related diversification in a franchised service business

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Scudamore when he was 18 years old. By 2009 it had more than 250 franchisees in Canada, the
US, and Australia. Nick Friedman estimated that 1-800-GOT-JUNK earned annual revenue of
around $80 million. The business models of the two companies were similar. Both were
business format franchises that operate a centralized call center, national and regional
advertising, unified branding and public relations, training for franchisees, and similar capital
requirements. According to its website, 1-800-GOT-JUNK required prospective franchisees to
have about $95,000 in liquid capital to start a franchise. The franchise fee was $18,000 per
region with additional regions costing $9,000 each. In many US markets, College Hunks
Hauling Junk and 1-800-GOT-JUNK were competing head-to-head.
While 1-800-GOT-JUNK is the most visible competitor in the industry, CHHJ also faced
competition from legions of regional and local companies. In every city, there were local junk
hauling services that could be found by searching the Yellow Pages, Yahoo Local, or Google.
These competitors had a lower cost structure and could usually offer prices that undercut CHHJ.
For example, the CHHJ franchisee in Orlando, FL faced competition from Orlando Lawn Patrol,
LLC and Haul Away Harry’s. These companies appeared to have some marketing budget and
some presence on the internet. Another tier of competitors existed at even a lower cost position.
These were the casual or part-time service providers that might work only in their own
neighborhoods. They were referred to as “a teenager with a pick-up truck” and typically had no
insurance, no website, and no marketing efforts besides posting signs on telephone poles. Entry
barriers for these companies could hardly have been any lower, and they did provide a service
that was valuable to some customers. CHHJ was certainly aware of these providers and had
intentionally refused to cut prices to match them.
STRATEGIC ISSUE
When they moved their company to Tampa in 2008 Friedman and Soliman saw their roles as
building an effective system so that their franchisees could become successful. The Tampa and
Washington locations were company-owned (instead of franchises) but Friedman and Soliman
removed themselves from running the local businesses and hired managers instead. The main
issue confronting franchisees was finding the optimal balance between pursuing customer
retention and customer acquisition (Peifer, 2005). Customer retention involved building
relationships with existing customers so that they maintained loyalty, became repeat buyers, and
spread positive word-of-mouth advertising about the company. Customer acquisition included
all the activities to encourage non-customers to abandon competing brands, or to enter the
market for the first time.
In the junk removal business, most customers were infrequent buyers. They might require junk
removal services once or twice per year, or maybe even less. Infrequent purchase was not
usually due to poor service from CHHJ. Instead, people usually accumulate junk slowly and do
not regularly need to pay for it to be removed. Consequently, CHHJ franchisees spent almost all
their marketing resources on customer acquisition instead of retention.