Pros and Cons of the Pure-Play E-Commerce Model
Many businesses are turning to the pure-play e-commerce model to grow and reach new customers. A pure-play business operates solely online without the need for physical stores, relying on digital channels to sell products or services. For franchises, this model offers both unique opportunities and challenges for both franchisees and franchisors.
Pros of the Pure-Play E-Commerce Model
Cost Savings
One of the most significant advantages of the pure-play model is the cost savings associated with not maintaining a physical store. Businesses can avoid expenses like rent, utilities, and staffing, which can significantly reduce overhead and increase profit margins. Additionally, inventory management becomes more streamlined, as stock can be managed centrally to fulfill online orders.
Wider Market Reach
The online nature of the pure-play model allows businesses to reach a broader audience than those limited by geographical location. Customers from all over the world can access the brand's products, which increases the potential for market expansion beyond local foot traffic.
Scalability and Flexibility
With no physical limitations, companies can expand product lines, target new regions, and test new offerings with minimal investment. This flexibility allows for rapid adjustments to market trends and customer demands.
Cons of the Pure-Play E-Commerce Model
High Competition
Since the barriers to entry are low for online businesses, the market is highly competitive. Standing out among countless other e-commerce stores can be challenging, especially for smaller companies that lack brand recognition. Visibility and customer loyalty are harder to build when there are no physical interactions.
Dependence on Digital Channels
The success of pure-play businesses is entirely reliant on digital platforms. Any disruption, such as website downtime or changes in search engine algorithms, can severely impact operations. Moreover, heavy reliance on paid advertising or social media can lead to increased costs over time if digital channels become more competitive.
Limited Personal Interaction
Without face-to-face interaction, building personal relationships with customers is more difficult. While e-commerce platforms can offer excellent customer service, the lack of a physical store limits opportunities for human connection, which is often key to building brand loyalty.
The Pure-Play Model for Franchisees
The pure-play franchisee model transfers the task of handling e-commerce operations to the franchisee.
The franchisor grants multi-channel rights to franchisees, which operate their own transactional web stores, maintain their own local product/service catalogs, and run their own promotions. The potential for transferring investment and operational costs over to franchisees can take much of the e-commerce burden off the franchisor’s shoulders. And for a business model built around minimizing capital requirements for expansion, the “laissez-faire” e-commerce approach could allow the most motivated franchisees to fund online efforts with the opportunity to see direct results from their investments. z
Potential challenges include online sales encroachment over other franchisees’ licensed territories, uneven customer experiences from one web store to another, and customer support difficulties.
To circumvent issues, this franchise e-commerce model requires making opt-in provisions in the original franchisee agreement, along with a separate e-commerce agreement containing all legal, technical and commercial specifications, including domain license, content and intellectual property rights.
This model can be used as an incentive for franchisees to evaluate online sales performance over an initial set period before granting an exclusive “internet franchise territory.” Both franchisor and the awarded franchisee then jointly operate the successful web store.
The Pure-Play Model for Franchisors
The pure-play franchisor model places responsibility for e-commerce licensing, setup, operations (including fulfillment), marketing and customer support squarely on the franchisor.
This approach centralizes control and streamlines the online sales process, allowing the franchisor to manage brand consistency and customer experience across all digital platforms.
While this model offers the benefit of a unified e-commerce presence, it can create challenges for franchisee relations. Franchisees may perceive online sales as cutting into their local sales, especially if the franchisor runs exclusive online promotions or discounts. This tension can worsen if franchisees feel that their investments in physical locations are being undermined by the franchisor’s online initiatives.
However, to avoid franchisee tensions, franchisors should consider flexible solutions, such as a shopping cart system that can evolve to include more franchisee participation over time. Flexibility is key to balancing e-commerce growth with franchisee relations.