So-called protected territories prevent franchise systems from putting up another franchised or company-owned unit nearby, and most small or mid-sized franchisors provide this sort of protection, AllBusiness.com writes. Yet sometimes franchisees will be faced with the difficult choice of deciding whether to invest in a franchise that only offers unprotected territories.
Like any decision, there are pros and cons to this set-up. For one thing, in unprotected territories, competition may be healthier and more robust. Additionally, it could signify that the franchise system itself is more competitive.
"Territories are artificial and inefficient for all concerned," Andrew Caffey, a franchise attorney, told the Web site. "Territories lock in the franchise system at a frozen point in time, and prevent the system from reacting and responding to changes in the market. A system without those restrictions can be more nimble over time."
Unprotected territories can also be a boon for franchisees who are real "go-getters." Especially in service businesses, in which sales and customer service rank tops, this sort of freedom can allow those with an entrepreneurial spirit to thrive.
However, this designation does not come without its disadvantages. First and foremost, not all franchisees will benefit equally - and some will not benefit at all.
"The lack of territorial rights typically leads to intensive intra-brand competition and inhibits franchisee cooperation and collaboration for the good of the brand," David Cahn explained to AllBusiness. "So, while the lack of territories may be good for consumers in terms of price options, it can harm the cohesiveness of the franchise system and of course the less assertive franchisees."
Not only could cooperation and trust between franchisees suffer, but so could the franchisor-franchisee relationship. In fact, without a protected territory, franchisees could feel threatened by franchisor marketing decisions or brand changes.
No matter what choice franchisees make, they should make sure that the franchise system strikes a balance between profitability for its franchisees and high revenue for itself.
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