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IS FRANCHISEE SATISFACTION BUILDING OR BURNING YOUR FRANCHISE SYSTEM?

by Dr Callum Floyd
 


Introduction

Franchisee satisfaction is a powerful concept in franchising. While positive levels of franchisee satisfaction contribute to network growth and development, poor satisfaction levels have the potential to destroy value and send a franchise system into a slippery downward spiral.

The concept of franchisee satisfaction has been gaining prominence in franchising, as many franchisors recognise the importance of measuring and benchmarking the concept. In the US, the more progressive and high-performing franchisors, in turn, harness positive franchisee satisfaction reports to recruit more and better qualified franchisees.

In future, more franchisors will measure franchisee satisfaction and use results to improve their networks. Existing franchisees will expect regular surveys and prospective franchisees will demand to know their results before joining the system.

This article explains the concept of satisfaction and draws upon existing academic research to explore the precursors and consequences of different levels of franchisee satisfaction.


What is franchisee satisfaction?

Franchisee satisfaction, like customer satisfaction, is an abstract concept which exists in a franchisees mind. To some extent the concept is ambiguous, as despite a similar environment, satisfaction levels will vary from franchisee to franchisee. Like customer satisfaction (which drives levels of repeat business and recommendations), however, franchisee satisfaction has important consequences for business and franchise system development.

Franchisee satisfaction indicates the difference between a franchisee’s expectation of performance and their perceived experience of performance. High levels of franchisee satisfaction, like customer satisfaction, occur when the franchisee’s franchise-related experiences exceed their expectations. Conversely, when expectations outweigh experiences, franchisee satisfaction will be low.

The concept of franchisee satisfaction is a concept comprising multiple dimensions. Due to the nature of the franchise relationship, the franchisee will have expectations and experiences relating to a multitude of experiences, covering recruitment, the brand, marketing, training, franchisor guidance and advice, other franchisees, franchise manuals, benchmarking information and so on.

The concept of franchisee satisfaction is further complicated by changing franchisees wants and needs over time, and the reality different franchisees vary in their expectations. Additionally, progressive franchisors will continue to learn, innovate and further develop their franchise systems over time. As a consequence, the context underlying franchisee satisfaction will also be subject to continual change.

Relating the concept of franchisee satisfaction to customer satisfaction is insightful. As identified by Hing (1995), there are five key identifiable stages, including i) need recognition, ii) information search and evaluation of alternatives, iii) purchase, iv) outcomes (i.e., experience vs expectations) and v) intentions. As noted by Hing (1995), in consumer research, the intentions stage manifests itself in terms of attitudes toward repeat purchases, compliments/complaints, good/bad word of mouth and, finally, the likelihood of purchasing again – given a second chance. Each of these stages and intentions bear clear relevance to the franchising context.

It is also interesting and relevant to consider the concept of franchisee satisfaction in relation to the concept of ‘job satisfaction.’ Accordingly Morrison (1996) notes the level job satisfaction variously linked to employee intentions to leave, job performance, and improving organisational inter-relationships.

Clearly, both customer and job satisfaction outcomes and intentions have relevance to the franchising context where, for example, repeat purchases, good/bad word of mouth and intentions to leave are also important concepts.

As demonstrated in the following section positive levels of franchisee satisfaction are desirable. Low levels are highly undesirable. Franchisors must strive for high levels of satisfaction all the way from franchise recruitment to franchise resales.


Why is franchisee satisfaction important?

Franchisee satisfaction is important because it is connected with outcomes and behaviours that matter. Academic research shows correlations between a large number of franchise satisfaction consequences crucial to a franchise systems growth, development and long-term prospects.

Such research shows the concept of franchisee satisfaction linked to:

  1. Existing franchisees recommending the franchise system to others. Hing (1995) found a positive correlation between franchisee satisfaction and the intentions of existing franchisees to recommend others purchase from the same franchise system.
     
  2. Franchise purchase in retrospect. Hing (1995) explored and found a positive association between the likelihood a franchisee would purchase the same franchise again given a second chance.
     
  3. Franchisee performance (Morrisson, 1997)
     
  4. Organisational commitment – including the strength of an individual’s identification with/involvement in a particular organisation (Morrisson, 1997)
     
  5. Franchise relations (Morrisson, 1997); and
     
  6. Franchisee tenure, or the intention to remain in the franchise business (Morrisson 1997)

Additionally, there are other desirable factors logically associated with high levels of franchisee satisfaction. Examples include franchisees concentrating on the business rather than complaining, following rather than deviating from the franchise system, and contributing more positively to the network.

Clearly, high levels of franchisee satisfaction are not only desirable, they are vital. For example, franchisees failing to recommend the franchise system to others, or worse, actively discouraging others, will have a clear impact on a franchise systems ability to both grow new units and attract quality candidates. The consequences of low growth and poor quality franchisees are terminal.

Similarly, the consequence of the intention to remain within a franchise system is also paramount. Logically, short tenure drives franchise re-sales, and a high proportion of re-sales to total units not only reflects poorly on the system but stunts network growth (as more franchisees are needed), drains franchisor resources (from effort managing re-sales and training new franchisees) and reduces per unit performance while new franchisees get up to speed.

The net result of poor recommendations, post [franchise] purchase dissonance, poor franchisee performance, low commitment to the organisation, bad franchise relations and low tenure is a slippery downward spiral. Franchisee satisfaction is important.


What factors influence franchisee satisfaction?

Now having demonstrated the importance of franchisee satisfaction, is there anything we can do? Yes. Satisfaction is influenced by a huge range of factors. A number of academic research studies examine the impact upon franchisee satisfaction of various factors relating broadly to personality, recruitment, the franchise system, franchisor support and actions, and financial outcomes. A number of related studies are subsequently summarised.

Hing (1995) identified a number of factors influencing satisfaction ranging from the franchise recruitment phase through to the quality of ongoing support. Starting with the recruitment process, the level of pre-purchase franchisor disclosure and the extent to which prospective franchisees used advisors (i.e., accountants, lawyers, consultants, bank managers etc) had positive and significant associations with franchisee satisfaction. Hing also identified the range of assessment methods (i.e., physiological tests, on the job assessments, formal training classes etc) employed by franchisors also being positively associated with franchisee satisfaction.

Post recruitment, Hing found significant positive associations with both initial and ongoing support. Initial support comprised factors such as initial training, site selection and fit-out assistance, help with purchasing and so on. Ongoing support included factors such as operations manuals, ongoing training, national marketing, etc.

More than 30 years ago in 1971 Walker examined and found contributors to both positive and negative levels of franchisee satisfaction. Significant contributors to positive satisfaction included being okay with the franchise systems restrictions/controls and the economic model, working fewer hours while making more money than originally expected, and regarding the franchisor as fair-dealing. By contrast, negative levels of satisfaction were associated with poor financial returns, lack of support and unfilled expectations.

Goodman (1980) examined contributors toward the concept of conflict between the franchisor and franchisee – which is relevant due to the fact we can regard conflict to be the result of poor levels of franchisee satisfaction. Accordingly, Goodman found higher levels of conflict associated with perceptions of unfair contractual agreements, lack of continuing support, and inadequate income.

In another more recent study, Morrison (1996) investigated and found statistically significant associations with certain franchisee personality-related factors. In particular, the level of franchisee extraversion and subjective wellbeing (extent to which the franchisee view their life in positive terms) were both associated with increased franchisee satisfaction. Morrison also found significant franchisee satisfaction associations with the degree to which expectations were met concerning the extent of franchise support, operational/structural characteristics (such as income levels and territory protection), and finally, the perceived level of fairness of franchisor restrictions.

In a final study, Wadsworth, Tuunanen and Haines (2003) compared the determinants of franchisee satisfaction across both US and Finish franchisees. Important determinants for US franchisees included financial and franchise contract related factors. For Finnish franchisees, key drivers were relationship, brand image and entrepreneurial control related factors. When both data sets were combined, determinants were expanded to include relationship, financial, training, brand image, entrepreneurial control and franchise contract related factors.

Clearly, there are multiple factors impacting on franchisee satisfaction.


Discussion

The following table summarises the various statistically significant factors found in the aforementioned research reports.


Table 1: Contributors to Franchisee Satisfaction


General Area Examples of Significant Specific Factors
Personal Factors
  • Level of extraversion
  • Level of subjective well-being
Recruitment Process
  • Level of franchisor disclosure
  • Use of professional advisors
  • Range of assessment tools
Franchise System
  • Fairness of controls and restrictions (i.e., territories, suppliers, term, renewal options, termination clauses, etc)
  • Fairness of economic model (i.e., royalties, fees etc)
Franchisor Support and Actions
  • Quality of initial support including, for example, initial training, site selection and fit-out, purchasing, financial and onsite assistance
  • Quality of ongoing support including, for example, franchisee manuals, ongoing training and, purchasing, financial, local marketing and accounting assistance. Also day to day support, FAC access etc
  • Brand image
  • Perceptions of fair dealing
  • Franchise relationship
Financial outcomes
  • Fairness of economic model perceptions
  • Franchisee profitability


The table above demonstrates the breadth of factors contributing to franchisee satisfaction. Many of these factors can be influenced by a franchisor throughout the franchise commercialisation and development process. Examples are discussed.

The franchise recruitment phase is clearly a formative stage in shaping franchisee satisfaction. Franchisees comprise many personal factors some of which are crucial and can, to some extent, be identified prior to franchise recruitment by using thorough assessment tools. Separately, the breadth of assessment tools used is also shown to be positively associated with franchisee satisfaction levels. Finally, research also shows increased franchisor disclosure associated with higher satisfaction levels. Essentially the more disclosure and use of advisors the better franchisee satisfaction.

Post recruitment, franchisors must then focus on providing quality initial training and support. The research indicates greater satisfaction associated with, for example, initial training, and assistance with site selection and fit-out, purchasing, financial matters and onsite establishment.

Following initial establishment, the quality of ongoing franchising support and guidance is also crucial with areas like franchisee manuals, ongoing training and, purchasing, financial, local marketing and accounting assistance, etc all influencing franchisee satisfaction. Downstream, franchisee satisfaction is influenced by perceptions of fairness associated with franchise system policies, restrictions (e.g., suppliers, territories, renewal operations etc) and the economic model (i.e., initial and ongoing franchise fees).

Finally [and we speculate most importantly] franchisee satisfaction is influenced by their profitability.


Conclusion

The previous sections highlight two crucial points. First, franchisee satisfaction levels drive crucial positive and negative behaviours. Second, there are multiple precursors to the concept of franchisee satisfaction.

The research findings generally suggest that franchisors that are not only better prepared for franchising from the outset, but also more committed to supporting franchisees and mutually improving their franchise network over the longer-term, are likely to engender higher levels of franchisee satisfaction.

As discussed in the previous section, many logical strategies can be concluded from the research provided.

There are many strategies for improving franchisee satisfaction and, in turn, growing a bigger and more valuable franchise network – rewarding both franchisors and franchisees. Examples include:

  1. Measuring franchisee satisfaction. Starting by measuring franchisee satisfaction franchisors demonstrate care and commitment to their franchisees. What is measured, in turn, can be managed. Practical strategies can be developed to improve problematic satisfaction areas. Furthermore, franchisees will appreciate the solid and meaningful two-way communication provided by measuring, reporting and acting upon franchisee satisfaction levels.
     
  2. Ensuring the base infrastructure is sound and valued. Franchisors have the opportunity to improve franchisee satisfaction by reviewing their entire franchise structure, from the base business model to franchisee recruitment, franchisee development tools, franchise management practices, field support programmes, economic models, policies, restrictions etc.
     
  3. Business model reinvention. The base business model must be adapted to evolving customer tastes, technology, competitors, labour forces, input markets etc. Oftentimes franchisors fail to reinvent the business model applied by franchisees, instead relying on the original business model that contributed to initial franchising successes.
     
  4. Training franchise and corporate executives in good franchise management practices. Managing a franchise network is complex, and franchise management best practices continue to evolve. Consequently, there is potential to improve franchisee satisfaction by driving enhanced franchise management knowledge throughout the organisation.

Each can be explored further and there are many other examples.

In summation, franchisee satisfaction is a powerful franchising concept. Franchisors who take the concept of franchisee satisfaction seriously, and act upon it, will be better positioned to develop high performing franchise systems.


References

Hing, N. 1995. Franchisee Satisfaction: Contributors and Consequences. Journal of Small Business Management, 33(2): 12-25.

Morrison, K. A. 1996. An Empirical Test of a Model of Franchisee Job Satisfaction. Journal of Small Business Management, 34(3): 27-41.

Morrison, K. A. 1997. How Franchisee Job Satisfaction and Personality Affects Performance, Organizational Commitment, Franchisor Relations, and Intention to Remain. Journal of Small Business Management, July: 39-67.

Wadsworth, F., Tuunanen, M., and Haines, D. 2003. A Comparison of Finnish and United States Franchisee Satisfaction. International Conference on Economics and Networks – 2003 Special Topic: Franchising Networks, Vienna, Austria.

Walker, B. J. 1971. An Investigation of Relative Overall Position Satisfaction and Need Gratification Among Franchised Businessmen, Dissertation Abstracts International (University Microfilms No. 72-17, 308).

Goodman, J. 1980. Franchisor-Franchisee Conflicts of Interest as Perceived by Selected Non-Food Franchisees. Dissertation Abstracts International (University Microfilms No. 41/02A).

 
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Dr Callum Floyd is owner and editor of both Franchise-Chat (www.franchise-chat.com) and Franchise Wire (www.franchisewire.com). He has a Masters and PhD researching franchising, and is Co-Owner of Franchize Consultants (www.franchize.co.nz), New Zealandís leading and award winning franchise development company.

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