Third parties fuel franchise conflict

Written on the 27th of August 2009 by Lorelle Frazer

New research shows third parties may fuel the flames of franchise conflict, the Asia-Pacific Centre for Franchising Excellence has found.

The preliminary study into the causes of franchise conflict was conducted by myself and Centre researchers Professor Jeff Giddings and Dr Scott Weaven.

The research shows the involvement of third parties (such as franchise brokers) in the recruitment of franchisees appears likely to generate unrealistic expectations on the part of franchisees and should be carefully managed by franchisors.

Unrealistic expectations of franchisees

Unrealistic expectations of franchisees can affect their franchise outlet performance, commitment to franchising, and the franchisor-franchisee relationship.

Third parties involved in the selling of franchise businesses may fuel unrealistic franchisee expectations by:

• not working closely enough with the franchisor
• not having a thorough understanding of the franchise business they are selling
• recruiting franchisees on financial capacity over their suitability to franchising
• focusing only on the sale as their remuneration does not extend past that point

Conflict may also be caused where third parties and franchisors failed to inform potential franchisees of the likely impact of changes in market conditions – such as increased competition, staff availability and site selection.

Unrealistic franchisee expectations can also be caused by a lack of due diligence on the franchisee’s part.

Reducing conflict in the franchise relationship

While franchisors cannot avoid conflict with their franchisees they can better equip them to understand and accept their responsibilities as part of the franchise relationship.

In the franchisor-franchisee relationship each party has the capacity to influence franchise business performance.

A greater awareness of franchise relationship roles may assist franchisors and franchisees to develop greater levels of trust and commitment, and reduce conflict.

The research highlights the need for potential franchisees to be better equipped prior to making a decision about entering a franchise, indicating a strong need for pre-entry education.

The research was conducted through face-to-face interviews with 50 franchising sector participants, including franchisors, franchisees, lawyers and mediators, and will be followed in the near future by a large survey of franchisees.