Local Store Marketing: An Investment in Your Success
By Lori Karpman

Congratulations! You have bought a franchise and are very excited to let the local community know you are here. Local Store Marketing, or LSM, is the single most important objective in establishing your new business in your community.

Franchise Agreements typically require franchisees to spend a minimum percentage of their annual gross sales, or a flat dollar amount annually, on local store marketing. As well, franchisees are customarily obligated by the terms of their franchise agreements to pay a percentage of their yearly gross income, to the common marketing fund (also called the “National Ad Fund”).

These two marketing/advertising expenditures are very different from one another. The LSM commitment is not collected by the franchisor, but is instead spent directly by the franchisee on its own marketing and advertising initiatives. Its primary purpose is to drive customer traffic to the franchisee’s own location. While the franchisor, through the National Ad Fund is responsible for generating awareness for the brand it is not responsible for generating the local awareness required to drive traffic into a particular unit.

The National Ad Fund is established, collected and controlled by the franchisor. It is a pool of funds collected from the entire franchisee network that is often used to develop and implement large-scale brand-awareness marketing/advertising campaigns and PR initiatives conducted on a national or regional basis. The funds are collected from franchisees and deposited into a separate interest-bearing trust account; meaning that the proceeds should not be co-mingled with the franchisor’s other revenues. At the end of each year, the franchisor is required to send its franchisees a summary statement indicating the how much and how, the funds were spent. However, save in exceptional cases of fraud or abuse, the franchisee is not generally entitled to dispute the measures undertaken by the franchisor, since this is in the discretion of the franchisor. It is important to note as well that franchisees do not necessarily benefit from these programs in correlation to the proportion remitted.

Local Store Marketing business begins even before you open your doors to the public. Once you have signed a lease for your location you need to tell the community in which you operate about your products or services to generate excitement. In many instances your franchisor will have already created a “Grand Opening Marketing Plan” (GOMP). Generally the cost of implementing the GOMP ranges from $5000-$10,000 and should be accounted for when you are calculating the investment required to purchase the franchise. What is becoming increasingly common is franchisor’s using a portion of the Franchise Fee to invest back into advertising in the franchisees target market. So for example, the Initial Fee may be $25,000 with $5000 being used in your own market by the franchisor to generate local store traffic and awareness. What do these plans GOMP’s include? They may include some or all of the following: (1) Organization of a Grand Opening Event with invitations being sent to all local media and influential individuals such as the City Counselors, the Mayor or other high powered professionals, (2) creation and distribution of direct mail pieces in the franchisees trade area, and (3) creation and placement of print or online ads. Of course, this is far from an exhaustive list; however, your franchisor should have some form of GOMP already in place using tried and tested strategies. One brand in the health and beauty industry offers free haircuts on opening day. Needless to say the lines are around the corner and the franchisees generate tremendous ‘buzz’ with such an event! Creativity is the name of the game in attracting your customer’s attention so think ‘out of the box’ when creating your opening event.

Local Store Marketing initiatives can take many forms depending on the nature of the business.
For instance, a retail-type franchisee can implement a promotional contest and prize package give-away, or offer discounted or free products or services. A franchisee may opt to develop a gift card/loyalty or gift certificate program. Loyalty programs are being instituted in brands across the country because they are so effective. Couponing is one of the best ways to attract consumers and history bears this out. Keep in mind however, that an aggregate coupon redemption of 2% (of the number of coupons issued) is considered excellent in the advertising world. In general, most coupon redemption will take place within the first two weeks after distribution. For coupons to be effective however, the offer must be exceptional such as ‘FREE” (consumers love FREE!), or a 30-60% discount on products or services (for a limited time). Promotions geared towards getting in first time users are not the same as those to engage repeat business. First time users need a bigger incentive, whereas repeat business requires the consumer to have already had a positive experience with the brand and then be offered something of value in return. In order to garner repeat business coupons that are good on the ‘next purchase or visit’ are great and widely used tool.

There is no limit to the number or kind of LSM programs that can be instituted. Given that there tends to be a limited budget it is important to look for the most cost effective opportunities that will reach the largest target audience. As a general rule most people read their local community newspaper from cover to cover and this is a top rated advertising venue. Your total dollars are being dedicated to your target market, unlike large city newspapers that reach communities beyond yours and hence, are not cost effective. It costs more money and you reach less people. The more local your media, the better. Local radio and TV stations can be great allies. Businesses can often participate in media contests by offering gift certificates as prizes for radio or TV contests. The local personalities are people to meet during your pre-opening phase as they can use word of mouth to generate interest long before you open for business. Another tried and true business builder is referral programs. In these programs, when one client refers another, they each get a gift. For example, join a friend and you each get a free month is common in fitness. For services it can be refer a new customer and receive 10% off your next visit. Other attractive venues like transit shelters and billboards tend to be pricey for a single franchise owner; however, it is always worth investigating as these provide outstanding ‘local’ brand visibility. Even something as simple (and FREE!) as parking a car with your logo at the end of the parking lot or in another high visibility location can provide tremendous exposure and drive traffic to your store. Lately what has become quite common is for franchisees to decal their cars, providing brand awareness 24/7/365. To the extent possible, sampling is another cost effective and very successful method of getting consumers to try your product. Large manufacturers of consumer goods like pharmaceutical companies and foodservice brands spend hundreds of thousands of dollars annually just to get consumers to TRY their products! Trial is the largest generator of sales.

In today’s techno society learning how to use the World Wide Web to your advantage is a necessity. “Social Internet Marketing” as it is called is geared towards the tech savvy consumer. Studies have shown that over 80% of consumers visit a seller’s website to gather information and make purchase decisions before going to a retail outlet or contacting the service provider. Therefore reaching this vast target base is an essential element in any LSM program. The franchisor likely has a web presence for the brand however; each location should have its own page on the site that speaks of the owners, any particular promotions at that location, contact information and on hours of operation. Depending on the nature of the business there may be an interactive portal on the site where consumers can register to receive promotions, play games, enter contests or, for a fitness concept for example, record their progress and targets. Blogs have become very popular as of late. A blog (a contraction of the term "weblog") is a type of website usually maintained by a business or individual with regular entries of commentary, descriptions of events, or other material such as graphics or videos and audio, called “Podcasting”. Some Blogs provide commentary or news on a particular subject; others function as more personal online diaries. The ability for readers to leave comments in an interactive format is an important part of many blogs. All of these elements are geared to providing a form of direct and immediate communication between you and your customers. If you decide to have a blog, it must be maintained on a regular basis for it to have any value to your business. Social marketing also includes Facebook pages, Twitter accounts and other such online portals. With these tools you can literally reach tens of thousands of people, and very economically I might add! Most of us do not know much about how to use internet marketing to our advantage but a new crop of internet marketing consultants have now been bread who specialize in this area.

Corporate Socially Responsible Marketing (CSR Marketing) is the new ‘buzz’ word for marketing initiatives that show that the franchisee cares about the community in which it operates. This can range to anything from holding an event with proceeds going to a local charity, or sponsoring the local little league with branded shirts and caps. It also includes the kind of packaging used or recycling program instituted. In fact, over 80% of consumers surveyed said they would continue to be loyal to a brand or company even in times of a recession that is socially responsible. Any activity that gets the brand name out into the community with a positive association will create goodwill in the marketplace for that business.

All development costs for LSM programs go directly towards the obligatory LSM budget. This would include the franchisee’s direct, out-of-pocket costs to create the promotion or event, the cost of ad space in local publications, and the cost to create the ad itself, as well as the discount on products or services and the cost of the inventory or labour employed to staff the event. Local store advertising/marketing initiatives must be pre-approved by the franchisor prior to implementation so the franchisee must take care to review the terms of the franchise agreement before undertaking a particular local store program.

Franchisees must remember that neither the local store nor National Ad Fund obligations themselves, nor their rates or amounts, are negotiable with the franchisor. Nor should they be. All franchisees across the network must adhere to and perform these commitments since they are benefited both directly and indirectly - - directly through their local store advertising spend; and indirectly as a member of a bigger franchise system that engages in system-wide marketing/advertising, brand-building and PR.

Every company has its own philosophy about marketing expenditures, and priorities can and do change over time, especially with fluctuations in top-line sales revenue. That said, a marketing budget ratio of 5%-10% is not unusual for many brands, with some spending much higher than that. When viewed in this light, a combined local store and National Ad Fund commitment for franchisees that ranges between 3%-6% is neither extraordinary nor inappropriate. Franchisees must realize that their marketing obligations are an investment in their own business as well as in the goodwill of the system as a whole. Anything that benefits the entire franchise system usually has a positive direct or indirect spill over effect to the individual franchisees. If there were no marketing stipulation, then some franchisees would be tempted to either under-spend or not spend at all on marketing. The franchise system and its goodwill would not be able to grow and thrive without such a marketing requirement being imposed on its franchisees.