A Research on Franchisor – Franchisee Relationship

A franchisor – franchisee relationship is equivalent to the husband -wife relationship where the franchisors make every effort to establish a “honeymoon” relationship in the company of an innocent, accommodating, noble, faithful and loyal Franchisee. Such interdependency attributes are centered on trust, commitment, mutual respect, ability to work together, communication and the zeal to accomplish common goals.

Practices performed

Practices performed by franchisor to enhance and develop the franchisee/franchisor relationship which consist a training session , an award structure for motivation amongst the franchisee, creation of advisory council, distribute a house organ to franchisee and marketing/ advertising campaign items and package ,create new hotline toll free numbers & forming a new website that contains all the useful and needy information on hand ,Arrange International , national &  regional based meetings & conferences , representative visit according to company policies & so on.

Practices performed by franchisee that can help the development of the franchisee/franchisor relationship are to Participate in all kinds of training opportunities and meeting and to Contribute to house organ Participatory role should be adopted in advisory council activities incentive programs for franchisees and should try to have an aggressive approach on advertising and promotional board activities, Use a legislative body for training and assessment and try to gain full advantage of all the services provided by the franchisor i.e. hotline phone services or awards giving ceremony or consultants assistance team provided by the franchisors.

Interview Analysis

Due to extreme economic crises and people being unemployed even having high qualifications try to indulge themselves into some business activities, for them franchising business seems most suitable and secure. Moreover there are a lot of opportunities coupled with the fair number of treats in franchising business, which the qualified people are aware of, motivates a relatively larger number of investors to start of with franchise business.

We, as a group visited a couple of franchises (focusing mainly on food franchising) and tried to explore the information regarding franchisees’ relationship with their franchisors through some direct and indirect questions, the detailed analysis of which is discussed below. We also emailed few franchisors knowing the fact they won’t tell us the whole truth we still gathered some resourceful information, the details are discussed below.

The first and foremost factor for the successful franchisee and the successful franchisor is that they must maintain the relationship of trust, honesty ,knack to work together and the desire to achieve the common goals beneficial for their business, having a strong support of each other in business dealings also shows a healthy prosperity in business activities. It’s the relationship that they must focus on from the very start in order to build a long-term mutually booming

This franchisee-franchisor relationship has to go by 4 crucial stages, Sometimes due to lack of proper communication the relationship becomes strained, never the less it doesn’t remain permanent, this may be because sometimes sales go down or some other reasons. (In an answer to the question: the reasons they think for the edgy relationships between KFC-the fast food restaurant and its franchisee).

The information the franchisee has the right to know includes the types of business the foremost, the financial status of the business also the account of the business, the product line of the business, the loans or unclear debts if that business has, its creditors details, if ever the business has experienced the bankruptcy, the reputation of the brand name and also if there is some public figure associated with it, then there are training programs that franchisors arranged, the purchasing of raw material and obligations related to it, the outlet’s designs, selection of sites, most importantly the requirements necessary for the renewal of the agreement of franchise and many such important issues and information is required, this reduces the chances of mistakes, Salt And pepper franchisee has a strong relationship with its franchisor because all the terms and conditions were properly conveyed to the franchisee and the at the introduction stage the strong relationship of trust was built which is taking it to the rapid growth rate.

Communication, sense of responsibility on both ends, innovation helps a lot in building a strong relationship; however no franchisor or even franchisee is perfect, relationship can still be improved like if the franchisee understands the fact that yes, the franchisors ultimate and vested interest is based on the success of their venture they will definitely have a strong and unique understanding of their relationship. To stay in the business, franchisee has to make profit keeping the quality and brand reputation as an objective, profit is self is not a dirty word- they way it is made can be dirty, but again its usually done from the both sides. To make a relationship work both parties have to strive.  McDonalds’ , doesn’t face any such  franchisee-franchisor relationship issues , because all the facts ad figures terms and conditions have been already explained, there is a high sense of trust and effected management for communications of activities, and obviously both parties are striving for the attainment of common goals.

When a franchisor first decides to start a franchise there are certain things he will look at in the potential franchisees. Through this he will be able to decide if the franchisee can be run by that person. The franchisor looks at people who are enthusiastic about working for the company and they have good knowledge about how the company is operated. When a franchisee fails the franchisee itself is chiefly responsible for it and many a times a franchisee doesn’t take the blame for it which makes matter worst. So before starting the franchisor and franchisee relationship these things should be cleared between the parties.

There are a few factors which can make a franchisor –franchisee relationship difficult. The first is the stress level, whether one is a franchisor or a franchisee the stress level can play a vital role in creating huge communication gaps between the two. Secondly the change in the way business is run, not many people are willing towards changes and there are people who resist change. It is important that for a franchisor-franchisee relationship to work both parties need to build mutual trust among them and also provide support to one another.

Thus, they ensure that the customers remain satisfied with whatever they are being provided with and to make sure that the quality of the product remains the same in all the franchisees. The best practice by a franchisor would be to give more importance to the supply and chain management. It is important that franchisors treat their suppliers as part of the business and main stakeholders. Through this they will ensure that the suppliers help the franchise in new product development as assisting them would increase the sales volume.

Gap Analysis

The physical distance between the franchisor and franchises is relatively vast reason being franchisor head office operating in another country and franchisee working in Pakistan can lead to some series of misunderstanding. What franchisor is unaware of Pakistan’s geographic distinction as compared to working into western are very different. Most of the communication in Pakistan between the franchisor is done on need basis unlike western countries. The franchisor who is operating from developed nation must understand the day to day challenges and different business handling priorities of a Pakistani franchisee as well as the franchisee must understand the requirements of an international business and the maintenance of quality and effort as the original business is supposed to do.

On the other hand the franchisee might take a great unethical advantage of the fact that franchisor is very distant and will not bother to visit the host country any time near. Due to this distance the franchisee starts to multiply profits by opening multiple chains of restaurants and outlets without any concern of the franchisor, the profits are eaten up by the franchisee, there is no royalties paid to the franchiser for every shop because the franchisor had no clue about other outlets.

Another scenario in which even the big name’s in the international fast food industry in Pakistan is involved in such unethical activity. For instance when did we saw an advertisement of fast food chain on TV channels, except for few?  Normally around 3-5% of the total sales amount goes to the franchisee so that the franchisee can do local area marketing and society welfare to build up the image of the brand but the question arises is it really happening in Pakistan? Most probably a lot of people will answer “no”.  These all cost that a franchisor is bearing and giving to the franchisee as per contract agreement & terms do not happen. And there is no availability of the franchisor to do an accountability of the franchisee.

The other key issue that can put a very bad impact on franchisor and franchisee relationship is the quality of the product that is served to the customer. As the franchisor is at very far distance for the outlet and the quality of the product cannot be checked physically. In countries where the franchisor and franchisee both are present the relationship goes good because both the parties in the business fulfilling the requirements of the business and both have their business and quality concerns.

This research has been carried out by the following students of Bahria University, Islamabad.

Sidrah Ahmed, Irum Yousuf, Huma Saighal, Anum Shehzad & Sheikh Faizan

Short URL: https://www.newspakistan.pk/?p=24462

Posted by Asma Rafique on Jun 1 2012. Filed under Education. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.