Comment: Trust in franchise partners is vital in international ecommerce

Franchising remains a popular option for retailers looking to expand internationally, but ecommerce has unsettled this model in recent years.

Franchise partners overseas will often want to build their own local ecommerce business, but this can quickly result in many different international websites for the same brand, with inconsistent pricing across the board.

International pricing has always been complicated for retailers, especially if they have a different profile in different regions. What if the brand is seen as mainstream in one country, but premium in another? This discrepancy will have a clear impact on pricing. Likewise, factors like port duty and logistics will often lead franchise partners to put a premium on a product in order to account for these costs.

This is where the problems start. The internet now makes it very easy to see whether a product is cheaper in Singapore or Saudi, for example – and customers know that. Not only can this make particular regions more or less attractive for consumers, it also undermines the retailer’s brand. Ecommerce should be centralisation and this kind of disjointed pricing really undermines that. 

Imagine that a UK retail brand signs up a Turkish franchise partner – and the company starts doing very well and decides to raise its prices locally. Before ecommerce, that would have been fine, since it would have been very hard for customers in Turkey to see that they could be getting the same product cheaper in, say Italy.  But the internet has changed all that. 

It is now incredibly easy to compare prices online and any discrepancies can leave customers feeling as if they are being ripped off. In this scenario, not only does the franchise partner lose out, but the brand is damaged as well. Plus, retailers could also be shooting their franchise partners in the foot by undercutting them.  Even if this is unintentional, it can still cause friction and damage relationships very quickly.

But what can retailers do? Even if they choose to block customers from buying from an international site, customers are still able to check prices. 

Retailers should be thinking about price harmonisation. It will often be better for the retailer to have a centralised ecommerce function and then simply pay royalties to overseas franchise partners when purchases are made in their region. A lot of retailers will obviously baulk at this: after all, why would they want to give money to their franchise partners – isn’t it supposed to be the other way around?

But that’s a very short-sighted view. This is not an area where retailers want to be penny-pinching, as relationships with franchise partners are critically important for retailers operating on a global scale. Also, what about customer perception?  Modern customers expect to find the same product at the same price when buying from a reputable brand – regardless of the market and the medium used to make the purchase.  After all, what image will customers get if they see multiple web sites offering the same product for totally different prices? Consistency goes right out the window – and the brand suffers as a result.

That’s why retailers really need to play the long game when it comes to their international e-commerce strategy.  They have to ask:  where do we want to be in 5 years?  10 years? Things like price harmony, centralised logistics, and manufacturing hubs that are sensitive to import duty are all a critical part of this strategy – but they won’t happen overnight and they won’t happen by themselves.  Retailers need to start building this strategy now. The world has changed. Now retail has to.

Tristan Rogers, chief executive of ConcretePlatform, advises large retailers including Tesco, Wal-Mart, Marks & Spencer, Clarks, Mamas & Papas and Jaeger on international expansion