Chapter 11 - The Franchising Relationship
Chapter 11 - The Franchising Relationship
THE FRANCHISING
RELATIONSHIP
Methews, J.; DeBolt, D. & Percival, D.
(2011). Street Smart Franchising. 2nd
Ed. Wisconsin: Entrepreneur Press. pg.
157-172
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CHAPTER OBJECTIVES
to examine the Model of Franchise E-Factors
as a model of franchising relationship.
to identify the causes of conflict.
to discuss the consequences of legal action.
to examine the C.A.R.E approach in franchisor
and franchisee relationship.
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The Model of Franchise E-
Factors
By Greg Nathan
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INTRODUCTION
• The model E-factors is first introduced by Greg
Nathan an internationally renowned franchise
adviser, corporate psychologist, and founder of
The Franchise Relationships Institute.
• Each stage is marked by the franchisee's and
franchisor's distinct beliefs, emotions, actions,
and levels of dependence and satisfaction of the
relationship at that time.
• The six stages are GLEE, FEE, ME, FREE, SEE and
WE
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The Glee Stage
• The moment a potential franchisee makes the
decision to joint a particular franchise.
• At this stage, the relationship is totally
dependency on the knowledge and experience of
the franchisor.
• In the absence of any training and support by the
franchisor, many franchisees will ultimately fail.
• franchisees are vulnerable in the Glee stage.
• But, franchisee believe their franchisor will
successfully impart the necessary KASH
(knowledge, attitudes, skills, habits) that will
eventually liberate them.
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The Fee Stage
• Franchisees in the fee stage can become more
demanding about the service they receive for their
franchise fees.
• They raise their expectations of the franchisor, wanting
such things as more services, higher quality, greater
responsiveness, and more training for their staff.
• The franchisee become more sensitive to where their
money is going.
• The honeymoon period of the franchisee-franchisor
relationship is also over, replaced by the "What have
you done for me lately?"
• this stage is also marked by a dependency on the
franchisor.
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The Me Stage
• Franchisees move into the Me stage when the franchisor is
not going to make them successful.
• Their success will be completely dependent on their ability
to create results using the franchisor's business systems.
• Franchisees in the Me stage start winning and experience a
renewed sense of empowerment.
• Some will become somewhat egotistical, dismissing the
franchisor's and other franchisees' contributions to their
success.
• "I know more than you do" attitude franchisee into the
relationship.
• The Me stage is marked by franchisees asserting
independence, a clear departure from their previous
dependent relationship with the franchisor.
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The Free Stage
• The relationship between the franchisee and franchisor at
this stage shifted from dependence to independence.
• Some franchisees get stuck in this stage, and their
relationship with the franchisor remains strained. Those
who get stuck usually see one of three outcomes.
– They get frustrated with the franchisor and sell
"Freeeedom!"
– They frustrate the franchisor, and the franchisor either
forces a sale or terminates the franchisee's agreement for
material breaches in their franchise agreement (if such
breaches exist) or forces the franchisee into compliance.
Or
– They learn to live together and stay out of each other's
way.
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The See Stage
• The relationship is no longer about one party
winning and the other losing.
• Both parties need to win! This invites mature,
intelligent, commercially minded strategizing and
problem solving, not petty, immature fighting,
bickering, and gossiping.
• The relationship immediately begins to mature
from an independent relationship to an
interdependent relationship, which is all the
franchisee and the franchisor wanted in the first
place.
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The We Stage
• This stage is characterized by mature, objective, global,
problem-solving, strategic, interdependent thinking.
• The franchisor is no longer the enemy.
• The battle is for market share, not about who is right
or wrong.
• Both the franchisor and franchisees must understand
and respect each other's style and decision-making
processes.
• Franchisees and the franchisor must each be fully
committed to the other's success.
• The franchisor must think, "When a franchisee fails, I
fail." Conversely, franchisees must come from, "If my
franchisor isn't winning, I am not winning."
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Causes of Conflict
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Accounting procedures and
requirements.
• Some fail to file accounting and management
reports when required.
• Sometimes, too, franchisees file false reports
and are caught when the companies audit
their book..
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Discount and coupon practices.
• extensive coupons, discounts, and special
deals can ruin your profit margins while
boosting the franchisor's image and royalty
income at your expense.
• You should have negotiated a contract clause
allowing you to choose whether to offer
discounts and coupons.
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Diversion of advertising funds
• Many franchises set up advertising fund in which
any specific advertising fees or royalties are
pooled.
• Many, however, do not have such a pool, and put
ad fees into their general operating budgets.
• It is tempting for franchise companies to use
these ad dollars to boost their profit margins, or
subsidize activities that promote per projects of
the franchise founder.
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OTHER CAUSES OF CONFLICT
• Running company-owned stores in competition with
franchisee-owned stores.
• Pricing and leasing equipment.
• Lack of support.
• Lack of financial support.
• Payment schedules for royalties, advertising fees,
rental payments, and equipment leases.
• Failure of the franchisor.
• The quality control issue
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Franchise Relationships - Legal
and Consequences
• Before issuing litigation, think the cost of litigation.
• Has strong issue before litigation is taken.
• Mediation is the most effective method for
franchisors to settle issues with franchisees. It is a
quick and relatively inexpensive way to resolve
issues.
• Timely and direct negotiation between franchisor
and franchisee is a skill set possessed by smart
franchisors.
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C.A.R.E Approach
• Communication - Most franchising
organizations create newsletters to help
enhance communication throughout the
system.
• Awareness - The franchisor should make its
franchisees aware that they are appreciated
and are a vital component in the success of
the organization.
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C.A.R.E Approach
• Rapport - The franchisor should try to develop a
strong personal rapport with each franchisee.
Some franchisors do this by providing birthday
gifts, flowers on special days, and remembrances
for services performed goals reached.
• Expertise – provide expertise concentrate
specific areas such as finance, management,
personal growth, marketing, and even special
promotions.
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Recap……………….
• The six stages of Franchise E-Factors are GLEE,
FEE, ME, FREE, SEE and WE
• There are many causes of conflict in
franchising.
• C.A.R.E. is a approach to develop good
relationship between franchisor and
franchisee.
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