Findings from franchise research revealed five major causes of franchise conflict, and that not all conflict can be avoided.
The research, conducted by the Asia-Pacific Centre for Franchising Excellence, explored causes of franchise conflict from franchisor and franchisee perspectives.
Project researcher, Professor Lorelle Frazer, says franchisors cannot avoid conflict with their franchisees, and some conflict can actually be healthy for the relationship.
“We need to recognise franchisor-franchisee conflict is not only inevitable, but a necessary part of a dynamic business relationship,” Professor Frazer said.
“Our research identified five main causes of franchise conflict. By being aware of the causes franchisors and franchisees will be better equipped to minimise conflict.
“The findings also reveal a strong need for pre-entry education to better equip potential franchisees before they enter a franchise.”
The five major causes of franchise conflict
1. Lack of due diligence by franchisors and franchisees
Although franchisees are often in the spotlight for a lack of due diligence, the research revealed some franchisors also need to improve, Professor Frazer said.
Impacts of poor franchisor due diligence includes:
- poor franchisee recruitment practices
- poor judgement of the business model’s suitability for franchising
- insufficient resources to provide adequate support services
- unrealistic expectations regarding the cost and time to design and provide effective support systems
A lack of due diligence by franchisees leads to unrealistic expectations and increased levels of franchise conflict.
The research revealed the more inexperienced or under-resourced a franchisee was the less business advice they generally sought before signing a franchise agreement.
“This creates a situation where a franchisee lacks understanding of the franchise relationship, its limitations, requirements, financial returns and risks,” Professor Frazer said.
“As a result these franchisees are likely to have unrealistic expectations, limited performance, a lack of commitment, a poor relationship with their franchisor and higher levels of non-compliance – all of which may lead to conflict.”
2. Third Parties / Franchisee Recruitment
Poor franchisee recruitment practices also contribute to conflict and franchisee dissatisfaction, and may include the use of third parties, particularly if their financial connection with the franchise doesn’t extend beyond the initial sale.
“Some third parties may be unqualified and provide incorrect advice to get prospective franchisees to sign, and some franchisors have also taken on unsuitable franchisees to give their franchise a cash injection,” Professor Frazer said.
“This method is short-sighted, does not promote sustainable franchise growth and leads to conflict in the medium and long terms.”
Professor Frazer said it was also important franchisors got the recruitment message right to minimise conflict.
Communication or rather the lack of it is another major cause of franchise conflict.
Professor Frazer said communication practices which actively involve franchisees seemed to be the most successful.
“Involving franchisees in decision-making builds franchisee efficacy, facilitates franchisee acceptance of system-wide adaptations and minimises conflict,” she said.
4. Market Conditions
Market conditions can also have an impact on franchisee satisfaction and conflict in a franchise business.
The research revealed many cases where market conditions, such as increased competition, were withheld from potential franchisees.
“When third parties or franchisors fail to inform potential franchisees about the likely impact of changes in market conditions conflict increases,” Professor Frazer said.
5. Franchisee Personal Conditions
Economic and personal demands placed upon franchisees and changes in franchisee circumstances often generated franchisee dissatisfaction and conflict.
“While some of these issues can’t be avoided many interviewees suggested lifestyle benefits associated with business ownership were emphasised or exaggerated by franchisors,” Professor Frazer said.
“This leads to franchisee dissatisfaction and reduces their loyalty to the franchisor. Again, franchisors need to use a franchisee recruitment message which is consistent with their franchise and franchisee lifestyle.”
Avoiding Franchise Conflict
“The most effective ways to minimise franchise conflict is open and timely sharing of information and the clarification of the expectations of both parties before the franchise agreement is entered into,” Professor Frazer said.
“Our research reveals a greater awareness of the roles in the franchise relationship can assist the franchisor and franchisee to develop greater levels of trust and commitment, and minimise conflict.”
The Franchise Pre-entry program is designed to help franchisees understand what they can expect when buying a franchise and this can help reduce the potential for conflict. This program is available free through the kind support of the ACCC.