This is the first in a series of articles where we explore in more depth, some of the disadvantages of franchising your business.
Franchising can be an appealing option for business expansion, but it's important to consider the potential downsides. One disadvantage of franchising is the loss of control over your own business operations and decision-making.
Loss of control encompasses a decrease in the ability to make decisions regarding the day-to-day operations of individual franchise units, limited flexibility and adaptability, and a relinquishment of control over the customer experience at individual franchise units.
One of the risks arising from a loss of control is brand inconsistency. We discuss this further below.
Reduced Decision Making Power
Reduced Control Over Brand Image and Customer Experience
Reduced Flexibility and Adaptability
Handling Reputational Risks and Crises
Takeaways
Reduced decision-making power
When you are developing or growing your business, you are in control of every decision, from long-term strategic planning to day-to-day operational tasks. As the business owner, you have the autonomy to shape the direction of your brand and ensure that every business decision aligns with your vision.
However, when you make the decision to franchise your business, you are essentially entrusting the day-to-day operation of each individual outlet to your franchisees. This means that while you still hold the responsibility of setting the long-term strategic direction of the brand and establishing clear brand standards and guidelines, you give your franchisees the freedom to manage their own locations and make necessary decisions on a daily basis.
Franchising offers a unique opportunity for business growth and expansion, allowing you to reach new markets and tap into the expertise and resources of motivated franchisees. However, it also means relinquishing some control over the day-to-day operations, which can be both a benefit and a challenge.
On the one hand, giving franchisees the autonomy to manage their own locations can lead to increased efficiency and productivity. They are able to make decisions based on their knowledge of the local market and adapt their strategies to better cater to the needs of their customers. This can result in a more personalised and tailored experience for customers, ultimately leading to greater customer satisfaction and loyalty.
On the other hand, this autonomy can also pose risks in terms of maintaining a consistent brand image and customer experience. Without proper guidance and support, franchisees may deviate from the brand standards and guidelines, leading to inconsistency across different franchise locations.
reduced control over brand image and customer experience
While a franchisor cannot directly control the operation of an individual franchise, it is crucial for franchisors to address the challenge of inconsistency and implement effective strategies to mitigate these risks.
To begin with, clear and comprehensive training programs should be developed to ensure that franchisees understand and uphold the brand standards. This includes providing detailed guidelines on everything from product quality and customer service to marketing and advertising strategies.
Regular audits and inspections can also play a crucial role in ensuring adherence to brand standards. Franchisors can conduct periodic inspections at each franchise location to assess compliance with quality standards. These inspections can identify areas where improvements are needed and provide valuable feedback to franchisees. Additionally, regular audits can help identify any deviations from brand standards and enable prompt corrective action.
While establishing clear brand standards and guidelines provides a framework for consistency, you must also be able to enforce these brand standards and guidelines. Without proper enforcement, franchisees may deviate from the established standards, leading to inconsistency in the brand image and customer experience.
Generally, the ability to enforce brand standards and guidelines will depend on the terms of the franchise agreement entered into between the franchisor and the franchisee. While the franchise agreement must be reasonable and must not contain unfair terms, it must also allow a franchisor to enforce the brand standards and guidelines that underpin consistency in the franchise network.
Communication also plays a vital role in maintaining consistency within a franchise network. Franchisors should establish open lines of communication with their franchisees, encouraging regular feedback and addressing any concerns promptly. Sharing success stories and best practices across the network can also foster a sense of unity and encourage franchisees to maintain brand standards.
Additionally, implementing a system of rewards and incentives can motivate franchisees to adhere to brand standards. Recognising and rewarding those who consistently meet or exceed the standards can help create a culture of excellence within the franchise network.
Ultimately, enhancing quality control within a franchise network requires a combination of training, audits, communication, and ongoing support. By implementing these strategies, franchisors can minimise the risk of inconsistent product or service delivery and maintain a strong and consistent brand image across all franchise locations.
Reduced Flexibility and Adaptability
In addition to reducing decision making power, while franchising offers the opportunity for rapid expansion, it often comes at the cost of limited flexibility and adaptability in response to market changes.
One of the key factors limiting flexibility and adaptability in franchising is the emphasis on structure and standardisation. In product franchises, this means that the franchisor must establish agreements with suppliers who have the capacity to meet the needs of the entire franchise network. Similarly, in service franchises, the franchisor must develop detailed manuals and systems to ensure consistent service delivery. This standardisation ensures that customers can expect the same quality and experience across all franchise locations.
The consequence of standardisation is that it may be difficult to quickly adapt to changing market conditions. This can be particularly problematic in industries where consumer preferences are constantly evolving, as franchisors may find it difficult to introduce new products or services to the franchise network that cater to these changing demands.
Franchisors should actively engage with their target market to stay informed about industry trends and consumer preferences. This can involve conducting regular market research, soliciting feedback from customers, and staying up-to-date with industry publications and news. By proactively anticipating changes in the market, franchisors may be able to make necessary adjustments to their offerings or operations, ensuring they remain relevant and appealing to their target audience.
Establishing test sites can be a way to introduce new products and services to a franchise network. An example of this is the McDonalds McCafe brand, which was first trialed in the Melbourne CBD.
Handling reputation risks and crises
A further consequence of lack of control may be franchisee misconduct.
The reputational impact of individual franchisee misconduct or PR crises can be significant. When a franchisee engages in misconduct or when a PR crisis occurs, it can tarnish the brand's reputation and erode customer trust. This can have far-reaching consequences for the entire franchise network, as customers may associate the negative actions of one franchisee with the entire brand.
An example of franchisee misconduct is the underpayment of employees. The 7Eleven case was a significant example of employee underpayment, leading to changes in the Fair Work regime.
Transparency is key in maintaining trust with customers and stakeholders. Franchisors should provide clear and honest communication about the steps being taken to address the situation and prevent it from happening again. This can involve issuing public statements, updating customers through social media channels, or reaching out directly to affected customers to address their concerns.
Franchisors should also consider implementing a system for monitoring and managing online reviews and feedback. Online reputation management tools can help track and address negative reviews, respond to customer concerns, and actively engage with customers to resolve any issues. By proactively managing online reputation, franchisors can minimise the impact of individual franchisee misconduct or PR crises on the overall brand reputation.
Takeaways
Ultimately, while franchising does involve relinquishing some control over day-to-day operations, it also presents an opportunity for growth and expansion. By establishing clear brand standards, implementing effective strategies to maintain consistency, and providing ongoing support and resources to franchisees, franchisors can mitigate the risks associated with franchisee autonomy and ensure a consistent and positive customer experience across all franchise locations.
Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.
