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Franchising and Brand Value

Understanding the Brand Value

Brand equity or value is basically a measure of the total value of a particular brand, i.e. this kind of evaluation is done in a very comprehensive manner. A brand could be in the form of an indefinable asset and the established market value of a franchisor could be more than the countable/physical assets like land, employees, machines, etc. Brand value is decided mainly by the market demand and in that regard, by the customer loyalty — the extent of customers who repeatedly by goods of the same brand. Therefore, brands offering their franchise merely aren’t offering a business opportunity but also the market goodwill and reputation that have been established over the years. A franchisee in turn benefits from immediate recognition as the brand already has a market presence which translates into immediate customer presence and thus, the profits begin pouring in much sooner as compared to a traditional business venture.

Regional Factors — brands offering their franchise have to be very careful about the regional, geographical locations proposed by the franchisee for setting up a branch. This is because of several factors.

  1. The franchisor’s brand may be very market specific. For example, luxury brands like the very high-end watch segment has a very limited and highly profitable customer base. Now, these customers would usually be found in the most reputable urban locales. If the franchisor decides to open a branch in semi-urban, rural or township kind of an area, the credibility and the exclusiveness associated with the brand would dip. This would mean that the existing customers would associate the brand with lesser prestige value. Combined together, these factors would eventually lead to erosion of the brand’s worth and demand.
  2. The franchisee location is very important for brands offering their franchise with regards to the concentration factor. For example, in the southern part of a city a company may already have two fully-functional and profitable franchisees. Now, if the parent company decides to award a third franchise opportunity in the same area, it could eat into the profit margin of the existing franchisees. This also means less-than-expected returns for the new franchisee. The density of a brand in a region also decides the exclusiveness of a brand. There is a thin line separating exclusiveness and availability and the franchisor has to take care of that.
  3. Brands offering their franchise have to take calculate the future prospects of a given region. For example, in India, there are many semi-urban areas that cannot presently offer the customer volume of a metropolitan but in the near future have the potential to provide greater customer numbers. It makes sense to establish low-profit oriented but growth-assured kind of franchises in such areas.

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