Factors Affecting Franchise Agreement Terminations: Lessons for the Franchising Sector

The practice  of termination  of franchise   agreements  raises  significant  strategic  and  legal issues. This paper aims to provide descriptive information about franchise terminations in relation to which the appropriateness of regulatory responses can be measured. Data were collected from surveys of Australian franchisers in 1998 and 1999 to explore the nature, reasons and outcomes of franchise  agreement terminations.  A model predicting  the likelihood of terminations was developed, based on franchise system maturity, support structures provided, and level of conflict experienced. The results indicate that mature franchises were more  likely  than younger  systems  to experience franchise  terminations.  No  consistent  link was found between the amount of system support or the level of conflict and the incidence of franchise terminations. The data  lends  support  to judicial  responses  to  termination  issues which accommodate the relational aspect of  franchise  relationships  and  addresses termination issues in the context of the underlying relationship and the legitimate business expectations  of the parties

Processual antecedents of perceived channel conflict in franchising

In this study, we develop and examine the network of relationships explaining perceived conflict in franchise relationships from a franchisee perspective. Our research contributes to the current knowledge of asymmetric exchange relationships through demonstrating the importance of a franchisee's expectations confirmation, relational trust and relationship satisfaction in franchisee assessments of network conflict. The goal of this paper is to empirically examine (1) the relationship between franchisee perceptions of information quality (information dissemination and information search) and the confirmation of franchisee performance expectations, (2) franchisee characterizations of their relationships with their franchisors in terms of relational sentiments such as trust and relational satisfaction, communication and conflict management, (3) the relationship between franchisee satisfaction and perceived conflict, and (4) the moderating effect of franchisee experience on the relationship between franchisee satisfaction and franchisee perceptions of conflict. Empirical results, utilizing a sample of 345 franchisees in Australia, present strong evidence for the support of nine of the ten hypotheses drawn from the conceptual model. Specifically, data reveal that in an effort to cultivate a network of cooperative and satisfied franchisees, franchisors should adopt strategies that promote the timely dissemination of relevant and meaningful pre- and post-entry information, open communication exchange, transparent conflict management systems and personalized support in accommodating individual franchisee needs

Motivations for franchisors to use flat continuing franchise fees

This paper compares the use of flat continuing franchise fees or royalties with percentage-based continuing franchise fees in Australian franchises. The population of Australian franchisors is surveyed to investigate why some franchisors choose a flat continuing fee structure. It is found that franchises using flat continuing fees offer their franchisees similar types of ongoing support throughout the life of the franchise agreement, but provide less ongoing support than franchises characterised by percentage fees. The flat fee franchises also conduct less monitoring of their franchisees, grow at a faster rate, and are less costly to enter than percentage fee franchises. The results suggest that whereas percentage fee franchisors can improve their ongoing income by helping franchisees to increase their sales, the flat fee franchisors are motivated to improve their ongoing income by increasing the size of their systems

Causes of disruption to franchise operations

In this paper, factors that disrupt the operations of a franchisor are examined. Two variables, franchise disputes and franchised outlet conversions, proxy for franchise disruption. This study investigates two possible causes of disruption to the franchise: lack of franchisor support and stage of franchise life cycle. Data obtained from a survey of the population of Australian franchisors in 1998 are analyzed using structural equation modeling (SEM: Amos). The analysis concludes that the provision of support services to franchisees is not a significant cause of system disruption. However, the stage of life cycle development is significant with older and larger franchises experiencing greater levels of disruption

Exits and expectations : why disappointed franchisees leave

Numerous studies of franchisee failure have been conducted with mixed results reported due to methodological differences and the definition of failure used. There has been an emphasis in the literature on estimating and comparing the failure rates for these organisations. This paper acknowledges that franchisee failure is a concern but concentrates on the causes of failure. To do so, a definition of ‘negative franchisee exits’ is developed to overcome deficiencies in previous definitions of failure. The research is carried out in two stages. Firstly, franchisors and their ex-franchisees are interviewed. Then, the insights gained from the qualitative research are used to develop a model for the second stage of the research. Findings from a survey of franchisors indicate that franchise system size, level of franchisee investment and degree of conflict are related to the incidence of negative franchisee exits.9 page(s

Innovative fee structures by Australian franchisors

Franchising, a marketing concept used to distribute goods and services, plays an important role in modern economies. For example, franchising contributes to 40.9 percent of retail sales in the United States (Baucus and Baucus 1997). The Australian franchising sector is in an earlier stage of growth but it is expected to follow the trend set by the United States to become the pervasive force in the distribution of goods and services in the future (Terry 1993; McCosker 1994)