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What are the pros and cons of an exclusive trading territory?
From the franchisee’s point of view, the biggest advantage of a truly exclusive territory is that nobody else, not even the franchisor, can market or sell the products or services that are the subject of the franchise within the territory for the entire term of the franchise agreement, which is precisely why very few experienced franchisors would even dream of offering such arrangements.One of the main reasons for franchising a business is to optimise its market share and that optimisation is at risk if one of the franchisees is under-performing, even while remaining within the other obligations in the franchise agreement. Where a franchisee is underperforming and cannot be persuaded to improve, it is vital that the franchisor has the option of either trading within the territory or adjusting the territory so that another franchisee can take advantage of the unexploited potential. Generally speaking, it will be more difficult to achieve that quickly and easily if an exclusive agreement is in place.So the only person for whom an exclusive agreement is advantageous is the underperforming franchisee, as everyone else and the business as a whole will suffer. This doesn’t mean, of course, that any franchisee can trade anywhere, as their agreement will limit them to trading within their own territory, unless referrals or recommendations result in enquiries that lead to what is called passive selling.The ideal situation is where the franchisee can only trade exclusively within their own territory, but they are not exclusively the only potential providers within that territory.
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