ASA Adjudication on Ferrum UK Ltd

Ad

A magazine ad, for the In-Crease:De-Crease (now trading as Ferrum UK Ltd) franchise opportunity, stated " … As Europe's first premier collection and delivery home ironing service, In-Crease:De-Crease has succeeded in building a profitable franchise model and setting new standards in a previously fragmented industry … In-Crease:De-Crease guarantees to supply a minimum of 20 new clients a month … In-Crease:De-Crease believes in constant and never ending improvement and offer franchisees ongoing support, training and motivation … All of which means you are guaranteed to build a business that expands your earnings potential upwards of £50,000."

Issue

TomJon Ltd, a franchisee of In-Crease:De-Crease, challenged whether:

1. the claim "In-Crease:De-Crease guarantees to supply a minimum of 20 new clients a month" could be substantiated;

2. the claim "In-Crease:De-Crease believes in constant and never ending improvement and offer franchisees ongoing support, training and motivation" was misleading, because she had received no support; and

3. the claims "In-Crease:De-Crease has succeeded in building a profitable franchise model" and "All of which means you are guaranteed to build a business that expands your earnings potential upwards of £50,000" could be substantiated, because she was not aware of any franchises that had made a profit, and believed  many had gone out of business.

CAP Code (Edition 11)

Response

Ferrum UK (Ferrum) said no further ads for In-Crease:De-Crease would appear.  They said they took any complaint very seriously and that it was the first of its nature in the seven years since the business began and four years since they started franchising.  They asserted that they had not set out to make misleading claims or breach the Code, and that the success of a franchisee depended on the franchisee making some effort.  They added that they simply wished franchisees to be successful, which was in their interest and that of all their franchisees.

1. Ferrum said there were different types of packages that a franchisee could have.  They claimed that TomJon had signed up for the basic package only and had never fully pursued or signed up for a customer provision package.  They argued that, therefore, TomJon had no reason to challenge the claim.

2. Ferrum argued that they had constantly supported TomJon by e-mail.  They added that their National Franchisee Manager, the UK Support Manager and the Commercial Director had all visited TomJon in person when necessary.

3. Ferrum acknowledged that high attrition rates were an issue in franchising.  They argued, however, that Royal Bank of Scotland statistics showed there was a lower attrition rate with franchises than with individual start-ups.  They asserted that other franchisees would not have discussed confidential profit and loss figures with TomJon and therefore questioned TomJon's awareness of the situation.  They claimed that they complied with Code clauses 52.2 and 52.5 which required that quoted earnings should be representative, and explained that a business consultant added forecast figures to a prospective franchisee's business plan which was then ratified by the franchisees own bank.

Assessment

1. Upheld

The ASA noted Ferrum's argument that TomJon had signed up to a basic package and were therefore not entitled to a customer provision package.  We also noted, however, the ad did not make clear that the guarantee of 20 new clients per month applied to certain client packages only.  We noted, furthermore, we had not seen evidence to show that eligible franchisees were supplied with that number of customers.  We concluded that the claim was misleading.

On this point, the ad breached CAP Code clauses 3.1 (Substantiation) and 7.1 (Truthfulness).

2. Upheld

We noted Ferrum claimed to have given support via e-mail and personal visits.  We also noted, however, that they had not sent documentary evidence to show that they provided ongoing support or training to their franchisees.  We considered that they had not substantiated the claim and that it was likely to mislead.

On this point, the ad breached CAP Code clauses 3.1 (Substantiation) and 7.1 (Truthfulness)

3. Upheld

We noted Ferrum's argument that success depended on the amount of effort put in by franchisees and the ad referred to "potential" earnings. We also noted, however, Ferrum had not sent any evidence to show that franchisees generally made a profit or that their earnings were likely to exceed £50,000.  We considered that the claims and the use of the word "guaranteed" exaggerated the degree of success that people could realistically achieve.  We concluded that the claims were misleading.

On this point, the ad breached CAP Code clauses 3.1 (Substantiation), 7.1 (Truthfulness), 17.1 (Guarantees) and 52.2 and 52.5 (Employment and business opportunities).

Action

We told Ferrum not to use the claims in future advertising unless they held adequate substantiation.

Adjudication of the ASA Council (Non-broadcast)