Franchisor-Franchisee Relationship and Impact on the Franchise

According to Bordonaba-Juste and Polo-Redondo (2008) entering a franchise is similar to entering a binding relationship. A franchise is requires that the participants commit their time, resources and energy to the franchise. After all franchising is based on agreement between the franchisor and franchisees and the success of the franchise depends on the commitment and the extent to which the parties abide with the agreement. The US is among the few countries in the world in which franchising is regulated by state and federal laws (Grandner, 2006).

This literature reviews works that are relevant to the franchisor-franchisee relationship and the influence of the relationship on the success or longevity of the business. Specifically, a critical analysis is done on the particular behaviors which predict the success or failure of the franchise in the ongoing relationship. Factors that affect the satisfaction levels in the franchisor- franchisee relationship The success of the franchisor-franchisee relationship requires commitment in which both parties should uphold the agreement to the end of the bargain (Grandner, 2006).

This warrants that there should be a contract guiding this relationship. The contract states all the terms of the business and in case of any disagreements or diversions the involved parties can always refer to the contract. The contract guides the franchisor and franchisee into understanding the boundaries of the franchise operation. Considering that it is the franchisor who directs the contract, the satisfaction levels will depend on how the terms attract the franchisees. The better the terms, the higher the satisfaction levels in the relationship.

For the contract to be respected by both parties, it is requires that each party carries out it role and responsibility as required of the contract or relationship. Factors that lead to satisfaction in the franchisor-franchisee relationship, and abide in the contract include the ability to share the same vision (Saraogi, 2009). Considering that the franchisor is already in a successful business, and it is the franchisees that are entering the business model, it is necessary that the franchisor spells the goals of the franchise, and the strategies to achieve them.

A satisfactory relationship will only occur if the franchisees hold similar beliefs and values with the franchisor. Another factor that contributes to the satisfactory level is maintaining professionalism within the franchise. As much as franchising relationships can result from situations where the parties involved know each other from personal or friendship levels, it is better if the franchise is held from a professional point of view, as this would enhance business strategies, as well as assist in decision making procedures. Support is another factor that leads to satisfaction especially of the franchisee.

The franchisee depends on the support of the franchisor for the promotion of the business chains. The support can be in terms of advise, successful suggestions, and promotion of the business activities among others. Where there is lack of support, the franchisee is likely to feel less motivated and hence unsatisfied with the business. Next, training is also another factor that will increase the satisfaction of the franchisee, and also the franchisor in the long run. Training increases motivation as it develops and improves the franchisee’s knowledge and skills in the running of a successful franchise.

Once the franchisee has received the training and is able to efficiently run the business, the franchisor benefits from higher performances across the business chains because of the training (Rajagopal, 2007). The franchise continues to grow and revenue increases benefiting both the parties. Another factor that can ensure satisfaction is open communication. This involves both the parties in which the franchisor should create a favorable environment that allows open communication. The franchisee in turn should be truthful and honest in the communication process. Open communication can solve potential problems before they occur.

Moreover, open communication allows sharing of ideas, and these ideas can be channeled to the success of the franchise. On the other hand lack of open communication could indicate a build up of pressure within, and this can explode at an unexpected moment. Satisfaction is important for the franchise as it enhances job performance. The franchisees will understand that they are part of the franchise not only for the purpose of perpetuating their business, but also sustaining the reputation of the franchisor’s model. Satisfaction improves performance and thus leads to the expansion of the contract to accommodate other businesses.

Components that lead to dissatisfaction in either the franchisor or franchisee On the other hand, lack of understanding can cause the franchisee to pull out the contract after the contract period expires. In cases of open contracts the franchisor can walk out any time. Alternatively, the franchisor can terminate the contract with the franchisee as a result of the same misunderstandings. Importantly, misunderstandings occur with the interpretation of the business model. The franchisees enter the relationship believing that they are independent business holders, and this is true.

However, this makes them to conduct the business in their own way, which is not supposed to be. The franchise should operate in the standards that the franchisor set, after all, this is what made the business gain brand loyalty and recognition. Although it is not hard to understand this process, dissatisfaction comes in where the franchisor fails to notify the franchisee of the set standards. Issues arise in which the franchisee can be accused of not keeping to the standards of the business, while the franchisor is dissatisfied with the performance of the business.

This dissatisfaction can be avoided if they were open talks before the contract was signed. The franchisees should know what is expected of them from the franchise while the franchisor should be supportive enough to ensure that this is understood. Misunderstandings, lack of training, lack of support, lack of commitment, lack of loyalty, and lack of communication are just some of the components that lead to dissatisfaction by both parties in the franchisor-franchisee relationship (Bordonaba-Juste and Polo-Redondo, 2008).

Dissatisfied franchisees can pull out of the contract and some opt to start competing franchises that borrows the ideas of the previous franchise (Frazer, Merrilees, & Wright, 2007). The franchisor-franchisee relationship and the overall success of the franchise i) Positive relationship on the success/longevity of the franchise Just like a friendship relationship, the franchisor-franchisee relationship is based on a mutual give and take situation. Both the franchisor and franchisee need to contribute their level of commitment to the business model for the enhancement of brand performance and longevity.

A positive franchisor-franchisee relationship is based on commitment. If both the franchisor and franchisee are committed to the business, they will all share the same expectations and work towards achieving them. This in turn will lead to a sustained relationship, and induce longevity to the business model. Other aspects of a positive relationship include loyalty to the brand. The franchisor should accept the franchisee’s brand as part of the entire business model because this will translate to the overall performance of the franchise.

Loyalty ensures longevity of the business because the franchisor and franchisee are true and honest to one another. Moreover, loyalty will strengthens these relationhip during shaky times. In cases where loyalty lacks, one of the parties especially the franchisee is likely to walk out in search for better business relationships. The longevity and success of the franchise is also determined by professionalism in conducting the business, and handling the members. Franchisees are likely to associate with franchisors that have good interpersonal and business relations.

A franchisor that is perceived to have negative relationships is likely to cause detachment of the franchisee from the relationship and thus lead to a fallout or unexpectedly shorter operation period. Professionalism not only strengthens the business model within but ensures that clients get to feel the responsible ways in which the business owners carry out their activities. Satisfaction by both the franchise actors and the customers leads to a sustained business, and offer opportunities for further expansion.

A positive relationship resulting from shared goals, beliefs and values will definitely lead to both the success and longevity of the business. It will be impossible for two people who share the same goals in their paths to walk away from each other, and thus franchises that last long are usually borne out of such relations. Considering that the franchisor has already established the business plan, it should be the responsibility of the franchisee to learn this plan and decide whether it can also be followed.

Grandner (2006) suggests that there should be a favorable collective bargaining power for the purpose of ensuring fair play within the relationship. Incentives and better terms can sustain the franchisee in the business model. i. Negative relationship on the longevity of the franchise According to Rajagopal (2007) franchise-franchise relationships that last a short time mostly occur as a result of the franchisee unable to understand the franchising model. Usually, it is the franchisor that fails to set the expectations of the franchise or does not make the franchisee understand the expectations from the onset.

Tomaras, Konstantopoulos and Zondiros (2007) assert that some franchisor operate the franchise as if it was a classic entrepreneurship endeavor unknowingly that the franchisee might be lacking insight on creative autonomy in the conducting of the business. A common observation is that most franchisors treat the franchisee as a customer to the business rather than a business partner. Franchising is supposed to provide an opportunity for business chain ownership, but under an already established brand name, and already existing business operating standards.

It should be the responsibility of the franchisor to transfer the goals, values, and beliefs of the franchise to the franchisee at the initial stages of the contract. After all, the two share the same goal of mutual growth. Inability to communicate the goals of the franchise could be as a result of communication breakdown between the two parties. A relationship that lacks open communication could easily result to the fall out of the franchising relationship, in a hurting way. Where there is lack of open communication, business chain owners feel stifled, and unsatisfied with the franchise relationship.

The negative relationship can be avoided in which the franchisee asks questions on how to conduct the business, while the franchisor appropriately answers them. Once the franchisor has identified the prospective franchisee, the franchisor should enquire about the franchisee ability and desire to conform to the operating standards of the franchise. The franchisee should be allowed to evaluate the business and financial plans, as well as conduct research about the franchisor’s relationships with the other franchisees.

Defunct franchises that operated for a short duration of time are usually as a result of negative franchisor-franchisee relationships in which there was lack of a mutual sharing of goals, beliefs and values between the franchisor and the franchisee. Summary The franchising model is a common way to ensure business growth and expansion as the franchisor is joined by franchisees. The franchisor benefits from growth of the business model and product diversification while the franchisee benefits from an already established business model that has already attained brand loyalty and recognition in the business model.

As much as the franchisor-franchisee relationships are beneficial, and have long term success for some franchises, the situation is different with others. Sustaining the franchisor-franchisee relationship is important in the overall success and longevity of the franchise. This literature review is relevant with the topic under study and will appropriately address the research questions. Factors that determine satisfaction of the franchisor or franchisee will be identified for the franchise models under the study.

The review will also help assess the negative and positive aspects of the relationship on the success and longevity of the three franchises under study. References Bordonaba-Juste, M. & Polo-Redondo, Y. 2008. “Differences between short and long-term relationships: An empirical analysis in franchise systems. ” Journal of Strategic Marketing, vol. 16(4): 327-354. Frazer, L. , Merrilees, B. , & Wright, O. 2007. “Power and control in the franchise network: an investigation of ex-franchisees and brand piracy. ” Journal of Marketing Management, vol. 23(2/10): 1037-1054.

Grandner, T. 2006. “A Note on franchising and wage bargaining. ” Journal of Economics, vol. 87(3): 281-293. Rajagopal. 2007. “Optimizing franchise sales and business performance. ” Journal of Retail & Leisure Property, vol. 6(4): 341-360 Saraogi, A. 2009. “Exploring franchisor franchisee relationship: building a predictive model of franchisee performance. ” Vision, vol. 13(1): 31-58. Tomaras, P. , Konstantopoulos, N. , & Zondiros, D. 2007. “The different paths in the franchising entrepreneurship choice. ” AIP Conference Proceedings, vol. 963(2): 1098-1101