JEC Project Profile: Miracle-Ear

Can a manufacturer rapidly revitalize its distribution system using franchising principles?

Dahlberg Electronics, Inc. was a manufacturer of hearing aid products whose distribution system was principally comprised of independent hearing aid dispensing retailers, audiologists and in-home direct marketing. At the time we were engaged by the company, their chief competitor had a commanding lead in the marketplace. Dahlberg's goal was to displace this competitor and become the market leader. But how?
     A new brand name -- Miracle-Ear® -- and an attractive new logo formed the foundation for a new consumer-oriented image. Next was a new distribution system that could move products to the marketplace in greater volumes and with greater efficiency. After analyzing the industry's marketing structure, we determined that "conversion franchising" would be opportune.
     The expansion concept was to persuade established hearing aid retailers to "convert" their existing businesses to franchised Miracle-Ear Centers. Using this strategy Miracle-Ear could quickly expand its market share without a massive infusion of growth capital; the capital investments would be made by the franchised dealers themselves. Additionally, these franchisees would pay Miracle-Ear a royalty fee on all products sold.
     Our situation analysis revealed that many retailers who might be prospects for conversion suffered from poor product and marketing support from the manufacturers they represented. They were also experiencing increasing competition from chains and in-home sales. Thus, comprehensive product, business and marketing support was developed as an integral part of the franchise program. Also included was a centralized customer referral system fed by national brand-building advertising.
     The royalty structure we designed was also a key to rapid conversion. Instead of the traditional royalty fee on all gross sales (products and services) made by the retailer, the royalty fee was integrated into the product's wholesale price making it, in effect, invisible.
     How did Miracle-Ear's conversion franchising strategy work? Within four years Dahlberg, Inc. had nearly 500 Miracle-Ear franchise units in operation and today has more than 900.