Study: Franchises Spend ‘Nearly Half’ of Marketing Budgets on Digital

Digital marketing companies tend to either bet big on small businesses, or avoid the market part-and-parcel. But franchises, equipped with the resources of a large brand but the flexibility of a small business, could help provide a critical stepping stone for vendors to reach the still-untapped small business segment.

To wit: new data shows that franchises owners are substantially more advanced than their independent counterparts.

A study released by BIA/Kelsey this morning finds that franchise owners plan to spend nearly half (42%) of their advertising and promotions budgets on digital services over the next twelve months. That’s a 10% increase from a year earlier and, more important, it’s significantly more than the typical small business plans to spend on digital marketing over the same period.

After a slowdown in the wake of the 2008 crash, the franchise industry saw its third consecutive year of growth in 2013, according to a study released by the International Franchise Association last year. The roughly 770 million franchise establishments in the US generated a little over $839 billion in output last year. That’s about half a billion above its pre-recession high in 2007 and a 4% jump from a year earlier.

Franchises have responded to the growth in kind, boosting marketing budgets dramatically over the past twenty months. According to the BIA/Kelsey study, the average franchisee owner spent $87,000 on marketing in the past twelve months, representing a 50% jump from a comparable figure in previous study conducted during the summer of 2013.

Steve Marshall, research director at BIA/Kelsey, said that franchise owners benefit from the relationships with their parent brand, but the shared marketing programs brands offer franchises — often called co-ops — are not driving digital growth. Instead, Marshall believes that access to digital agencies, which brands also offer franchisees as a perk, has allowed franchise businesses to transition to digital more rapidly than their independent counterparts.

“Franchises are significantly over-indexed in favor of digital platforms and media among small businesses, and it’s part due to their relationships with agencies,” said Marshall. “The national agencies which are working with franchisees have thought very hard about local marketing and they have become extremely effective.”

Franchisees also show remarkable loyalty to their agency partners in a small business market infamous for high churn rates. The study found that of half of franchise owners who have worked with a digital agency for over two years, 88% reported being either “very satisfied” or “extremely satisfied” with their agency.

In many ways, the franchise model fits well with the structure of cloud-based marketing software. An agency can effectively learn a single piece of software and then run each franchise as parallel account, using data and techniques from one to pass on to the others. The can benefit from an economy of scale implicit in a franchise network without asking franchisees to standardize their marketing efforts.

Meanwhile, Marshall said that rate of franchisees who participate in co-op programs has remained relatively flat over the past few years. The study found that while 90% of franchises say they qualify for a co-op program only 60% actually participate due in large part to the requirements placed on franchise owners by brand

To an extent, that gap in co-op spending is an information and coordination problem solvable by technology. Expect to see more companies selling marketing software to agencies that focuses on better managing shared spending campaigns and creating workflows and rules necessary to make the process more efficient.

Steven Jacobs is Street Fight’s deputy editor.