ELF: eCommerce Lifecycle Franchisee

Published January 30-February 7, 2024

Offline to Online

I was meeting with a very successful B2C company. While their primary sales were through offline stores, they also had a digital presence and were selling their products online. As the meeting progressed, I realised that their understanding of the digital business was quite basic. These companies, rooted in offline retail, were venturing into online sales but struggled to adapt their strategies to the digital realm. Their efforts were primarily focused on customer acquisition, neglecting crucial aspects like customer retention and maximising lifetime value. This approach led to inefficiencies and wasted resources in their digital spending, creating friction in the customer conversion funnel.

After three such meetings in as many weeks, I reflected on what could be done about this. At Netcore, we underwent a transformative shift in our approach as we evolved from a traditional in-person selling model to a modern SaaS framework. This transition required us to embrace content marketing and remote selling, fundamentally changing the way we interacted with our clients and marketed our services. The need for the offline businesses was not a reactivation progency (as I was pitching), but something much more. I needed to connect some of the dots I was seeing.

These businesses, while experts in traditional retail elements like manufacturing, supply chain management, and logistics, faced challenges in integrating these strengths into their digital strategies. They competed with digital-native startups who had a direct-to-consumer approach and lacked the institutional knowledge for a seamless transition to eCommerce. This gap often resulted in a reliance on external agencies and consultants, without fully understanding how to leverage these partnerships effectively.

Building a digital DNA is not easy. While the businesses can create digital storefronts – typically on Shopify or similar eCommerce platforms – learning the “digital way” is much harder. They must learn a whole new way of doing business. Getting the right talent is hard – the new employees don’t see a long future and turnover tends to be high. Because the digital team is typically small, the loss of even a handful of staff can be a setback. Also, the digital arms of these companies frequently operated in the shadow of their offline counterparts, leading to unprofitable online ventures burdened by high customer acquisition costs and low customer lifetime values. The common solution, offering discounts, further undermined profitability.

At the same time, the digital landscape offers immense potential beyond just being an online storefront. It can provide valuable data insights, break geographical barriers, attract new customer segments, and significantly contribute to profitability. To realise the true potential of omni-channel, a paradigm shift is needed in how digital business is approached. Enter ELF: eCommerce Lifecycle Franchisee.

The interesting idea here is that of thinking of a franchisee for digital. We will begin by discussing franchising, and then discuss the ELF model.

Franchising – 1

I asked ChatGPT for an overview of franchising.

Franchising, a business model that has reshaped global commerce, has a rich history that dates back several centuries, though its modern form took shape in the 19th and 20th centuries.

The roots of franchising can be traced back to the Middle Ages, where local governments granted high-ranking individuals or groups the rights to maintain order and collect taxes, in return for a portion of the revenue. These early forms of franchising were more about governance than commerce, but they laid the groundwork for the sharing of responsibilities and revenues that are central to modern franchising.

The concept evolved over the centuries, but it wasn’t until the 1850s that a form of franchising similar to what we know today emerged. One of the earliest examples was Isaac Singer’s approach to distributing his sewing machines. Singer, facing capital and logistical challenges in distributing his sewing machines across the vast United States, began to sell licenses to entrepreneurs who would sell his machines in different regions. This was one of the first instances where a business model involved a parent company (franchisor) granting permission to independent operators (franchisees) to conduct business under its brand.

The turn of the 20th century saw the rise of automotive franchises, with companies like General Motors and Ford expanding their reach by franchising dealerships. This allowed for rapid expansion and a broader customer base without the automakers having to bear the full cost of establishing and managing numerous outlets.

However, it was the post-World War II era, particularly in the United States, that marked the golden age of franchising. The booming economy, increased mobility, and rising consumerism created fertile ground for this business model. Fast food chains, notably McDonald’s, became the emblem of modern franchising. Ray Kroc, who joined McDonald’s in 1954, expanded the brand through a franchising model that emphasised consistency and uniformity, a practice that became a hallmark of franchise businesses.

Franchising soon spread to various other sectors, including hospitality, retail, and service industries. Brands like Holiday Inn in hotels and KFC in fast food further popularised the model. The 1960s and 70s saw the franchising model solidifying with the introduction of regulatory measures, primarily to protect franchisees. In the United States, the Federal Trade Commission began to regulate the sale of franchise businesses to prevent fraud and ensure transparency.

By the late 20th and early 21st centuries, franchising had become a global phenomenon. The advent of globalisation and the internet further expanded the reach and scope of franchises. Today, franchising is not just limited to large corporations; it has become an accessible strategy for small and medium enterprises looking to expand their footprint.

Franchising’s growth has not been without challenges, including issues related to control and quality assurance, disputes between franchisors and franchisees, and adapting to local markets in global expansions. Despite these challenges, the model has shown remarkable resilience and adaptability, continuing to thrive in a variety of industries worldwide.

In conclusion, the history of franchising is a testament to its flexibility and effectiveness as a business model. From its rudimentary forms in medieval times to its current status as a cornerstone of modern global commerce, franchising has continually evolved, shaping and adapting to the changing business landscapes.

Franchising – 2

International Franchise Association offers a formal definition:

A franchise (or franchising) is a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system. Technically, the contract binding the two parties is the “franchise,” but that term more commonly refers to the actual business that the franchisee operates. The practice of creating and distributing the brand and franchise system is most often referred to as franchising.

There are two different types of franchising relationships. Business Format Franchising is the type most identifiable. In a business format franchise, the franchisor provides to the franchisee not just its trade name, products and services, but an entire system for operating the business. The franchisee generally receives site selection and development support, operating manuals, training, brand standards, quality control, a marketing strategy and business advisory support from the franchisor. While less identified with franchising, traditional or product distribution franchising is larger in total sales than business format franchising. Examples of traditional or product distribution franchising can be found in the bottling, gasoline, automotive and other manufacturing industries.

Wikipedia provides an overview of the business relationship between the franchisor and franchisee:

Three important payments are made to a franchisor: (a) a royalty for the trademark, (b) reimbursement for the training and advisory services given to the franchisee, and (c) a percentage of the individual business unit’s sales. These three fees may be combined in a single ‘management’ fee. A fee for “disclosure” is separate and is always a “front-end fee”.

A franchise usually lasts for a fixed time period (broken down into shorter periods, which each require renewal), and serves a specific territory or geographical area surrounding its location. One franchisee may manage several such locations. Agreements typically last from five to thirty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees. A franchise is merely a temporary business investment involving renting or leasing an opportunity, not the purchase of a business for the purpose of ownership. It is classified as a wasting asset due to the finite term of the license.

Franchise fees are on average 6.7% with an additional average marketing fee of 2%. However, not all franchise opportunities are the same and many franchise organisations are pioneering new models that challenge antiquated structures and redefine success for the organisation as well as the franchisee.

…According to the International Franchise Association approximately 44% of all businesses in the United States are franchisee-worked.

… Franchising is one of the few means available to access venture capital without the need to give up control of the operation of the chain and build a distribution system for servicing it. After the brand and formula are carefully designed and properly executed, franchisors are able to sell franchises and expand rapidly across countries and continents using the capital and resources of their franchisees while reducing their own risk.

Investopedia adds: “When a business wants to increase its market share or geographical reach at a low cost, it may franchise its product and brand name. A franchise is a joint venture between a franchisor and a franchisee. The franchisor is the original business. It sells the right to use its name and idea. The franchisee buys this right to sell the franchisor’s goods or services under an existing business model and trademark. Franchises are a popular way for entrepreneurs to start a business, especially when entering a highly competitive industry such as fast food. One big advantage to purchasing a franchise is you have access to an established company’s brand name. You won’t need to spend resources getting your name and product out to customers.”

Franchising – 3

I asked Claude to summarise the pros and cons of franchising.

Pros of Franchising

Lower Risk: Franchises have a much higher success rate than independent startup businesses. You are buying into an established brand, with products, systems, and processes already developed and tested by the franchisor. This significantly reduces your financial risk.

Built-In Customer Base: An existing franchise comes with an established customer base. Brand name recognition provides built-in business even before opening your doors. You don’t have to dedicate as much time and money into marketing and advertising.

Training and Support: Franchisors provide training on all aspects of operations, best practices gleaned from experience, and field support when needed. You can leverage their expertise instead of having to learn everything from scratch. This support improves the chances of success.

Scalability Potential: The franchise structure makes it easier to open multiple locations, compared to an independent business which lacks centralised systems and support. Multi-unit franchising enables large-scale business growth.

Cons of Franchising

High Costs: There are large upfront costs with fees like the franchise fee, marketing fee, royalties, etc. Ongoing royalties also cut into long-term profits. Franchising is very expensive compared to independent startups.

Less Flexibility and Control: Franchisees must adhere to the standards and operating procedures set by the franchisor. So you have less flexibility to implement changes or customise products/services. There are also geographical restrictions on where you can operate.

Restrictive Contracts: Franchise contracts tend to be very restrictive and strongly favour franchisors over franchisees. Make sure to vet the contract carefully before signing anything.

Intense Competition: You may compete for sales not only with business outside the brand, but also with multi-unit franchisees. Having other franchise locations near you could eat into your business.

[Rajesh] With this background, we are now better positioned to delve into how ELF (eCommerce Lifecycle Franchisee) can revolutionise the concept of a digital franchisee for multiple brands. This model is analogous to the way Shopify provides a robust eCommerce platform for online businesses. However, ELF’s role extends beyond the foundational services offered by such platforms. Think of ELF as picking up the baton from where eCommerce platforms like Shopify end their services. It not only facilitates the creation of a digital storefront but also dives deeper into enabling digital commerce by managing and optimising the entire lifecycle of online customer interactions.

Operating Model

The concept of ELF (eCommerce Lifecycle Franchisee) represents a groundbreaking approach in the digital transformation of offline businesses. It is an innovative model that blends the principles of a progency (product-led agency) with the nuanced needs of traditional businesses stepping into the digital realm. Just as a franchisee helps a brand to spread geographically into new territories, ELF enables these businesses to navigate the complexities of digital commerce with similar efficacy and reach.

At its core, ELF is about creating a symbiotic partnership with offline businesses to develop and manage their digital operations. This partnership allows these businesses to concentrate on their core competencies: product development, distribution, and logistics. Meanwhile, ELF, as the digital expert, takes full responsibility for establishing and maintaining a robust digital presence. This includes driving online customer acquisition, a critical aspect of digital success that many traditional businesses struggle with.

ELF’s approach is comprehensive and multifaceted. Once customers are acquired, ELF focuses on multi-monetisation strategies, ensuring maximum value extraction from each customer interaction. This strategy is propelled by ELF’s proprietary tech stack, offering a deep understanding of the customer journey. This technology not only identifies and addresses funnel frictions but also effectively reduces marketing waste, a common challenge in digital transitions.

Understanding and optimising the customer journey is just one part of ELF’s expertise. The model also includes strategic interventions to maximise data collection at every customer touchpoint. This data is vital for refining marketing strategies, personalising customer experiences, and ultimately, driving sales. Additionally, ELF employs tactics to encourage customer referrals, effectively reducing the cost of new customer acquisition.

ELF operates akin to a franchisee in the physical world but with a focus on the digital landscape. It covers the entire spectrum of digital engagement – from acquisition to building hotlines, from initial engagement to final conversion, and from customer retention to generating referrals. In this way, ELF acts as a one-stop digital partner, ensuring that every aspect of an online business is optimised for success.

One of the key aspects of the ELF model is its commitment to shared success. ELF operates on a performance-based model, meaning it profits only when its partnered brand does. This aligns ELF’s incentives with those of the brand, ensuring a focused effort on generating tangible results.

By combining technology, talent, and deep digital domain expertise, ELF positions itself as a ‘profits maker’ for offline brands looking to transition into the digital world. It alleviates the burden of brands having to build and manage a digital arm from scratch, a process that can be daunting, resource-intensive, and outside the core skill set of many traditional businesses.

In summary, ELF offers a groundbreaking solution for offline businesses aiming to navigate the complex waters of digital commerce. By handling the intricacies of online customer acquisition, engagement, and retention, ELF enables these businesses to leverage their established strengths in the digital domain, transforming their digital presence into a profitable and sustainable extension of their brand.

The idea central to ELF is that of becoming a “digital franchisee”.

Partnership

This has been written with inputs from ChatGPT and Claude.

In a partnership where ELF acts as a digital franchisee for a brand, the roles and responsibilities are distinctly divided to leverage each entity’s strengths. Here’s a detailed split of roles between the brand and ELF, considering that ELF is a B2C martech SaaS company with capabilities in customer acquisition:

Brand’s Roles

Product Development and Innovation: The brand is primarily responsible for developing, innovating, and maintaining the quality of the products or services it offers.
Supply Chain and Logistics: Managing the supply chain, from sourcing materials to manufacturing products, and ensuring efficient logistics for product distribution.
Brand Identity and Core Values: Upholding and conveying the brand’s identity, ethos, and core values, ensuring consistency across all platforms.
Offline Marketing and Sales: While ELF focuses on digital, the brand continues to manage offline marketing initiatives and in-person sales efforts, if applicable.
Pricing: Set pricing strategy and policies, and determine optimum competitive pricing and discounts aligned to business goals and customer sensitivity.
Customer Insights and Feedback: Providing ELF with insights based on customer feedback and product performance to tailor the digital strategy effectively.
Market Research: Undertaking research and analysis of market trends, customer preferences and actions of competitors.
Product Support and Service: Handling after-sale services, customer support, and any issues related to product use or quality.

ELF’s Roles as a Digital Franchisee

Digital Strategy Development: Crafting a comprehensive digital strategy that aligns with the brand’s goals and values.
Online Customer Acquisition: Utilising its adtech and martech capabilities to attract potential customers through various digital channels.
Website and eCommerce Management: Overseeing the brand’s online storefront, including website design, functionality, and eCommerce operations.
Digital Marketing and Advertising: Implementing digital marketing campaigns, including SEO, social media, email marketing, and paid advertising.
Customer Data Analytics and Insights: Analysing customer data to understand behaviour, preferences, and trends to refine marketing strategies and improve customer experiences.
Customer Relationship Management (CRM): Managing customer interactions and engagement through personalised communication and targeted marketing efforts.
Retention and Loyalty: Building engaging programs promoting repeat purchases and customer referrals.
Content Creation and Management: Developing and managing digital content that resonates with the target audience and enhances brand visibility.
Performance Monitoring and Reporting: Continuously monitoring digital performance metrics and providing the brand with detailed reports and insights.
Innovation in Digital Offerings: Continuously exploring and implementing new digital technologies and trends to keep the brand competitive in the digital space.
Customer Support for Online Sales: Providing customer support related to online purchases, including handling inquiries, returns, and exchanges.

By delineating these roles, both the brand and ELF can focus on their respective areas of expertise, ensuring a powerful synergy that drives both offline and online growth.

Other Industries

The ELF model is not unique. It is seen in many industries where a specialist partner handles key elements of the value chain. These models often focus on partnership, shared responsibilities, and leveraging the strengths of different entities to create a more efficient and effective system. Here are a few examples.

Technology Partnerships in Software and IT Services: In the tech industry, particularly in software and IT services, there are partnerships where one company develops the product and another manages client relationships and customisation. This is akin to the ELF model, where product development and customer relationship management are handled by separate entities. Think Accenture, TCS, Infosys which have built dedicated practices for software platforms like SAP and Salesforce.
Outsourcing in Manufacturing: In manufacturing, companies often outsource parts of their production process to specialised firms. This allows the primary company to focus on core competencies like design and innovation, while the outsourced partners handle specific manufacturing processes, similar to ELF’s division of labour between product and digital operations. Think Apple and Foxconn.
Management Contracts in Hospitality: The hospitality industry often uses management contracts, where a hotel owner outsources the operation of the hotel to a management company. The owner handles the physical property, while the management company takes care of day-to-day operations, marketing, and customer service, drawing parallels to the brand and ELF roles. Think Marriott which manages many hotel properties without owning the actual hotel.
Franchising in Retail and Fast Food: The traditional franchising model, especially in retail and fast food, is a close relative of the ELF model. In these cases, the franchisor provides the brand and business model, while the franchisee manages the local operations. This is similar to how ELF would manage the digital operations for a traditional brand. Think McDonald’s and individual franchisees.
Film and TV Production Partnerships: In media production, it’s common for one company to handle the creative aspects (like scriptwriting and direction) and another to manage the distribution and marketing. This collaborative approach ensures that each aspect of production and distribution receives specialised attention. Think Netflix and specific production houses which make the movies.
Licensing in Pharmaceuticals: Pharmaceutical companies often license out the rights to manufacture and distribute their drugs to other companies, especially for international markets. This allows them to leverage local expertise and distribution networks. Think Pfizer and BioNtech.

The basics entail one entity managing complex specialised functions so the other party can centre its energies on its main area of competence. This combination of expertise allows optimisation of outcome. The ELF model presents a unique blend of existing partnership models adapted to the specific needs of traditional brands transitioning to digital commerce. Its focus on shared responsibility, performance-based compensation, and expertise in online customer engagement distinguishes it from existing approaches while addressing a critical gap in the market.

Netcore as ELF

I have written in a previous essay about how Netcore is well-positioned to build the Progency model. A few extra steps can help Netcore become an ELF.

The focus for the Netcore Progency is reactivation of Test and Left customers. Reactivation, as an alternative to reacquisition via adtech platforms, can be more cost-effective and bring down the AdWaste that hurts brand profitability. For brands just going digital, this is much less of a problem.

The primary focus is on the Best and Rest customers. These are existing customers of the brand. They could be offline buyers who are now engaging digitally, or digital-native customers. The key for them is a frictionless experience. And this is where offline brands tend to fail. Content sent using push channels (email, SMS, WhatsApp, push notifications) is not personalised. Emails are not interactive because of limited understanding of the power of Email 2.0. The experience on the website or app is also sub-standard because of search and product discovery solutions which are very basic in their features. In my conversations with marketers, they have spoken of how only 1-2% of those coming to their properties (website or app) buy. A byproduct of this is that brands become reliant on marketplaces for their sales – and end up putting one more later between them and their customers. In the long run, building the direct connect is the only way to scaling businesses profitably.

This is where Netcore’s ELF solution comes in. By combining strengths from its CPaaS and martech products along with Unbxd’s search, browse, recommendations and PIM (Product information management), the Unistack and Unichannel solution ensures complete control on the end-to-end customer experience. Inbox Commerce via Email 2.0 and WhatsApp can increase conversions. Martech data in the form of the Best Customer Genome can help better target acquisition via adtech platforms. New and Guest customers can be persuaded to convert their first-touch into a hotline with the brand. Gen AI can help scale creatives and assist with the compelling email footers. Atomic Rewards (with Mu) can provide the right incentives to engage and share personal data which can help improve the quality of personalisation. In addition, expertise across ecommerce verticals can help ELF bring in best practices which can further create stickiness. Action Ads can create an additional option for monetisation.

The game of digital is no longer suited for amateurs; it is one for the professionals – and Netcore ELF’s core capabilities make it ideally suited for becoming the right digital partner for brands.

Summary

I asked Claude for summaries of the essay.

Short Summary

The eCommerce Lifecycle Franchisee (ELF) model aims to help traditional offline brands effectively transition into digital commerce through an innovative partnership approach. As a digital franchisee, ELF takes complete ownership of the brand’s ecommerce operations including acquiring and engaging customers online, driving repeat purchases, providing technology and analytics, and ensuring overall digital growth. This allows brands to focus resources on product innovation and physical retail while tapping into ELF’s specialised digital commerce stack across customer lifecycle stages. Backed by capabilities spanning customer engagement, personalisation and commerce functionality, Netcore is well-positioned to deliver such partnerships, serving as an end-to-end digital growth catalyst for brands struggling with online expansion.

Longer Summary

The concept of an eCommerce Lifecycle Franchisee (ELF) aims to address the digital transformation struggles faced by traditional offline brands. As these brands try to expand online, they focus narrowly on customer acquisition without optimising for retention, lifetime value, and overall profitability.

ELF represents an innovative partnership model to manage the digital operations of such brands. It blends the framework of a product-led agency with the needs of offline brands new to ecommerce. Just as a franchisee helps geographical expansion, ELF assists brands in leveraging complex digital commerce through its technology and expertise.

The partnership allows brands to concentrate resources on core competencies like product development and physical distribution, while ELF handles the digital presence. This includes acquiring customers online, employing tactics to maximise monetisation post-acquisition, gathering data to refine marketing and personalisation, and reducing customer acquisition costs.

ELF operates via a performance-based model, earning only when the partner brand grows digitally. By combining specialised technology, talent, and industry knowledge, it serves as a “digital profits maker” easing the transition for offline brands.

The proposed framework splits responsibilities clearly between brands and ELF. Brands continue building and innovating products, managing supply chains, upholding brand values and pricing. ELF owns strategy and execution of all digital activities – website, ecommerce, online marketing, analytics, CRM, retention programs and customer support.

The background on traditional franchising brings context on the revenue share model and delineation of roles between franchisor and franchisees. While ELF mirrors this relationship in the digital space, its scope is wider in managing the post-acquisition lifecycle.

Netcore with its customer engagement suite across channels is poised to deliver ELF partnerships. Combining its communication layer strengths with personalisation and commerce functionality of Unbxd builds a solid technology foundation. Vertical-specific ecommerce expertise and introductions of innovations like AI and influencer commerce further power the model.

In conclusion, ELF presents a compelling vision to drive profitable digital growth for traditional brands struggling with online expansion. As an end-to-end digital franchisee, it shoulders the complexity of ecommerce allowing brands focus on their core product strengths.

I also asked Bard to list the five key ideas discussed in the essay.

The eCommerce Lifecycle Franchisee (ELF) model is an innovative partnership approach that helps traditional offline brands effectively transition into digital commerce. ELF operates as a digital franchisee, taking complete ownership of the brand’s ecommerce operations, including acquiring and engaging customers online, driving repeat purchases, providing technology and analytics, and ensuring overall digital growth.
ELF tackles the challenges faced by traditional offline brands in transitioning to digital commerce, such as lack of expertise, fragmented experience, and high customer acquisition costs. By providing a comprehensive and end-to-end solution, ELF helps brands overcome these challenges and achieve profitable digital growth.
ELF operates on a performance-based model, earning only when the partner brand grows digitally. This aligns the interests of ELF with those of the brand, ensuring that ELF is focused on driving real results and achieving the brand’s digital goals.
The ELF model splits responsibilities clearly between brands and ELF, allowing each to focus on their areas of expertise. Brands can concentrate on core competencies like product development and physical distribution, while ELF handles the digital presence, including acquiring customers, maximising monetisation, gathering data, and refining marketing and personalisation strategies.
Netcore is well-positioned to deliver ELF partnerships due to its robust customer engagement suite across channels, combined with the personalisation and commerce functionality of Unbxd. This technology foundation, along with vertical-specific ecommerce expertise and innovations like AI and influencer commerce, further strengthens the ELF model.

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