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Advisory 2009-12-02

Effective Franchise Communication

Franchisee-franchisor relationship is like a sacrament of marriage. The two partners get into a relationship with certain expectations - the expectations of having long term business relationship, and making profits. The success rate of such coalition lie

By Editorail Co-ordinator
Effective Franchise Communication

The discrepancies and problems can be overcome by fair understanding of each other’s (franchisors and franchisees) range of limits and competence, the key to which lies in coalition partners’ free and forthright communication regularly.  The quality of long term relationship finally rests on the extent to which the expectations are met, and a fair consideration of each other’s demarcations.

Let us look at the expectations of the partners from each other.

Franchisee expectations:  The franchisees normally expect a potential income from business, supplemented by support services - like site selection, architectural guidelines, publicity and advertisements, training and professional support, territorial rights, and a degree of independence, etc.

Potential income: The people generally opt for franchise business with expectations of guaranteed profit and a lure of brand name.  The brands nowadays have developed a fad amongst fashion conscious people and the customers spontaneously throng at brand show rooms leaving no room for footfall speculations.

Advice and support in site-selection: Franchisees generally believe that suitable site selection will be done by the franchisors as propagated in latter’s search campaigns. But in reality, a thorough market research by franchisors is time consuming and expensive. They expect most of the demographic studies to be done by the franchisee. As such, the responsibility to select the site falls upon the franchisee, and yet the franchisor holds the right to reject the selection.

Building-plan and specifications: The franchisors with a trademark and logo prescribe a building plan and layout as per their specifications. Also, they prescribe furniture, fixture and equipment with specifications. The franchisor wants the customer to recognize the building’s exterior and layout plan including interior décor. This may prove expensive to the franchisee.

Courses and classes: Most franchisees believe that franchisors would provide them a comprehensive training in marketing, sales, purchase and accounting system, but most franchisees fail to deliver.

Advertising and publicity:  Franchisees expect franchisors to take complete charge of advertising and publicity. In fact, franchisors charge royalty from franchisees, and yet they may separately charge advertising fee from the latter. Franchisors create a pool for advertising expenses, which often becomes a source of controversy.

Territorial rights:  If the franchisor offers an exclusive territory to the franchise the franchisees would want that:

  • The franchisor, during the term of the agreement would not sell another franchise or open a company-owned outlet within the allotted territory.
  • The boundaries of the territory cannot be changed without the written agreement of both parties.
  • The population density of the allotted territory is sufficient enough to support the franchise outlet. 

It would be wise to keep the units within the allotted territory, and not allow them to transgress, lest the system itself should fail.

A degree of independence

Most franchisees step into the business with the hope, that besides it being a high profile, elite business, it would also allow them a degree of independence in exercising their insight and wisdom. Realistically, if you are a partner with a reputed and successful franchisor you have to live up to the standards of the franchisor. The franchisors may impose product and operational standards, and this may limit your independence.

Franchisor’s expectations:  The franchisor’s expectations are laid out in the franchisee agreement in detail. But in quite few areas, the words may not suffice to exactly express the level of franchisee’s expectations, and conflicts may arise.

Upholding brand name and its values: The franchisors have invested lot of efforts and money in creating the brand name. The brand name is the effective marketing tool to lure customers, who have expectations of quality products and services from the outlet regardless of its location. Since franchisor has entrusted the logo of the brand to the franchisee, the franchisor naturally expects its honour and values to be protected.

Quality control: The franchisors expect franchisees to deliver high quality products and services which may be consistent with the standards of franchisor and maintain a tight quality control over procedures and standards. Franchisees may resent such efforts as overbearing.

Maintain secrecy of trade: Franchisors would want franchisee to maintain the secrecy of trade. Franchisor’s operational manual is the blueprint of their success. Any disclosures of contents of manual to a third party would amount to breach of contract and termination of tie-up.

Causes of conflict:

Generally conflicts arise between franchisee and franchisor for following reasons:- 

  • Lack of effective communication between the two parties
  • A tendency amongst some of the franchisees to hold franchisor responsible for their own inability to manage business.
  • Exaggerated projections by sales representative before prospective franchisees.
  • Conflicts also arise when franchisor proceeds to terminate or refuses to renew the franchise agreement because the franchisee has failed to meet the quality standards or operating procedures of the franchisor. The situation involves the failure of one party to meet the expectations of the other.   

A word of advice:

Since the franchisee agreement is usually drafted by the franchisor, there is a greater emphasis on franchisor’s expectations rather than what franchisee can expect from the franchisor, thus giving franchisor an edge over the franchisee. Disputes do arise in tie-ups, but conflicts can be greatly reduced if the lines of communications are kept open and both parties are willing to negotiate earnestly. Good faith and foresight are the only key to retain a successful franchise.

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