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AMEX Excludes Franchises From Small Business Saturday

Franchises are small businesses, American Express“With every dollar we spend, we cast a vote.”

My economics teacher used to repeat this whenever the question of spending came up. If only it really were that simple. She was right, though, in that with every purchase we make (and don’t make) we vote businesses on and off of America’s economic island. The holiday season is a retailer’s chance at surviving the tribal council.

As I’m sure many of you in the franchise industry have heard, American Express (AMEX) excluded franchises from participating in Small Business Saturday on November 26, 2011. While many were understandably upset about the exclusion of their business from AMEX’s economic initiative, the situation opens the door to several important questions, including but not limited to where franchising fits into America’s spending psyche.

Many blogs, articles and forums have focused how this happened and how it can be remedied next year. I’m personally more interested in why it happened. If the franchise industry can figure out what inspired AMEX to exclude an entire industry, in which many businesses in my opinion qualify as small businesses, perhaps the thought process behind the decision can be resolved as opposed to simply the situation.

First and foremost, while the success of fast food franchises has certainly helped the industry as a whole, it hasn’t helped the industry’s reputation as a small business job creator. The general public most likely doesn’t understand what franchising truly entails. The term “franchise” often conjures images of McDonald’s golden arches, not mom and pop independently owned businesses.

The term “franchise” should first make us think of an agreement rather than a fast food restaurant. For those who don’t know, the franchise agreement is made between two parties: the franchisor and the franchisee. The franchisor lends his trademark or trade and accompanying business model to the franchisee who in turn compensates the franchisor with a royalty fee, and often an initial fee, for the right to do business under the franchisor’s name and use of the business model. In some cases, but not all, the franchisor takes responsibility for creating marketing materials and implementing marketing strategies to further the success of the franchise. That being said, marketing isn’t free and may factor into the franchise’s royalty fee.

Aside from the extraneous fees, franchises aren’t so different from small businesses. They are are owned and operated by the same kinds of people as small businesses. They serve and employ the same local residents. Lately, they’ve been facing the same economic challenges. It’s understandable why so many franchisees and franchisors are upset.

We’re all, consumers and businesses alike, pinching pennies right now. There certainly isn’t much profligate spending happening this holiday season. The Wall Street Journal hinted that only 29 percent of small businesses are able to give year end bonuses this year.As I said before, every dollar we do or do not spend really matters.

From what I’ve read and heard, marketing has been another issue within the franchise exclusion situation with AMEX. AMEX’s Small Business Saturday offered $25 dollar credits to shoppers who shopped at qualifying establishments, those independently owned and operated businesses that don’t have the budget for national marketing campaigns. These credits didn’t extend to those who supported chains or franchises during Small Business Saturday.

Then again, it’s an understandable mistake. For those of us who are part of the franchise industry that may be difficult to digest. While we recognize the hard work and long hours franchisors and franchisees put into their respective roles, many outsiders can’t see beyond the brands and logos we have pushed to make mainstream.

It is my hope that next year AMEX helps the franchise industry’s small business owners financially by including them in Small Business Saturday. I also hope AMEX helps the franchise industry’s reputation by putting a Main Street face on mainstream logos, so everyone, including industry veterans, remembers who’s behind the cash registers and counters.

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