Price review message lost in carbon tax furore

The recent furore over a Brumby’s head office memo which mentioned the carbon tax as a reason to increase prices completely overshadowed the sentiment behind the document.

In simple terms, the memo recommended franchisees review their prices to ensure that they are appropriate for the products offered, that prices are competitive with those offered by other chains, and sufficiently profitable such that the business can remain viable and pay a reasonable return on investment to the franchisees who own and operate it.

In itself, these sentiments are universally relevant, but with reference to the carbon tax, the memo (once leaked to the media) became a PR disaster that drew the attention of federal politicians and the Australian Competition and Consumer Commission (ACCC), and ultimately led to the resignation of the brand’s most senior executive after a long and distinguished career.

Unfortunately, the throwaway reference to the carbon tax in the memo totally overshadowed its main message, which was to remind business owners to review their prices.

For many, such advice would be a blinding flash of the obvious, but, for others, a comprehensive review of pricing might be an altogether rare and intimidating thing.

While inflation has been mercifully low in Australia in recent years, it can still erode a business’ profits and future viability if pricing is not adjusted accordingly.

Business owners are often reluctant to review and raise prices out of concerns that their customers will abandon them in favour of a lower-priced competitor.

Such logic may be true if a price increase is significant and does not correspond with a substantial increase in the customer value proposition. However, small increases on the basis of higher input costs are not unreasonable and may be barely noticeable in some instances.

The point is that reviewing prices regularly is good business. One of the advantages of being part of a franchise network may be such reminders to review prices and factors to consider in undertaking such a review. Additionally, franchisors may seek to reduce a franchisee’s input costs by using the collective buying power of the network to negotiate better input prices or other terms with key suppliers.

This may also be supplemented by research undertaken by the franchisor into complementary products or services that can be added to the existing range and further enhance the value proposition to the customer.

These are often things which are neglected by independent business owners, yet which are necessary to maintain long-term market relevance and business survival.

Franchisees have other advantages over independents in that they can openly discuss business initiatives with fellow operators of the same type of businesses, and share experiences in a way that independent business owners never can.

Their operational community of interest is based around their use of a common brand, and the offer of common products or services. Franchisees share a common interest in operating efficient and profitable businesses in a market niche created by the franchisor.

So while the Brumby’s memo gained notoriety for all the wrong reasons, the underlying message of regular pricing reviews continues to be relevant. Franchisors who have a genuine interest in the profitability of their franchisees will proactively consider pricing and other business drivers to help ensure their franchisees succeed.

This is just one element of the unique relationship between franchisee and franchisor that makes franchising work.

Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for nearly 20 years at franchisee, franchisor and advisor level. He advises both potential and existing franchisors and franchisees, and conducts franchise education programs throughout Australia, and publishes Franchise News & Events, a fortnightly email news bulletin on franchising issues and trends.

 

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