JEC Project Profile: IBM

When is it better not to franchise a business concept?

Knowing when not to franchise can be at least as important as knowing when to franchise.
     Back near the dawn of the personal computer revolution, IBM had developed a number of prototype retail stores through which to market their highly successful line of personal computers. The large, attractive, well-staffed centers had been created as part of a complex marketing strategy. One of our principals was engaged to assess whether or not the centers should be franchised.
     The broad marketing objectives for the stores were to build consumer awareness of the brand and product line, to be an informational resource for both consumers and other retailers carrying the IBM line, and, finally, to sell products and turn a profit. Implicit in the strategy was the extension of IBM's vaunted corporate culture into a retail setting. A final strategy point concerned pricing: product sellers were to sell IBM products at full list price, as opposed to the usual discounting practices of competing retailers.
     After a thorough analysis, it was clear that the business format was, as structured, unsuited to operation by franchisees from both legal and practical perspectives. But would the company's marketing goals be met by operating corporate retail stores?
     Although the strength of the IBM name was perhaps at its apex, the firm's culture was incompatible with the fast pace and much lower cost structure of retailing. Equally challenging, the computer retail landscape had begun to see major changes favoring large, high volume, mass market retailers.
     Thus, we recommended against rolling out the stores, either as franchised or company-owned operations. IBM thus avoided an expensive and embarrassing foray into a business they were not suited for, a business that has since seen the rise and fall of several waves of franchised retailers.