Franchise systems
may vary prices based on geographic locations.
Business franchising is a model used to replicate an existing business in new territories, locations and countries. The original company defines the framework, products and methods that are the foundational elements for their business. They establish a business system that can be purchased along with naming rights, business support and the purchases of products, supplies and equipment. Standard purchasing strategies can be applied to selling business franchises to new companies and individual entrepreneurs.
Penetration Pricing Strategy
A business new to the franchising business, or one that wants to expand quickly, may use a penetration pricing strategy. Franchisees may offer a low initial franchising fee, financial assistance for startup costs and reduced-cost products, services or machinery to rapidly expand the brand across multiple territories. Under this pricing model, franchisors typically receive a percentage of sales as a royalty. Companies using a penetration pricing strategy opt for long-term financial rewards and increased brand awareness over upfront payments for new franchise businesses.
Competition Pricing Strategy
Franchises that operate in a similar market to other franchise systems may opt for a competition pricing strategy that sets their prices in line with other franchise offerings. The pricing may be slightly lower than the competition to try and appear more attractive to potential franchise owners. The foundation of this strategy is to use other companies' pricing frameworks as a guide for establishing or modifying pricing schedules.
Premium Pricing Strategy
Businesses that offer a new or innovative product that is not easily replicated by other companies may opt for a premium pricing strategy. Under this model, new franchise owners pay a price premium that is based on the exclusive nature of the product. A high price makes the products and services appear more desirable. This model may encourage less overall sales, but the profit margin on each franchise sale may be greater. For example, a company selling a product that requires a patented process or access to exclusive equipment may price the upfront cost of the franchise high to capitalize on the brand while it is new and still a hot commodity.
Geographic Pricing Strategy
Franchise businesses that offer business options in different physical locations may opt for a geographic pricing strategy. This strategy is most often employed by companies when they want to start franchising internationally. Franchise systems can price the international franchises higher or lower than the prices charged domestically. Companies will set the price high to reflect the additional costs of supporting franchises at farther distances. Franchisors may price the franchise lower than domestic costs to gain a presence in new markets, or to reflect the economic conditions of the new location.
Tags: lower than, appear more, franchise owners, Franchise systems, other companies, other franchise, penetration pricing strategy