It is not uncommon for franchisors to simply divide up a city or state into blocks or districts as the basis of territories for franchisees, with little or no regard for the demographic composition of each of these territories. This approach can be fraught with problems for both parties down the track.
In any business, franchised or independent, the business owner really needs to know who his customer is, where they live or work and how likely they are to access the business as a customer.
Without this basic understanding, the business is really flying blind in attempting to promote and attract customers.
From a franchising perspective, a franchisor should at the very least, undertake some demographic research of the area surrounding a proposed new franchise territory. This research should be undertaken in the context of what the business is selling, in order to know how many potential customers it can attract, where they will come from and what their likely preferences are.
For example, a pet-care business should be located in a territory comprising a high percentage of household that have pets, or a food service business should be situated in a territory with a population who will find the menu appealing.
For a franchisee, buying a franchise in a territory that is based on solid demographic and socio-economic data, will provide confidence that they will have a good foundation on which to build up their business.
Research-based territory planning also protects the franchisor in the event of a dispute with a franchisee where the franchisee asserts that they were sold a franchise that turns out to be “under-performing”. It the franchisor can show that the territory has been determined based on statistical research into the composition of its local population, is a reasonable distance from other franchisees of the same brand and with consideration given to the proximity of competition, then the franchisor will be less likely to fall foul of its obligations to appoint franchisees in territories that will support a franchised outlet.
Good territory pre-planning is just good franchising practice. It should become one of the elements that goes to support franchisees who, after all, are buying into a franchise based on the experience, credentials and knowledge of the franchisor, who has “been there, done that” for them.