R ELATIONSHIPS BETWEEN F RANCHISORS AND F RANCHISEES

2.3.1 Definition of Franchisor

International Franchise Association defined as below: “The person or company that grants the franchisee the right to do business under their trademark or trade name.”

MSA worldwide, a franchise consultant in the United States, shared that a successful franchisors has some common attributes: “franchisors are motivated to share their experience and know-how with their franchisees, they provide their franchisees with tools needed to operate their businesses to brand standards and, are focused on ensuring that each franchisee operates to system standards.” Also they shared the knowledge or mistakes they are franchising that is the greatest value to franchisees: franchisees get benefit from the franchisor’s proven experience which hopefully allows them to avoid some of the minefields that plague many start-up businesses.

Besides giving the knowledge and assistance, franchisor also needs to provide materials and products for franchisees to sell in the store, for example coffee shop needs to provide coffee beans and milk; bakery store needs to provide dough and packaging

materials. These are part of marketing behavior between franchisors and franchisees.

2.3.2 Definition of Franchisee

International Franchise Association defined as below: “ The person or company that gets the right from the franchisor to do business under the franchisor’s trademark or trade name.” Joining the franchise system can be rewarding and profitable, but this doesn’t mean franchisee can do nothing but enjoy the fruits of others’ labor. To be a qualified franchisee still has responsibility to report the day-to-day management of your business to your franchisor. To be a successful franchisee, you need to develop organization relationship to function effectively (Luangsuvimol & Klenier).

Franchisees typically require more assistance at the early stage of the relationship (Nathan 2000), Other prominent benefits of franchising to franchisees include training, national advertising and promotion, product/service research and development (Mendelsohn, 1999).

2.3.3 The relationship between Franchisor and Franchisee

“Franchise is about relationships”, this is how IFA introduce franchise business,

“the core of franchising is about franchisor’s brand value, how the franchisor supports its franchisees, how the franchisee meets its obligations to deliver the products and services to the system’s brand standards and most importantly – franchising is about the relationship that the franchisor has with its franchisees. The long-term survival of a franchise system depends on the willingness of the franchisees to pursue the relationship with the franchiser (Morrison, 1997). ”Relationship needs to be maintained, but many reasons can cause friction in franchisor – franchisee relations. Nevin, Hunt

and Ruekert (1980) have identified two major areas of conflict, first the deception in the selling and granting of franchises and also the unfair practices in the operation of the franchise systems.

Franchise Council of Australia (FCA) first introduces franchising by understanding the franchise relationship: “The relationship between the franchisor and franchisee must involve regulations and standards to define and protect the quality of the service or products to be provided by the franchisee to the consumer. “ FCA declare that any bad franchisee can have adverse effect directly on their own business, and indirectly on the whole of the franchised chain and its other franchisees. FCA describes the relationship between franchisors and franchisees have often been termed as

“commercial marriage”. The only difference is that in this relationship there must by definition “be a senior partner“ – the franchisor. Also FCA emphasizes “the franchise agreement that defines the basis of the relationship up front, so that both parties know their rights and obligations to the relationship.“

It is important to maintain good relationship with the franchisees. A positive cooperation in the relationship could help enhancing the brand. In a 2014 survey by Franchise Business Review on franchisees’ relationship with their franchisors: 88 percent of franchisees enjoy being part of their organization, 85 percent feel positive about their affiliation with their franchisor, 78 percent would recommend their franchise brand to others, and 73 percent would “Do it all over again” if they had the option.

If the relationship is negative, it might cause the end of the brand. Termination

clauses are applied to the contracts to force or to suppress the franchisees and threaten them to terminate the agreement. These clauses give the right to end the agreement if the franchisee does not strictly follow all the terms and agreements. Using this clause as a threat, the franchisor does not promote long-term feelings of security (Hall & Dixon, 1989). Sanghavi (1990) also states that certain clauses in the contracts are very unfair for the franchisees and those who often sign the agreement without having looked at the operating manual.

Feeling unfair usually relates to money, or profit, so people feel imbalance.

Company gives out promotions or discount to attract more customers and receive more business and also more awareness, but it may also affect the relationship between franchisees. Trust has been conceptualized as a feature or an aspect of relationship quality (Moorman, Zaltman & Deshpande, 1992): first, Dwyer and Oh (1987) have described that trust as a feature of relationship quality, along with satisfaction and opportunism. Second, Anderson and Narus (1990) view trust as a determinant of the amount of cooperation and the functionality of conflict between parties. Lastly Mohr and Nevin (1990) model trust as a determinant of communications between parties.

Trust can affect more than the company can imagine, so maintaining a good relationship should let franchisees feel positive to the company (vulnerability).

But marketing activities includes many aspects, Chou (1999) pointed out the there are twelve key successful factors of:

1. Company Image

2. Brand Image 3. Timing

4. Product Attributes 5. Product Qualities 6. Core Technology 7. Effects of Advertising 8. Sales Promotion Effects

9. Purchase Discounts and Allowances 10. Price Competitiveness

11. Channel 12. Others

One of them is “Purchase discount and allowances”. This means the company (franchisors) can give more favorable price to the middleman (the franchisees). The famous Taiwanese dessert store “Meet Fresh” (鮮芋仙) was closed numerously in Taiwan few years ago, and the main reason of its failure is because the franchisees is not satisfied with their purchase discount, so the relationship cannot reach the balance, and the cooperation goes to the end.