Franchising in The Perfume Industry: Discover Pros and Cons
Franchising in the perfume industry demands its own tips to be started.
In the year 1920, the French fashion icon, Coco Chanel, launched her first perfume line; A fragrance that later turned into the most popular perfume in the world and still holds the title. Chanel No.5 was a massive reputational and financial success for the brand Chanel. “This perfume alone made her a multi-billion dollar fortune despite earning her a mere 10% of the profits”.
How could a perfume brand like Chanel extend its business reach to achieve this worldwide success?
How to expand your perfume brand legally?
There are several ways for a brand to grow in size, and for individuals to join and participate in the growth of a perfume business. Among them is franchising. A franchise agreement allows the franchisor company to develop into the new local markets and the franchisee to enjoy the benefits offered by the main company.
Working under a franchising contract makes it possible for the franchisee to get better business insight, have more effective connections in the professional network, use a pre-established business model and customer base and overall, gain a greater chance for business growth.
Beside all these advantages, the franchising agreement imposes limits on the franchisee’s independence and creativity. It also inflicts too much pressure on the franchisee regarding the business extension and makes working conditions less flexible.
Here is another article about franchising for further information:
What is to gain from franchising in the perfume industry?
Helps with business insight:
It is crucial for a newcomer to be passionate about perfumes and scents; however, it does not guarantee a successful business. There are other factors, including business insight and market skills, that affect the outcome. An existing perfume franchise has already figured out the business routine and can help with the minimum requirements to start a business.
Better networking with other actors in the industry:
A franchiser works with a series of companies and businesses. Whether these companies are suppliers, distributors, investors, or even rivals, they all shall be considered stakeholders, and the company’s relationship with them directly affects business. As a newly funded business, the franchisee may have a hard time building its own network; consequently, performing under the terms of a franchising contract provides an opportunity for the franchisee to benefit from the extended professional network of a big company.
Proven business model:
Some experts describe a business model as the “logic” of a company that defines the roadmap of a business and the steps to be taken to reach success. A comprehensive practical business model lets a company attract a talented workforce, convince investors and maintain a productive relationship with partners and customers. It is needless to say that a franchiser most certainly expanded its business using an effective business model. That being so, utilizing a franchisor’s proven business model can be a determining advantage for a new business.
Benefit from a well-known brand name:
Have you ever wondered why companies expand so much on advertisement? According to the result of a survey published by Customer Thermometer, 64% of women and 68% of men have felt an emotional connection with a brand. This means that whatever companies spend in order to make their brand name easily recognizable will eventually pay back as people start to consider it a known brand. Considering the significant impact of a known brand name on business performance, working as the representative of a well-known company can significantly boost businesses’ revenues and financial performance by ensuring customer loyalty.
Established customer base:
One of the most serious concerns of every rising business is to gain the consumers’ attention and attract as many customers as possible. To achieve this goal, companies have to spend a considerable amount of time and money in addition to allocating resources and workforce. However, it is not always that hard to reach this objective. When a franchisee starts working under a franchising contract, the product is already demanded by a pre-established customer base, thanks to the efforts of the franchiser. This means that the franchisee can avoid losing resources and use them to expand the business.
Optimize efforts and expenses:
Choosing a franchising agreement, among other options in the perfume industry, provides an opportunity to benefit from wholesale buying of products instead of dealing with independent sellers. It also lowers the need to perform many day-to-day tasks of a business, which in turn saves a considerable amount of time and money. Altogether, this means being able to offer a more diverse range of perfumes while investing less money and effort.
More focus on growth:
By removing so many barriers to professional performance, franchising is a chance for the franchisee to concentrate on matters of most importance, such as growing the business and extending its territory. As a part of the main company, expanding the business reach of franchisees ultimately serves the growth of the franchiser company.
What are the downsides?
Just like fashion and clothing, creativity is a key point when it comes to perfumes and scents. Innovation is the element that distinguishes every specific brand and its peculiar scents. As a result, creativity is the primary source of competitive advantage for both new and long-established businesses that helps attract customers and supports the promotion of the brand’s name. Acting as a franchisee, the business group is mostly following the main company’s common path, and there is less space for addressing innovation in the franchisee’s work. In this situation, the franchisee may lose many opportunities to gain a competitive advantage compared to other businesses that perform on their own.
After entering into a franchise contract, the franchisee will become a subsidiary of the franchiser, which represents the company’s brand name. Under this circumstance, the franchiser will gain a certain level of control over the franchisee’s business. The franchisee no longer has absolute power over business matters such as pricing, choosing ingredients and products, business strategy, etc. The franchisee is also obligated to meet the minimum business requirements of the franchiser company in an attempt to operate in accordance with the franchise contract.
Most importantly, the franchisee will lose control over selling the business without the franchiser’s permission. This can be a problematic point, especially when the franchisee decides to start a business of their own or even get out of the company and retire.
Less independence in professional performance eventually leads to less flexibility in business. While other actors in the market enjoy a wide range of options regarding both products and pricing, the franchisee is limited to the options offered by the franchiser. These limitations can cause poor service providing and consequently less profitability.
Forced to maintain growth:
A franchiser can indeed enable rapid growth for the franchisee by helping the business at the beginning; however, this help comes with responsibilities and expectations. By offering a franchise opportunity, the ultimate goal of the franchiser is to expand its business group. It is not possible unless every one of its subsidiaries is committed to this growth. There is no reason for a big company to bother with a franchising agreement and its consequences if there is no perspective of business growth. Yet, commitment to continuous growth can be too much pressure for the franchisee since it is taking the first steps of setting up a business and dealing with so many unexpected issues.
To Sum up:
To conclude all these points, there are so many advantages to choosing to franchise in the perfume industry, although there are some drawbacks as well. Whether to act under a franchise agreement or not is a decision everyone should take according to their limits and capacities. It would be beneficial to use an expert opinion of a legal professional before making any decisions. Our lawyers in LegaMart can answer all your questions concerning franchise agreements.