How a Franchisor can Enhance Franchisee Satisfaction - Coursework Example

How a Franchisor can Enhance Franchisee Satisfaction. Introduction Franchise business system is a very attractive business for both the small and medium enterprises (SMEs). The format of this business requires relation between franchisees and franchisors, as well informed entrepreneurs taking up the problems of self-employment. In other countries for instance Thailand, the franchise business was initiated in the year 1983, and it is the key contributor of potential economy and income. In the economic environment, both franchisee and franchisors can provide different benefits to their business. There are some sectors that have been highly competitive in the franchise business, for instance, food industry. However, firms rely heavily on expansion by a mix of franchising, and company-owned outlets instead of expanding company owned outlets. Explanations are offered by most of the literature in the agency theory. Due to the significance of self-interest for both franchisees and franchisors, franchising is the only best mechanism that motivates both parties for the similar objectives (Huang, 2004). However, there might be unfairness in the franchise contract, and this means agency problems would arise. Therefore, franchisors need to manage and monitor franchisees and ensure the franchisee is satisfied. Thus, the franchisee satisfaction has the greatest predictor on whether a franchisee would recommend their franchisor to the prospective franchisee (Hnuchek, Ismail &Haron, 2013). The paper explains how franchisors can enhance franchisee satisfaction. How a Franchisor can Enhance Franchisee Satisfaction. Franchisees always have expectations of franchisors in the franchise relationship: a high level of independence, support with selection of a distribution point and designing of the distribution point, high standards of potential revenue, training sessions, product and market information, advertising, operational support, and promotional support, support in order to obtain finance, as well as systems for bookkeeping. Therefore, a franchisor needs to ensure that franchisees have a high independence level after joining a franchise as a high level of control by the franchisor exists in franchise systems. In relation to the selection of distribution points, the franchisor needs carry out feasibility studies as well as research in order to ascertain suitable points (Gerhard & De Jager, 2009). In addition, Franchisees expect that geographical rights, exclusively, as protected by the franchise agreement and allocated by franchisors would not allow the franchisor to appoint another franchisee to a certain geographical area that is already allocated for the duration of the contract period. Moreover, franchisees buy into concepts related to franchise based on the financial rewards of tested, an existing, and formulated business system that should be provided by the franchisor. A plausible explanation for franchising is agency consideration of franchising that stresses organizational efficiency. Based on the works of Jensen &Meckling(1976) provided the underpinning theoretical for any agency franchising perspective, particularly in relation to the cost to monitor unit managers of a company-owned. However, shirking and perk consumption should be minimized under franchising arrangements because the franchisee, a residual owner, would suffer the negative consequences of inefficiencies and shirking. In other words, franchisees’ status of an owner-manager is a somehow substitution that is direct to monitor the manager of the owned company. These arguments suggest that franchising is an efficient form of organization when agency costs associated with selecting, motivating, assimilating, and monitoring hired labour are high. As such, franchising is an alternative way for firms to select the most entrepreneurial managers to minimize these adjustment costs and therefore the franchisor should ensure that franchisee is satisfied. A critical aspect of a franchising agreement is the franchisee’s right to use the franchisor’s established national brand name in exchange for a share of the profits through royalties on revenue or output. Stated differently, franchising is akin to leasing intangible assets (Brickley and Dark, 1987). Franchisees enter into franchise system for a variety of reasons. Among those, a franchisor’s proven business format and easy start-up allow franchisees to minimize the risks of operation if they are unfamiliar with the business (Lundberg, 1994). When a franchisor possesses a robust brand name, franchisees feel that there is greater potential for their operation to be a success. Therefore, franchisees rely on a franchisor’s established business format, which enhances the likelihood of the survival and eventual success of the franchisee’s business. The relationship between franchisee and franchisor is unique in its nature because they have to work together long before the franchisee is engaged in actual franchise establishments. As a prelude, the franchisor reviews the proposed plans and specifications for a franchised unit and grants or withholds the franchise agreement. Once the plan is approved, the franchisor needs to provide an opening team of trainers to assist in a smooth transition for the franchisee, followed by ongoing services (Dugan, 1998). There is considerable theoretical support for the notion that the franchisor is interested in the franchisee’s satisfaction. When the franchisees are satisfied with the franchisor, they are more cooperative and more likely to contribute to the success of the overall franchise system. The franchisee’s satisfaction may reduce the franchisor’s agency cost by promoting collaboration between two parties (Jambulingam &Nevin, 1999). In the hotel industry, Brown &Dev (1997) argued that franchisors with a strong partnership with their franchisees outperformed competing hotels and other hotels in the chain in terms of occupancy rates, room rates, and gross profit. In addition, the relationship between franchisee’s satisfaction and their retention rate is of particular interest to the franchising industry because franchisees’ satisfaction can be used as a leading indicator of franchisees’ commitment to the organization. Intuitively, the likelihood of remaining in the existing franchise system is high for satisfied franchisees. Morrison (1997) found that performance, organizational commitment, congeniality of franchisor relations and intention to remain had significant positive correlations with satisfaction. In short, franchisees’ satisfaction is a key variable for their intention to remain and thus it leads to the survival in long-term of the network franchise (Gauzente, 2003). Franchisors’ Performance Perceived by Franchisee Satisfaction Organizations have applied the performance measurement in order to implement the system in the management cooperation between parties. It always includes problems that are related to satisfaction of stakeholder and customer. In addition, Franchisor Performance refers to the satisfaction of the franchisee with the services provided by its franchisor. In addition, franchisee satisfaction is to the extent that a franchisee is satisfied with the franchisor as it affects her or his function in the franchise organization (Pekkola&Ukko, 2011). However, the satisfaction with the franchisor would affect franchise performance positively. Moreover, the implications of the managerial on franchise system indicate the efficiency customer and operation satisfaction as the indicating factor of franchisor’s performance (Hnuchek, Ismail &Haron, 2013). The franchisee distribution of response for the items satisfaction that are associated with operating and purchasing an outlet of franchised, the franchisee satisfaction measurement needed the appraisal of given benefits and costs and on-going as well as initial franchisee support services that are provided by the franchisors. However, being satisfied as the franchise relationship behaviour, satisfaction franchisees’ is most contingent upon the expectations of franchisee. Therefore, franchisors need to focus on a specific dimensions which contribute to dissatisfaction of the franchisees’ and emphasizing specified dimension of carrying forward the service to improve relationship of both the parties to fulfil the responsibilities and contractual duties. In addition, franchisors should design a proper system of distributing goods and services that would assist the franchisees in marketing their products. However, this would result to improvement in satisfaction of franchisees with respect to services that are provided by the franchisor (Hnuchek, Ismail &Haron, 2013). Relationship Marketing and Franchisors’ Performance Relationship marketing deals with attracting customers that are new and keep the customers that exist to be loyal. The main strategy in relationship market is the designing and maintaining as well as in multi-service organizations that enhance customer relationship around that a customer relationship can be established. The different dimensions of marketing relationship are found to be crucial to business manager in order to ensure satisfaction of the customer, and essential for a franchise system (Orth& Green, 2009). This involves the services that are provided by the franchisor as a base to improve the quality of franchise relationship. However, the relationship marketing has significant implications that are strategic for both managers of the franchising organization and as well the franchisee satisfaction. Communication and trust are indicated as the most important relationship marketing dimensions creating value amongst parties (Davies, et.al, 2011. In addition, trust and communication can improve significantly the relationship between franchisee and franchisor toward satisfaction of the franchisee and there are significant antecedents for a franchisee’s intention to stay put in the franchise system (Hnuchek, Ismail &Haron, 2013). Trust is a belief that one party rely on with the confidence to execute a function or responsibilities in a manner that is fiduciary. Trust has the expectation that is held by the consumer that the provider of the service can be dependable and is relied on delivery of its promises. Mostly, in the business franchise, trust is an outcome in the belief of franchisee’s in the integrity of franchisor’s that is a required for norm contractual, trust as an antecedent of satisfaction in the relationship of the marketing channel (Dickey, McKnight, & George, 2007). Therefore, satisfaction franchisee’s on the franchise systems is a result of variables that are influenced by high level of trust and trust is significant to success of the franchisor-franchisee relationship(Hnuchek, Ismail &Haron, 2013). Conclusion Throughout, it has been noted that in literature of marketing there is a focus on perception of customers on product and service that would influence the long-term behaviour on purchasing. Customer perceived value in a marketing relationship should focus on perception of the customer’s to develop value in parties’ relationship. The management concerned with the human resource is always focused on satisfying the fellow-worker. However, this is same to the franchisee where he is a colleague of franchisor in that the franchisees often focus on the satisfaction that comes from the business. However, in the business context to relationship in business, researches haverelated organizational support perceived relationship between two parties, mostly in the selling context (Eugene & Yoon, 2009). It can be noted that perceived organizational support would result to satisfaction in job and commitment in the organization and would enhance performance of the organization as well. It has also been reported that that perceived support at the organizational level and perceived support at managerial do perform a mediating function. This is because of perceived managerial and organizational support measures by organization and this is same to the measure of franchisor support that is perceived by the franchisee. Perceived support of the franchisor relates to the continuing services provided by the franchisor to its franchisee during the early stages and throughout the franchise period agreement (Bordonaba-Juste& Polo-Redondo, 2008). In addition, Franchise business is an exchange relation between parties on contract agreement and indicates the franchisees relationship from franchisor in decisions making that would affect the business. Therefore, it is important to every party to attain sustainable profitability. The franchisor is required to develop the business in order to keep motivating franchisees to uphold the satisfaction in the decision relationship to carry forward a franchise business via increasing assistance or support to the franchisee. Perhaps, franchisor who offers the support needed by the franchisees would be seen by franchisees to be far better than even those who does not (DeConinck, & Johnson, 2009). Another factor that it is more important is to ensure congruency and compatibility in goals amongst the parties that are concerned. That is, both franchisees and franchisors should try to select their partners who might be having similar goals. Firstly, it is crucial to understand as to why franchisors decides to expand through franchising as opposed to store growth of the corporate, and as to why franchisees choose to be among the franchise system instead of setting up their own businesses that are independent (Heong, 2014). Secondly, communication should be used in reviewing performance of each partner for instance discussion of changes at the market place or even the production condition. Although, communication is more complicated in business of franchise, the power balance between franchisor and franchisee should be efficient. When communication is consistent and clear, both consumers and franchisees learn to trust responsibility of the franchisor in order to steer the system in proper direction. In addition, relationship marketing is quite significant for franchise system and to reinforce franchisee satisfaction. It can be observed that in providing most of these support services, franchisors are playing many roles for franchisees. For instance, providing guidance and advice to franchisees, franchisors in reality are playing the function of a mentor and consultant to franchisees, allowing and guiding them to grow and learn. Franchisors also perform the role of an employer when they are providing franchisees with policies and guidelines to work within, and as the function role of a Small and Medium Enterprises entrepreneur by giving franchising resources (Adjei, Griffith, & Noble, 2009). To summarize, franchisees who are fully satisfied with a franchisor’s on-going services can allow the franchisor to curtail the potentially costly recruitment and turnover of new franchisees. However, in spite of its significance, it is apparent that franchisees do not reach the expected satisfaction standards from the franchisor’s services. In particular, because franchisees are less satisfied with communication between a franchisor and franchisees, it is strongly suggested for the franchisors to consider developing effective communication strategies in order to share a congenial relationship with their franchisees. This is because satisfied franchisees are likely to display long-term commitments to franchise system or organization; franchisors carefully diagnose the origin of dissatisfaction from franchisees and should take appropriate action of improving the franchisees’ satisfaction. References Adjei,M., Griffith,D.,&S. M. Noble, 2009. “When Do Relationships Pay Off for Small Retailers? Exploring Targets and Contexts to Understand the Value of Relationship Marketing.Journal of Retailing, 85(4), pp. 493-501. Bordonaba-Juste, & Polo-Redondo, Y., 2008.“The Effect of Relationship Marketing Strategy on Franchise Channels,” Journal of Marketing Channels, 15(1), pp. 71 -91. Brown, J.R. and Dev, C. (1997), “The Franchisor-Franchisee Relationship: a Key to Franchise Performance”.Cornell Hotel and Restaurant Administration Quarterly, 38 (6), pp. 30-38. Davies, P., et.al, 2011.“A Model of Trust and Compliance in Franchise Relationships,” Journal of Business Venturing, 26(3), pp. 321 -340. DeConinck, J., &Johnson, T., (2009) “The Effects of Perceived Supervisor Support, Perceived Organizational Support, and Organizational Justice on Turnover Among Salespeople,” Journal of Personal Selling & Sales Management, 29(4), pp. 333-350. Dickey, M., McKnight, D.,&George,F., 2007. “The Role of Trust in Franchise Organizations,” International Journal of Organizational Analysis, 15(3), pp. 251 -282, 2007. Dugan, A. (1998). Franchising. Upstart Publishing Company, Chicago. Eugene, Y., & Yoon, R., 2009. Franchisors Ongoing Support and Franchisee’s Satisfaction.International Journal of Contemporary Hospitality Management, 21(1), pp. 85-99. Gauzente, C., 2003. “Measuring Franchisees’ Satisfaction:Theoretical Considerations and Empirical Testing”, International Journal of Retail & Distribution Management, 31(10), pp. 508-517. Gerhard, J. & De Jager, J., 2009. Franchisees Level of Satisfaction with the Franchise Relationship, 12(2), 119-122. Heong, N., 2014. An Empirical Analysis of Franchisee Satisfaction in Malaysia: an Agency Relation Perspective.World Journal of Management, 5(1), pp 93-107. Huang, C., 2004. Agency Theory in Franchising some Empirical Results.Yu Da Academic Journal, 7(5), 184-187. Hnuchek, K., Ismail, I.,&Haron, H., 2013. Franchisors Relationship Marketing and PercievedFranchisor Support on Franchisors Perfomance.Journal of Economics, Business and Management, 1(1), 117-123. Jambulingam, T. &Nevin, J. 1999.“Influence of Franchise Selection Criteria on Outcomes Desired by the franchisor”, Journal of Business Venturing, 14 (4), pp. 363-95. Jensen, M.C. &Meckling, W.H. (1976).“Theory of Firm: Managerial Behavior, Agency Costs and Ownership Structure”.Journal of Financial Economics, 3(4), pp. 305-360. Lundberg, D.E., 1994. Hotel and Restaurant Business. Van Nostrand Reinhold, New York. Morrison, K.A., 1997. “How Franchise Job Satisfaction and Personality Affects Performance, Organization Commitment, Franchisor Relations, and Intention to Remain”, Journal of Small Business Management, 35(3), pp. 39-67. Orth,U.R., &Green, M.T (2009). “Consumer Loyalty to Family Versus Non-Family Business: The Roles of Store Image, Trust and Satisfaction,” Journal of Retailing and Consumer Services, 16(4), pp. 248-259 Pekkola, S., &Ukko, J.,2011. “Measuring Performance,” Management Services., 55(2), pp. 14-23. Sawang, S., 2010.“Moderation or Mediation? An Examination of the Role Perceived Managerial Support has on Job Satisfaction and Psychological Strain. Current Psychology, 29 (3), pp. 247-256. Gerhard, J. & De Jager, J., 2009. Franchisees Level of Satisfaction with the Franchise Relationship, 12(2), 119-122. Read More