Running A Loyalty Program in A Franchise Environment

In most franchise environments, franchisees pay a fee to the franchisor to cover marketing activities. This fee traditionally supports mass marketing activities like television, radio, print advertising and promotional activity throughout the year. The consolidation of these marketing efforts through the franchisor is recognized as being far more efficient and effective than each franchisee could have achieved independently.

One would correctly assume that marketing support activity for a loyalty program is also most efficiently managed at the franchisor level. However, there are additional issues that are difficult for franchisees to accept and understand. The two most common are discussed below.

Funding The Program

Most franchisees effectively start their business lives as entrepreneurs. They understand customer service, and as sole proprietors of their own business (albeit in a bigger brand), they likely practice their own loyalty and customer service initiatives already. Without a formal loyalty program, these initiatives are often in the form of a discount of 10% or more.

For whatever reason, parting with actual cash after it has been collected is more difficult to come to terms with than discounting (even when the funding rate is significantly lower than a discount). Education is really the only way to clear up this issue - creating a loyalty program provides the franchisee with a tool to use instead of discounting and will ultimately increase profits when executed well.

Managing Loyalty Currency

Most loyalty programs have a significant amount of "breakage" (some points/currency earned is never redeemed). Breakage in many programs doesn't occur for a year or more after a transaction occurs. Were the exact breakage percentage known at the outset of a program, the loyalty funding percentage could be lowered. Since it is not, many programs use breakage to fund other loyalty program marketing activities. It is important to be clear on the use of these funds so that everyone can feel satisfied that they will be used for the benefit of the program.

Making It Work

The rewards of a well run loyalty program are well worth overcoming the challenges of creating and managing loyalty in a franchise environment. Creating a program that is relevant to the customer, the franchisor, and the franchisees is the fastest route to success. Critical to the success of any loyalty program is strong organizational buy in and execution at the point of sale where the purchase is made. Organizations that seek consensus and get buy in will be starting their loyalty programs on the path to success.