communication and active management. Channel partner networks are composed of people who bring differing views, opinions, professional experience and training. They operate within different geographies, climates and regional cultures that may impact customer needs and expectations versus the larger business. These factors make the consistent delivery of brand-defining customer experiences exponentially more challenging in a channel partner network setting. Ultimately, manufacturers and brands with independent dealer, franchise or distributor networks must view the network as a strategically significant part of their business operations. According to a 2007 McKinsey & Company research study of U.S. automotive dealers, top performing dealers are 3x more profitable than average ones confirming that the key to enhanced performance for both parent company and dealers is increased collaboration. Shifting technology has created more opportunities and challenges for marketing to and through franchise and dealer networks. More than ever before, the chain truly is only as strong as its weakest link. If one outlet within a network performs poorly, digitally savvy users find ways to ensure that the singular poor experience becomes amplified in their online communities, reaching an increasingly larger audience. This technologyenabled trend will only intensify as new communities and new media are born. This means that meeting brand standards and expectations across a network is far more important than it ever has been. Research and experience tell us that strengthening a network does not mean focusing an inordinate share of effort on the lowest performing dealerships and franchisees.
7 There is room and a need for enhancing the relationship between local partners and their parent organizations, and for better understanding of the unique challenges they face. And there is great opportunity for improvement in using social media, SEO and online activities within channel partner networks to help these national businesses be more successful on a local level. After thoughtful analysis of the core trust gaps in channel partner networks, closing the gaps requires having the right people, processes and technologies in place. For example, having marketing or sales processes that are unclear or (worse) non-existent can cause more problems than it solves so can implementing technology without strategies and processes to guide its use. Even if there is a motivated, well-qualified team at the parent corporation, these types of deficiencies can and will hinder long-term success. Gaining a deeper understanding of channel partners motivations, challenges and needs and then applying this knowledge to improved communications and processes will significantly increase the chances of delivering successful programs, promotions and tools that support the development of deeper trust between the head office and channel partners. The Survey In an effort to investigate Trust Gaps further and assist the growing number of small businesses that are franchises or independent dealerships, Jan Kelley partnered with Ipsos Reid to survey franchise/dealership owners in Canada in order to: understand what makes a franchise dealership successful in Canada; identify the relationship between local business and the parent corporation; and understand the local marketing environment for local franchises/dealerships. The Methodology Ipsos Reid conducted a 10-minute online survey among a sample of n=125 owners of franchises and n=125 owners of dealerships between October 8-14, Franchise / Dealership Owners in Canada Franchise and dealership owners in the study represent a wide spectrum: 18% have been owners for less than a year, 23% have been owners for eight or more years. 40% have between one and five employees, 14% have more than 25 employees. A majority of franchise and dealership owners described their business as being very or somewhat successful. Significantly more dealership owners felt their businesses were not successful when compared to franchise owners (12% vs 4% respectively). The path to becoming a franchise owner comes after working for a larger corporation (41%) or having gotten one s feet wet while working for another franchise owner (34%). The path for dealership owners is somewhat more varied, with 29% starting at a larger corporation, 26% having had their own unaffiliated business, 22% having worked for another dealership owner and 14% having said that owning the dealership was their first real job. Overall, franchise and independent dealership owners in Canada are very positive with 90% saying their franchise/ dealership is successful, and 75% saying that being an owner gives them the best of both worlds: the freedom of an independent business owner with less risk because of the support from their parent corporation. This positive perception was further reinforced when they were asked about the best thing about being a franchise/dealership owner; 49% cite the independence of being their own boss. Very few (5% of mentions) noted positive perceptions which could be associated with their parent corporation (2% good brand reputation, 2% well known/popular and 1% good corporate support). Two in 10 (20%) said there is nothing they don t like, while 13% said the worst thing about being a franchise/ dealership owner is the long hours/hard work, and 10% said having full responsibility. Relatively few (7% of mentions) equated negative perceptions to dealing with their parent corporation (e.g. too many rules, having no say in decisions, poor brand recognition, not enough product availability, no help/support from corporate and can t set/change pricing).
8 About Jan Kelley Jan Kelley is one of North America's leading channel marketing agencies with more than 100 years serving clients in B2B and B2C markets. We are a fully integrated agency, building brands from the inside out for our international roster of clients, including Harley-Davidson, Petro-Canada Lubricants and Export Development Canada. At Jan Kelley, we are always working to develop a better understanding of the unique needs and perspectives of dealer and franchise networks. This deepened understanding is leading the way to better management process tools and, ultimately, more effective and efficient networks. Our team of specialists helps each client drive measurable results, foster loyal customer relationships and build strong brands through truly integrated planning and implementation. Chantel Broten President Tel: cbroten@jankelley.com Jim Letwin CEO Tel: jletwin@jankelley.com Kim McWatt Director, Demand Marketing Tel: kmcwatt@jankelley.com 1006 Skyview Drive Burlington, ON L7P 0V1 P: F: jankelley.com 2016 Jan Kelley Dealer/Franchise Survey conducted by Ipsos and Jan Kelley. All rights reserved. Contains Jan Kelley and Ipsos Confidential and Proprietary information and may not be disclosed or reproduced without the prior written consent of Ipsos and Jan Kelley.
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