How is an exclusive territory defined?
An exclusive territory definition for physical locations in particular, can be defined by a location radius from a given centre. Other ways to define an exclusive territory in franchising is by looking at postal rounds/postal codes/suburbs. There are also city limits, regional states, countries, shopping centres and districts as well as naturally occurring boundaries (rivers, for example).
These boundaries, once established and agreed to in the franchise agreement, must not be encroached upon by other franchisees and are set in place to enable the franchisee to compete effectively against other businesses in the same area although not against other franchisees from the same parent brand.
Why is operating from an exclusive territory good for franchisees?
Franchisees benefit from operating in an exclusive territory because it limits competition from other franchisees offering the same goods and services. A further advantage is that granting exclusive territories is a great unique selling point for franchisors who seek to recruit new franchisees, who are in turn, specifically looking for exclusivity.
How big should an exclusive territory be?
Exclusive territory size is never consistent across different franchisors. Some franchisors would define it by the size of the population that’s served while others may look at physical geographically defining characteristics. Despite this, an exclusive territory should be large enough to allow a franchisee to reach their monthly and quarterly performance goals. However, a territory should not be too large because this can hinder a franchisee’s performance by diluting their offering and not enabling them to keep up with market demand.
What are the cons of operating from an exclusive territory?
Although many prospective franchisees seek to operate from an exclusive location, there are some disadvantages of an exclusive territory. For example, an exclusive territory does not guarantee a franchisee’s success. In addition, the franchisee faces limitations in terms of how their business can grow. If there are demographic changes in their specific region such as a surge in population, they may face high demand but also higher competition from companies outside the franchisor’s brand. Furthermore, the number of customers that a franchisee would have access to will remain limited.
What is a non-exclusive territory?
In contrast to exclusive territories, a non-exclusive territory is a territory that can be used by both franchisees and the parent franchisor from which to operate. They can provide goods and services and may ultimately compete with each other.
