If you’re a franchisor you would like your most effective franchisees to function more outlets. In essence you would like them to purchase more franchises and you’re most likely even prepared to provide them with a price reduction because there won’t be any training involved given that they already own a number of units.
It’s a well-known fact running a business that it’s much simpler to market something to some current customer than to try and go market, advertise and obtain new clients in the future in and purchase. Exactly the same factor pertains to franchising organizations. How do we get the current franchisees to spread out more outlets?
Many franchisees don’t want to spread out more outlets because that ensures they are needed to place up more capital. Many franchisors don’t want to spend their capital to set up company-owned stores, because they have to conserve their sources to allow them to constantly grow tremendously.
One method to get franchisees to spread out more outlets would be to offer them more territory, yet by doing this sometimes franchisees believe that when they opened up stores too carefully for their current stores they’ll cannibalize sales there were already getting.
This might or might not be true initially, but by opening another story you will raise the brand in the area while increasing the entire cake or quantity of buyers in the region and for that reason both locations can succeed.
Starbucks figured this out, although they aren’t a franchise, once they start opening more outlets closer together. Initially the brand new outlet would cannibalize sales in the existing location, but over 3 or 4 several weeks new clients would start visiting the new location and also the Starbuck’s brand would be popular in the region and both locations would fare better. Please think about this in the year 2006.