L. Michael Hankes  |  ATTORNEY AT LAW
tel (781) 817-5215  |  fax (781) 849-1472

The Importance of a Consistent Advertising Program

This article is one of a series of articles about the Meineke System that the MDA Board of Directors has asked its legal counsel, L. Michael Hankes, to write. Mr. Hankes was lead counsel for the team of Meineke Dealers that negotiated the Meineke FTA in 1999-2000.

One of the issues that we have touched upon in previous articles is the importance to the Meineke Dealer body of a consistent, well-conceived advertising program. As all Meineke Dealers know, they are required to pay eight percent (8%) of their gross revenues to the Meineke Advertising Fund (hereafter “MAF”) so that a consistent advertising message can be developed by Meineke and be presented to the public. (Meineke FTA §§ 8.1 and 8.2). Indeed, Article 8 of the Form 05/2013 Meineke FTA entitled “Marketing and Advertising” recognizes the importance of a consistent advertising message to maintain a favorable public image of Meineke Car Care Centers. Section 8.1 of the Meineke FTA states:

Recognizing the value of advertising, and the importance of the standardization of advertising to enhancing the goodwill associated with the Marks, to promoting the sale of Authorized Products and Services and to developing and maintaining a favorable public image of Meineke Car Care Centers, you agree that we have the right to determine, conduct and administer all national, regional, local and other marketing, advertising, promotions, market research and other related activities for Meineke Car Care Centers as may be instituted from time to time, including advertising and marketing funded by the MAF, and the right to direct all such advertising and marketing with sole authority and discretion (exercised in accordance with the terms, and subject to the conditions, contained in this Article 8) over all aspects thereof, including concepts, materials, media, nature, type, scope, frequency, place, form, copy, layout and content.

(Form 05/2013 Meineke FTA § 8.1). (Emphasis added).

Thus, at the very outset of the section of the Meineke FTA devoted to advertising, Meineke recognizes the critical importance of advertising in enhancing the goodwill associated with the marks. Goodwill is often defined as the expectation of continued patronage going into the future. Indeed, the second paragraph of Section 1.2 of the Meineke FTA requires Meineke to respect the going concern value of each Dealer’s franchised business and states:

The provisions of this Agreement are based on the guiding principles that: (a) we should respect your interest in the going-concern value of your business….

Section 8.2 of the Meineke FTA contains most of the contractual provisions governing the maintenance of the MAF and the expenditure of funds paid into the MAF by Meineke Dealers. For instance, Section 8.2 spells out the limitations on the way that Meineke can use MAF funds. The second paragraph of Section 8.2 states in relevant part:

We may use funds from the MAF to pay for all costs and expenses associated with such programs and materials, including the costs of preparing, producing and distributing marketing, advertising and related programs and materials, employing advertising agencies and media buying agencies, supporting market research activities, administering the MAF and all other related costs and expenses….

(Form 05/2013 Meineke FTA § 8.2).

These limitations on the expenditure of MAF funds require that the expenditure of MAF funds be focused on the delivery of a consistent message which will cause the public to choose Meineke Dealers over their competitors. In order to deliver that message to the public, advertising should be conceived and carried out as part of a long term and consistent marketing program. Unfortunately, many Meineke Dealers are of the opinion that Meineke has failed to deliver a consistent advertising program or brand image to the public. Car counts have remained down for an uncomfortable period of time for many Meineke Dealers.

In early 2013, Meineke announced its intention to revitalize Meineke’s brand image. The whole concept of a brand image and the awareness that advertising can create in the minds of the public is a complex subject which has many facets. Indeed, some franchisors try to use the concept of brand image to justify the imposition of standards which allow the franchisor to profit from purchases made by its franchisees from a limited number of vendors from whom the franchisor obtains rebates, discounts and other incentives for itself. Section 7.2 of the Meineke FTA generally forbids such arrangements in the Meineke franchise system, but the concept of a brand image is nonetheless very important to the Meineke Dealers from an advertising point of view.

Brands are familiar to all of us. In the mind of a consumer, a brand is often associated with the way a product performs, its quality, its price or even the packaging. The owner of the brand strives to create a favorable association in the mind of the public with the brand. Brand loyalty is one reason people will choose one product over another, even if the branded product costs more than the generic brand. Each of us can think of famous brands that we readily identify with for all kinds of purchases ranging from automobiles to food products.

As suggested above, some factors that can be important in building a brand can include concepts such as quality, price and service. "Brand positioning" is a concept that encompasses the position of a brand or product in relation to others in the marketplace. Many companies have taken an active approach toward "brand positioning" to invigorate a tired brand or to change identification of the brand in the minds of the public. In an ideal world, this "re-positioning" strategy might involve assessing the brand's current position, determining the position the brand wants to have and then developing a strategy for creating a new brand position.

Achieving a brand position or changing an existing one is a complex undertaking that requires a balancing of competing factors and the deliberate presentation of a consistent message to consumers about the product or service and its place in the marketplace, through advertising, brand name, packaging, and other imaging concepts, including the product or service itself. Economists who deal with price elasticity issues will tell you that in any business which wants to deliver a consistently good product or service, it is very difficult to balance quality, service and price. In other words, in assessing these three basic components of a brand's identification or position, it is very difficult to achieve high quality, a high level of service and a low price. This may have to do with simple economics. However, in dealing with the issue of brand positioning, any change in the quality, service and price triumvirate can also affect the public's perception of the brand and as a result, its position. For instance, lowering quality can create an identification with an "economy" brand. Lowering service or price might create a perception that a particular brand is a "bargain" brand. Creating "cowboy" brands or "premium" brands can be other consequences of shifting the balance of quality, service and price in relation to each other as well as the delivery of a consistent message through advertising, packaging and other aspects of brand imaging.

Meineke as a brand presents a challenge, because Meineke started out as a muffler chain and then added brakes and shocks. Many individual Dealers added niche services and then Meineke itself morphed from muffler shops doing brakes and shocks to car care centers offering a myriad number of services as the muffler market began to disappear.

The result was that individual Dealers were required to offer car repair services according to the needs of the customer base in each Center’s market. To a certain degree, the success of individual Meineke Centers rose and fell on the ability of the Dealer to learn, understand and cater to the needs of that Dealer’s market customer base.

Last year, Meineke attempted to begin a brand positioning campaign with the “Kid Mechanic” series of ads. However, the “Kid Mechanic” advertising campaign did not appear to produce the anticipated effect of driving a brand image and sales. While one can debate the effectiveness of any advertising campaign at length, thus far it appears that the only consistent advertising message which Meineke has been able to deliver in the past two years is the $14.95 oil change, a 2013 price driven campaign that is now being repeated in 2014.

The Meineke Dealer Association (hereafter “MDA”) and in particular, the Advertising Committee, have devoted countless hours to reviewing and discussing with Meineke the aspects of Meineke’s planned advertising direction which Meineke has been willing to share. However, the final decisions on advertising and promotion remain the province of Meineke.

Under Section 8.2 of the Meineke FTA, Meineke also is required to maintain an adequately staffed advertising department. Section 8.2 of the Meineke FTA not only requires Meineke to maintain an adequately staffed advertising department, but provides for the payment to Meineke of 2.75% of all Meineke Dealer contributions to the MAF each year, so that Meineke can maintain that advertising department.

Paragraph 7 of Section 8.2 begins with the following language:

We agree to maintain an adequately staffed advertising department to perform the services we customarily provide in administering the advertising and other programs funded by the MAF. Subject to the provisions stated in Section 3.4, we are entitled to be paid each year from the MAF for such services in an amount equal to 2.75% of all contributions by all Meineke Car Care Centers to the MAF (“the Annual Administrative Expense”)….

(Form 05/2013 Meineke FTA § 8.2). (Emphasis added).

The two sentences quoted above are mutually dependent upon each other. Not only must Meineke maintain an adequately staffed advertising department, but the 2.75% can only be used for the maintenance of that advertising department by Meineke, not Driven Brands or one of its affiliates. Meineke has roughly 800 centers in the Meineke chain contributing an approximate total of more than $35,000,000.00 annually to the MAF. That means that Meineke has somewhere North of $950,000.00 available per year to support Meineke’s in-house advertising department. Meineke Dealers seem to be having a very different experience with this issue as well.

At least one Meineke Dealer recently received an e-mail about the $14.95 oil change from a person whose signature line contained the Maaco logo and the title “Integrated Media Manager.” Another Meineke Dealer did not know that Meineke had delivered discount coupons to the public and amended his website until a customer walked in with the coupons. And, there was the severe limitation on the availability of any advertising for many Meineke Dealers for the first quarter of 2014.

In the mid-1990’s a conglomerate called Cendant tried to manage numerous brands including hotel chains, real estate and relocation services, and even car rental agencies. Cendant’s venture failed. The Meineke FTA requires that Meineke provide the in-house advertising services with the money allocated from the MAF “for such services.” Put another way, the Meineke MAF money can not be paid to an affiliate such as Maaco to deliver in-house advertising services for Meineke. Moreover, Meineke is responsible for the management of the MAF fund.

Pursuant to the provisions of Section 8.2 of the Meineke FTA, the Meineke Dealer Association (hereafter “MDA”) is entitled to periodically review the books and records of the MAF. Not only has the MDA conducted such reviews over the past several years, but this process is consistent with Meineke’s commitment to full transparency. The next review of the MAF fund is scheduled in the coming months. The MDA looks forward to Meineke’s assistance and cooperation in that review.

This article is intended for informational purposes only and is not to be relied upon as legal advice, as individual facts and circumstances may vary.