Why Centralized Pricing Is Actually the Right Move for Franchises

Communicating the value of centralized pricing to your franchisees

If you hang around Revionics enough, you will hear us talk about centralized pricing versus decentralized pricing and how a merchant-led approach to pricing typically is not going to get retailers the best results. However, one hesitation to centralized pricing we hear from time to time is around a franchise model.

In our 20 years in the industry, we’ve had the pleasure of working with a variety of retailers, including retailers with a franchise model. While some of the goals, concerns, and considerations are different, the results are the same – centralized pricing benefits the organization from top to bottom.

The Franchise Pricing Dynamic

Pricing matters equally for franchisees and franchisors. Both have certain financial goals to meet, and just like with any retail structure, pricing is an essential lever. However, the franchise structure adds a relational dynamic that ups the pricing complexity.

Franchise owners have an extra level of freedom and decision-making power that franchisors need to respect and support. On the other hand, wholesalers have broader visibility and strategic responsibilities. Not to mention, franchisors have greater resources and access to more sophisticated technology and analytics.

Finding the right balance in this dynamic can be tricky. Sometimes retailers achieve a functional give-and-take that is “good enough” and don’t want to rock the boat with centralized pricing.

However, with true alignment on pricing objectives, competitive strategies and market positioning, retailers can unlock much more profit potential and new pricing opportunities. The reverse is also true. Without alignment, franchisees following their own pricing strategies have a limited view of impacts across the organization and can have negative effects on a brand’s price perception as a whole.

Instead of rocking the boat, centralized pricing can actually help create that alignment.

More to read: A few merchant-led tactics you should avoid during inflationary times

Collaboration is key

Franchisors and franchisees both bring essential elements to the table. Owners know nuances of their local markets and neighborhoods that wholesalers may not always know. Franchisors see more across the organization and can have bigger strategic impacts.

When the two come together to understand what the other needs and how they can support each other profitably, they can build a healthy relationship and unlock mutually beneficial pricing.

Franchisees may hear the term “centralized pricing” and think they are going to lose all control to deliver what their specific customers want. However, a centralized zone pricing strategy can not only offer localized pricing, but in many cases better provide customers with the pricing they want and expect.

Zones built on customer data, and not just geographical boundaries or competitive lines, account for differences in consumer preferences and purchasing behaviors from zone to zone. Retailers can get more fine-tuned with their localized pricing when led by data analytics instead of just intuition. Because the truth is, data science and analytics are more reliable predictors of consumer behavior.

The last two years have been a perfect example of this. Dealing with record-high inflation rates takes a comprehensive approach and a level of precision that is just not possible for individual owners to achieve. Retailers must have advanced analytics in order to surgically evaluate how and where to raise and maintain prices to grow share or profitability.

But as I said, franchisors and franchisees are strongest when working together. That’s why retailers must find the right balance of leveraging the science and the expertise of their owners.

Simplifying franchise pricing

Retail pricing is already complex before you throw in the franchisor / franchisee dynamic. To ensure your pricing strategies are meeting the needs of the organization, the owners, and the consumers, a centralized pricing strategy needs to be led by data analytics and AI. 

A powerful AI-based pricing platform analyzes local and enterprise-level data to provide price recommendations that best fit everyone’s goals. While individual owners can only manipulate their own prices, with a centralized pricing strategy, AI can look across the organization to find opportunities in one area that will create additional opportunities in another.

This holistic approach to pricing allows retailers to be more strategic across the enterprise. But of course, obtaining buy-in from your franchisees is crucial. This is another area where data analytics can help by communicating the value of centralized pricing.

The numbers will speak for themselves. With robust scenario simulations, retailers can show individual owners how their metrics will benefit from a centralized pricing strategy and AI solution. The more accurate forecasting will also be a huge asset to franchisees when it comes to planning.

At Revionics, we’ve helped numerous retailers with franchise models drive stronger pricing results both before and through today’s high inflation. If you are a franchisor, get in touch today with our pricing experts to learn more about how we can help you price with clarity and confidence.