Few commercial arrangements are more complicated from an IP perspective than a franchise operation. In the interplay between product and service delivery, the franchise operation will typically involve trade secrets, proprietary technology, perhaps a patent or two, copyright (starting with the oh-so-critical Operations Manual), not to mention the trade marks and brand name of the franchise. Entering into a franchise is not for the faint of heart, be it either the franchisor or the franchsee, and disagreements are frequent.
Againt this backdrop, an item in the September 8 issue of Bloomberg Business Week ("P&G Puts Big Brands to Work in Franchises") is particularly interesting. According to the report, Procter & Gamble, the consumer product multi-national giant, is about to launch a franchise dry cleaner operation under the name of Tide Dry Cleaners. Tide, of course, is the well-known brand of laundry detergent products whose multi-coloured mark is familiar to hundreds of millions of consumers. The idea is to leverage the goodwill and reputation in the Tide mark so as to attract customers to entrust the cleaning of their most valuable items of clothing with independent franchisees.
The motivation for this move by P&G appears simple enough. As stated in the article, "P&G wants to put its brands to work selling services to boost U.S. revenue." That said, the P&G move is curious for at last three reasons.
First, I do not recall many instances where brand extension goes from a product line to a franchise operation, in part since the skills and competencies required to maintain a franchise business are exceedingly different to those needed for extending a brand by coming up with new products. It is no surprise, therefore, that P&G has apparently created a new company to manage the franchise and has appointed a veteran of Pepsico to run its operations. How the franchise side of the business will integrate with the company's long and illustrious record of success in coming up with iconic consumer products was left unaddressed in the article.
Second, there is the choice of the dry cleaning business as a potentially attractive franchise business for the company. It appears that the selection of a branded dry cleaning service came from a P&G unit assigned to develop new business ideas for the company. And what was the principal rationale for choosing the dry clearning business? According to the article, the unit "looks for a fragmented market where consumer expectations aren't high."
Third, add to this the comment by Michael Stone, the head of the brand-consulting company, the Beanstalk Group,who suggested that services such as dry cleaning "are virtually unbranded." The upshot of attaching the Tide brand to a franchised dry cleaning business is a "Field of Dreams"-like scenario, namely, set up the locations, brand the dry cleaning operations with the Tide mark, "and "they, the consumers [inasmuch as they have low expectations), will presumably come."
This move by P&G, while bold, raises a number of questions.
First, there is the P&G track record for setting up a franchise operation. The article reports that the company established a Mr. Clean Car Wash franchise operation in 2007. To date, it has only nine(!) franchisees in operation. True, the initial cost for a Mr. Clean Car Wash is $5,000,000, compared with up to $950,000 for the proposed dry cleaning franchise. Still, the rationale for the car wash business also rested on a belief of low consumer expectations together with the strength of the Mr. Clean brand. Based on this, the report that one prospective franchisee plans to open 150 Tide Dry Cleaner sites over the next three years might be a tad over-optimistic.
Second, there is the potential risk to the Tide brand if the franchise operation fails or even if highly publicized disputes erupt between P&G and its franchisees. The brand equity in the Tide brand is among the highest in the world, which makes it potentially even more exposed to downside risk if the Tide Dry Cleaners franchise does not succeed. True, as noted by the company's CTO, "if we did anything to damage that [brand equity], we'd stop." Even so, stopping the damage is only second best, if that. It may be that the damage has already been done. [It is also curious that this declaration comes from the CTO and not someone more directly identified with branding part of the business.]
There is certainly nothing wrong with P&G seeking to seek additional revenues for brands that it has carefully and successfully nurtured over tens of years. There is also the financial plus that a franchise operation allows the company to offload a significant portion of the financial burden of maintaining the franchise sites, which is borne by the franchisee. Whether the risks to the brand are ultimately worth these benefits, however, must still be viewed as an open question.
More on P&G here.
More on tides here.
More on Field of Dreams here