Joel Libava
Let’s talk about a smart AI strategy for your franchise organization.
Artificial intelligence (AI) has recently exploded onto the scene in both business and consumer sectors. Many see AI as a potential business solution to achieve increased efficiency, lower costs, and improve their customer experience in a lagging economy.
That said, the franchising sector is no exception, and many franchise systems are increasingly exploring the benefits and drawbacks of incorporating AI into their model.
However, the use of AI and the strategies used need to be carefully and thoughtfully evaluated before implementation to avoid any unintended consequences. This article will delve into some of the main considerations of utilizing AI in franchise systems.
A Smart AI Strategy Can Increase Franchise Business Efficiency
One of the primary advantages of incorporating AI into franchise systems is the potential for increased efficiency and automation. AI-driven processes can streamline routine tasks, such as inventory management, order processing, and customer interactions, allowing franchise owners and employees to focus on more strategic aspects of the business. Franchisors can also leverage AI at a higher level to pre-screen and process franchisee recruitment leads, as well as manage legal compliance matters such as contract review/execution and risk management analysis.
However, increased automation may lead to employee concerns about possible job displacement. When routine tasks previously performed by humans are shifted to AI, this potentially reduces the need for certain employee roles within the franchise.
And while the employer may see immediate savings in labor costs, this shift can create concern or unrest within the system’s workforce. Employee morale may suffer, leading them to seek employment elsewhere (maybe with a competitor!) and take valuable knowledge and expertise about the franchise with them. Higher turnover rates and the need for additional workforce retraining may ultimately reduce some of the immediate cost savings seen when AI was initially implemented.
Franchisors looking to successfully implement AI tools should consider a strategic implementation process that shows employees how AI can enhance or supplement their roles and responsibilities. Collecting feedback from employees throughout the process can also be valuable to employee retention and engagement.
Data-Driven Decision Making In Franchising vs. Over-Reliance on Technology
Artificial Intelligence systems can analyze vast amounts of data in real-time, providing valuable insights for both franchisors and individual franchisees.
For example, AI algorithms can analyze historical sales data to predict future trends and identify potential areas for growth or new product/service offerings. Franchises can leverage this predictive analytics capability to tailor its marketing strategies, optimize pricing, and target specific customer segments more effectively. The result?
This data-driven approach often enables more informed decision-making regarding inventory levels, marketing strategies, and customer preferences, which can optimize operations for maximum profitability. Franchises can adapt quickly to changing market trends and consumer behaviors, leading to potential increased sales revenue.
With that in mind, one risk of this data-driven approach is that the franchise system can develop an over-reliance on technology without proper human oversight. While AI can be a powerful tool, it’s still being “trained” and can generate inaccurate or incomplete information in its output. AI is smart, but it’s not perfect.
And speaking of using a smart AI strategy for your franchising business, it is integral that your franchise systems maintain a level of human oversight to review its work product and make informed but rationalized decisions on how to use the information for the system’s benefit.
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On a related note, the vast amount of data collected and processed by AI technology creates a heightened risk of data security breaches and privacy concerns. Franchise systems must invest in robust cybersecurity measures to protect sensitive customer information from unauthorized access or cyberattacks and comply with applicable state data privacy regulations, as well as to adequately protect its own confidential information and trade secrets being input into the AI tool.
Streamlined Customer Experience vs. the “Human Touch”
Chatbots and virtual assistants powered by AI technology can enhance the overall customer experience for a franchise system without the need for an army of human customer service personnel. These tools can provide instant responses to customer inquiries, offer personalized recommendations, facilitate the ordering process, and provide troubleshooting for customer issues.
The win here is that customers will enjoy the ability to get instant service, be able to solve problems independently, and feel more satisfied by their engagement with the franchise, ultimately fostering loyalty to the franchise’s brand. The system can also reduce the number of negative interactions that can happen with a poorly trained or disengaged employee.
Human Interaction Is Crucial In Your AI Strategy And Implementation
That said, franchise systems would be remiss in overlooking the value of having a live interaction with the customer.
For one, human interaction with a customer (when properly done) can provide authenticity and demonstrate that the customer is valued. Some situations or problems may be best served with an empathetic response which AI cannot always convey.
Additionally, some situations may call for a creative approach that AI may either not be trained to recognize or does not necessarily align with the underlying data.
Remember, customer service is an art, not a science – so relying only on AI tools to manage customer service may result in missed opportunities to elevate the brand’s reputation and customer retention.
Potential High Initial Costs
Franchise systems should carefully evaluate the total cost of adding AI to its operations.
That’s because implementing AI tools often requires a significant upfront investment. The costs associated with acquiring and integrating AI technologies, training personnel, and ensuring compatibility with existing systems can be a barrier for some franchises, especially smaller ones with limited financial resources.
In addition, systems should consider the broader impact on its customers – for example, a brand may experience a fluctuation in sales depending on the customer’s reaction to the new technology and its ease of use.
The bottom line is that franchisors should be particularly cognizant of the additional cost to the franchisee to add AI tools, and ensure those additional costs are properly disclosed to franchise candidates prior to the sale of new franchises.
In conclusion, integrating AI into franchise systems presents a range of opportunities and challenges.
Franchise systems must carefully evaluate their specific needs, budget constraints, and the potential impact on employees and customers before moving forward with implementing AI.
Striking the right balance between technological innovation and practical risk management is essential to reaping the benefits of AI in the dynamic world of franchising.
(This was written by Ashley Weis, an attorney with Eastman & Smith, Ltd. in Toledo, Ohio practicing in franchise, business, and technology law, and former in-house counsel to a national franchisor.)
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