The truth about Franchise satisfaction - Research insights and industry benchmarks

For over 18 years, the Franchise Relationships Institute has been researching how franchisees and franchisors feel about each other and out insights are regularly presented to academics and industry associations around the world.

This article will present some benchmark data on the health of the franchisee / franchisor relationship in Australia based on the attitudes of over 6,000 franchisees. Recent Government Inquiries into the franchise relationship -following accusations of systemic problems - make this is a topical issue.

Current business pressures are also likely to test the health of franchise relationships in coming months so the article will explore what both parties can do to build stronger, healthier relationships.

What is a healthy franchise relationship?

A relationship can be simply defined as 'a feeling of connectedness.' It doesn't have to be positive and it doesn't even have to be with another person - it can be with a thing or a group. Consider the way people talk about how they love their iPod, their car or their football team.

Our relationships actually exist as perceptions in our own minds. They are influenced by our values, our personal prejudices, our expectations, the opinions of others and the information available to us at the time. For this reason the effective management of relationships takes care and attention.

When we talk of a franchise relationship we are usually talking about how franchisees and franchisors feel about each other, particularly in relation to trust and commitment. While the franchisee is usually seen as a person, the franchisor can be seen as a management team, a company or a brand, as well as a person.

In other words franchise relationships are complex and they can be fickle. While this makes their measurement and management a challenge there are methods that can be used to reliably gauge how people feel. There are also predictable patterns in the franchise relationship and proven strategies that franchisees and franchisors can adopt to manage their relationships more effectively.

The Franchise Relationships Institute describes a healthy franchise relationship in the following way:

• Franchisees and franchisor team members are glad of their decision to be involved in the business.
• There is an open sharing of ideas and business information between people.
• Dealings between people are conducted with courtesy and respect.
• People give each other the benefit of the doubt.

Now important is a healthy relationship to success?

Perhaps the best way to assess the value of something is to look at what happens when it's gone. Anyone who has been involved in a franchise system where trust and commitment have been lost will appreciate that this is a sure way to undermine a company's performance.

Here are a few signs that your franchise relationships might be in trouble.

• Waning attendances at meetings with people claiming they are too busy, despite topical business issues being covered.
• Franchisees meeting together covertly to discuss issues of concern without any involvement by the franchisor.
• Suspicion or even conspiracy theories being suggested when new initiatives are announced, even when these are designed to improve the business model.
• A drop in compliance to procedures fundamental to your brand. For instance cutting corners on product quality or slackening on customer service standards.
• People not taking responsibility for their performance and behaving like victims, with a tendency to focus on problems and negatives rather than solutions.
• A reluctance to innovate or invest in the business, driven by a pessimistic attitude of "why bother?"

It should be mentioned that in interdependent relationships, where the parties have an agreement that involves them sticking together to enjoy longer term benefits, some conflict is inevitable. This is because you can't just walk away when you don't get what you want. The other party will still be there the next day, and the next, and the next. For an interdependent relationship to succeed, you have to learn to work things out. This is as true for marriage as it is fora franchise relationship.

But consider this. No matter how unhappy franchisees and franchisors may feel about each other, customers don't care.

They want service, quality and value. In difficult times, everyone's energy needs to be directed toward creating happy customers.

Another reason why franchisors, in particular, need to take this area seriously is that the growth of a franchise system depends on a team of satisfied franchisees. Many enthusiastic potential franchisees have been deterred by negative comments made by existing franchisees with a strained franchise relationship.

Our industry benchmark for franchisees agreeing that they could honestly recommend their franchise system to others is currently at 73%. Another question we use to benchmark franchisee satisfaction is how likely franchisees would be to buy the franchise again. The current answer is that 65% of franchisees say they would do it again.

Five things franchisees want from their franchisor

For a relationship to be healthy both franchisor and franchisee must feel their needs are being met. Listed below are five things that franchisees want from a franchisor, based on our research. The more a franchisor can deliver on these — the healthier their franchise relationships are likely to be.

1. Tools and processes that drive profitability

Anything a franchisor can do to help a franchisee save money, drive greater productivity or increase their sales will be enthusiastically received. At present franchisee satisfaction with their financial performance is on the low side with only 63% agreeing that their business is a financial success. Current sales declines and pressure on rents, wages and costs of goods is further squeezing franchisee profit margins. The better franchisors are currently exploring innovative ways to help franchisees protect their margins. This will also help these franchisors with their future expansion programs as multiple regression analysis of our franchisee satisfaction data shows that the biggest predictor of whether a franchisee will recommend their franchise system to a prospective franchisee is their level of satisfaction with their financial performance.

2. Marketing support that drives brand awareness and customer enquiry

When asked to name the three best things about their franchise system, most franchisees mention the brand. However, while 76% agree their franchise system has a well recognised brand, franchisees are not as enthusiastic about the effectiveness of tactical marketing programs for driving customers to their business. Indeed only 58% are satisfied with this aspect of their franchisor's marketing. The real problem here is not the quality of the marketing but how effectively franchisees are implementing these programs. The opportunity here is for franchisor marketing teams to engage more effectively with their franchisees at the local level by getting out into the field and partnering more closely with the operations team. Our research suggests that companies that do this enjoy significantly higher satisfaction ratings in the marketing area.

3. Leadership that is competent, trustworthy, committed and visionary

2. Franchisors tend to perform quite well in most of these areas. For instance 76% of franchisees believe their franchisor is committed to the long-term success of the business and 78% agree their franchisor treats them fairly. However franchisors tend to fall down in articulating their vision for the future with only 60% of franchisees saying they understand the long-term goals and direction of their franchise system. Leadership that gives franchisees heart is particularly important in tough times. Franchisors need to explain how they intend to support their franchisees and share specific strategies for protecting market share, boosting sales and building customer loyalty. We have found that this is best communicated face to face through road shows, regional meetings and conferences.

4. To feel respected and able to exchange ideas

Many franchisees in our research refer to the satisfaction they feel from being part of their network. In particular they say they most value interacting with and learning from other franchisees at meetings and conferences. Yet only 62% feel they have adequate opportunity to exchange ideas with other franchisees. They also frequently refer to their need to be listened to. However only 59% feel their franchisor respects their opinions suggesting a considerable number are not feeling heard. There are many small group processes that provide franchisees with the opportunity to participate more actively in meetings and conferences. Not only do these help to tap into the collective intelligence of the group, they also give all franchisees a voice, including the quieter people. We have found that these interactive processes significantly boost franchisee satisfaction.

5. Concern for their success with relevant, responsive support

We often hear franchisees saying they wish a franchisor representative would phone them to see how they are going. Consider that just 64% of franchisees believe their franchisor is genuinely concerned about their success and only 62% believe franchisor management make an effort to understand what they need to be successful. When rating the services provided by their franchisor, a prompt response to phone calls and emails is usually rated near the top for importance but is usually rated significantly lower for effectiveness. Franchisors in support offices must remember that the operational decision-making cycle of a franchisee is a lot faster than the strategic decision making cycle of a franchisor. Getting out regularly to work in the field is highly recommended as a way of staying in touch with the needs of the people at the coal face.

Franchisors are people too

The franchise relationship is of course a two-way street, a reality that critics often fail to recognise. Just as franchisees need and expect certain things from their franchisor, franchisors expect and need certain things from their franchisees. When they don't get support for new initiatives or the information they need, when they receive rude and unfounded criticism, or when franchisees fail to participate constructively in meetings or run their businesses responsibly, it is natural for a franchisor team to feel frustrated and hostile.

Here is some advice to franchisors who feel this way.

As a leader and the more senior party you need to be able to rise above these frustrations and set the example of the sort of behaviour you expect from your franchisees. In other words, get over yourselves.

Other causes of relationship strain

There are of course other reasons why franchise relationships get strained. Stress is a common cause of strain in the current environment.

Whether you are a franchisor or a franchisee, financial pressures tend to increase feelings of anxiety. Stress levels get too high they can cause erratic and hostile behaviour.

I have also written elsewhere about the six psychological stages that franchisees move through in their relationship with the franchisor. I call this the Franchise E-Factor, which is characterised by the stages GLEE, FEE, ME, FREE, SEE and WE. Franchisees may quickly move from initial feelings of GLEE ("I am very happy with all you have done to get me established") to the second FEE stage ("What am I getting for my royalty fees?") and on to the third ME stage ("I am working my guts out and you, Mr Franchisor, are providing little if no value"). Not all franchisees are going to make it to the sixth WE stage ("I can see that together we can achieve a lot more than if I just try to battle it out on my own").

The more franchisees that are stuck in the middle stages of the Franchise E-Factor, the more unrest there is likely to be in a franchise system. With franchisee profit margins being eroded franchisees are more likely to regress to the FEE and ME stages.

A final thought

Although financial performance does significantly influence franchisee satisfaction levels, other factors are also important. Possibly the most valuable gifts a franchisor can give their franchisees are respect, gratitude and visionary leadership.

Never forget that franchisees are people who have invested their savings in your brand. While they might not be shareholders in the traditional sense, they are significant stakeholders in your company. Handle them with care and they will reward you with loyalty and commitment.

Greg Nathan, Managing Director - Franchise ReIationships Institute.

This article appears courtesy of The Franchise Review