Competition is always a concern for any business owner or entrepreneur and that’s still true when we talk about multi-location companies or even the multi-unit franchises like the brands we develop here at Rhino7. In starting or running a business, we naturally consider what competition is in the market that might present a challenge to gaining and keeping new customers. But what happens when the competition becomes your own brand?
What is Market Cannibalization?
Market cannibalization is the negative impact that a company’s new location, service or product has on the sales performance of its related products or services. In the case of something like a Storm Guard roofing and construction franchise, the proliferation of multiple locations in a storm-prone locale like Florida might not have any effect on the market. But in locations that are less prone to needing roofing and construction services that are directed towards storm damaging, the proliferation of too many locations could start to have a negative effect.
In a situation like the one we’ve described above, the new locations “eat” up the demand for the brand’s current services, potentially reducing overall sales. This downward pressure can negatively affect both your sales forecast and your market share. This loss of sale equates to the same loss of market share you might get from a competitor, except these losses are coming from inside, not from competitive pressure.
How to Grow Without Facing Cannibalization
There are a variety of strategies a multi-unit franchise or any business chain can employ to achieve growth without facing cannibalization.
One way that businesses with multiple locations can grow is by achieving more efficiency, particularly where it comes to back-office operations like accounting, communications, human resources and marketing. A key to adding a new location, service or product to an existing business is to engage existing personnel as much as possible to drive efficiency without hiring a whole new team. Multiple-location businesses and even multiple brands don’t require multiple teams of managers, trainers, marketing staff, etc. or a significant investment in personnel. That’s one of the reasons that Rhino7 is a true full-service franchise development company because we look at issues like these from the outset.
It’s important to note here that new products, services or locations represent a new opportunity for your key staff. Who in your organization is looking to serve greater ambitions, gain experience, or move up in the company? Are they ready for it? Growth represents a valuable opportunity to reward the employees who have helped you reach success and engage them as a real resource to help grow the business.
Franchise or Multiple-location Owners can Also Create a Pool of Resources that can be Shared Across Locations
Whether it’s strategizing to use shared software systems, communications platforms, or purchasing, multiple locations can work together. It’s also important for different franchise locations to realize they’re on the same team — cannibalization is bad enough without encouraging active competition between locations.
The rise of e-commerce has also caused the cannibalization of many brick-and-mortar stores. This factor may not be as impactful for service-based companies but for chains that sell retail products, competition from sites like Etsy and Amazon can be intimidating. Ensuring that your business is offering something that is legitimately different, whether it’s in price, quality or exclusivity can help mitigate this stress.
In this booming economy, multiple-location business owners and franchises have a unique opportunity to expand either in locations, brands or geography, or all of the above. With proper preparations and expert insights, businesses can grow their portfolios, drive sales, and increase efficiency.