Franchises protecting against brand privacy

A great deal of attention has been devoted to the reasons why people choose franchising, rather than an independent operation, as a means of entering business. However, the focus of the current study is to explore why they exit franchising, and in particular, why some franchisees continue operating the same business after leaving the system.

Clearly, such an action is a form of brand piracy, and the subject of interest in this research is people who opt out of franchising in pursuit of independent business ownership, taking with them the knowledge and experience gained from the franchise.

In order to explore why they make such a choice it is necessary to consider what originally attracted them to franchising. There is sufficient evidence to suggest that the decision to enter franchising is a sub-set of the overriding decision to become self-employed, and that the decision to select a suitable industry occurs prior to choosing the franchise versus an independent route.

As is well known, franchising provides an opportunity for people without prior business experience or who have low levels of technical skills to enter business, as the franchisor provides the necessary training in these areas. For an experienced operator, the association with a successful and established franchise organisation is regarded as a strong incentive. Similarly, some franchisees may be attracted to the unique product offering of a franchisor.

The support structure has also been found to be an attractive incentive for self-employed people to join a franchise, while salaried employees value the relative independence of franchising more. However, it has been noted that franchisees are best described as being in “controlled self-employment’ due to the operational restrictions imposed by the franchisor.

Rather than isolating specific attributes of franchising that are attractive to potential franchisees, perhaps it is the entire franchising package that is appealing. Some franchisors offer complete ‘turnkey’ operations including site selection and fit-out, initial training and start-up support, operations manuals, marketing activities, accounting services and centralised booking services, thereby easing the franchisee into the business. Franchising can also offer a sense of security to novice entrepreneurs, particularly those who are risk averse, together with a unique ability to belong to a large chain and thereby receive various benefits of that association, while at the same time allowing the franchisee a degree of independence. Indeed, it is often held out to be a less risky means of entering business than independent business ownership, but a great deal of debate surrounds this assertion.

In addition to many of the above (perceived) benefits associated with franchising, there are other external reasons why people may become franchisees. Growth in franchising is thought to boom during recession or in periods of economic downturn. Similarly, the downsizing of large corporations and high levels of unemployment have been linked to growth in self-employment in general. Certain ‘push’ factors such as redundancy, career stage or family situation are thought to create greater interest in franchising. Indeed, many franchisors encourage the prospective investor to ‘buy yourself a job’ in their promotional campaigns. Franchisees are generally in the middle of their career path, aged 30 to 50 years, and with access to capital, thus allowing them the luxury of a career path switch when they are ready to change direction.

In addition to the above reasons for entering franchising, we must also consider the factors that impact a franchisee’s decision to remain in the system. Overall satisfaction with the franchise is obviously important, as well as the franchisee’s level of trust in the franchisor. Also relevant is the franchise system’s competitive advantage, as franchisees will have an incentive to exit if the system does not remain competitive in the marketplace. Unfortunately, when franchisees exit but continue operating, piracy of the franchisor’s brand becomes a potential problem.

Piracy in franchising

An explanation of brand piracy and counterfeiting may potentially provide a framework by which some of the reasons for franchisees leaving a franchise system, but remaining in a competitive position, can be explored. Firstly, however, a distinction should be drawn between counterfeiting and piracy.

Counterfeiting refers to the “unauthorised production of goods that are legally protected by trademarks, copyright or patents”, while brand piracy is defined as the “unauthorised use of copyrighted or patented goods or ideas” (Shultz and Saporito, 1996). Hence, brand piracy occurs when a former franchisee continues to use the intellectual property of a franchisor.

The brand, especially in franchising, can be the most valuable asset possessed by a firm, resulting from extensive resources being invested over a long period. A franchised organisation’s intellectual property can be threatened by brand piracy. Imitations of a franchise system are common after the franchisee has exited the system. While the use of original brand name does not usually take place (although there have been cases of similar names and logos being used, such as Winner’s for Wendy’s in Korea), a continued use of key facets of intellectual property remains, such as operating procedures, marketing techniques, colour schemes and the use of the database built up while the former franchisee was operating within the original franchise system. This imitation system is then presented to an already established clientele as a bona-fide replacement for the original brand.

There is a wealth of information available regarding hise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.