Qualitative Market Research: An International JournalWhat went wrong? Franchisors and franchisees disclose the causes of conflict infranchisingLorelle Frazer Scott Weaven Jeff Giddings Debra Grace

Article information:To cite this document:Lorelle Frazer Scott Weaven Jeff Giddings Debra Grace, (2012),"What went wrong? Franchisors andfranchisees disclose the causes of conflict in franchising", Qualitative Market Research: An InternationalJournal, Vol. 15 Iss 1 pp. 87 - 103Permanent link to this document:http://dx.doi.org/10.1108/13522751211192017

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Users who downloaded this article also downloaded:Scott Weaven, Lorelle Frazer, Jeff Giddings, (2010),"New perspectives on the causes of franchisingconflict in Australia", Asia Pacific Journal of Marketing and Logistics, Vol. 22 Iss 2 pp. 135-155 http://dx.doi.org/10.1108/13555851011026917Cori Hodge, Harmen Oppewal, Civilai Terawatanavong, (2013),"Determinants of franchise conversion:a franchisee perspective", European Journal of Marketing, Vol. 47 Iss 10 pp. 1554-1575 http://dx.doi.org/10.1108/EJM-10-2010-0540Laura Lucia-Palacios, Victoria Bordonaba-Juste, Melih Madanoglu, Ilan Alon, (2014),"Franchising andvalue signaling", Journal of Services Marketing, Vol. 28 Iss 2 pp. 105-115 http://dx.doi.org/10.1108/JSM-09-2013-0253

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What went wrong? Franchisorsand franchisees disclose the

causes of conflict in franchisingLorelle Frazer, Scott Weaven, Jeff Giddings and Debra Grace

Griffith University, Brisbane, Australia

Abstract

Purpose – The rapid growth of the Australian franchising sector since the 1980s has beenaccompanied by tension, conflict and disputation, causing concern for regulatory bodies. However, littleis currently known about the antecedents of conflict in franchising, thus, the purpose of this paper is toaddress this deficiency by exploring the antecedent factors associated with conflict in this domain.

Design/methodology/approach – A series of 11 multiple case studies, involving 30 protocoldiscussions with franchisors and franchisees, was undertaken across a variety of franchise systems inorder to explore the topic and to refine the research question and develop hypotheses for the next stageof the research.

Findings – A number of themes emerged from the qualitative investigation which led to thedevelopment of 12 research propositions that include constructs such as expectations confirmation,trust, openness, perceived support and relationship satisfaction in attempting to explain theantecedent causes of conflict in franchising.

Research limitations/implications – The qualitative nature of this research has provided richinformation that will inform future confirmatory research via quantitative methods throughhypotheses testing. Thus, the findings provide a solid framework for future investigations in thisimportant research domain.

Originality/value – The contribution of this research is significant in that it provides uniqueknowledge regarding the complex issues surrounding conflict in franchising. Furthermore, it informsfuture research with regards to the dynamics of conflict in this area.

Keywords Australia, Franchising, Channel relationships, Franchising relationships, Conflict, Dispute

Paper type Case study

IntroductionAustralia has one of the most respected franchising sectors in the world (Terry, 1996),yet it is not immune from conflict or disputation. The sector has grown rapidly sincethe 1980s and now comprises some 1,025 business format franchise systems(Frazer et al., 2010). With a population of almost 22 million people, this makes Australiaone of the most densely franchised nations in the world. Despite this high proportion offranchisors, just under half the systems hold 20 or fewer franchise units (Frazer et al.,2010), calling into question the viability of those networks. Owing to a perceivedimbalance of power between franchisors and franchisees, the sector was regulated in1998 with the introduction of the Franchising Code of Conduct (Terry, 1996). A majoraim of the Code was to provide a level playing field by empowering franchisees

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1352-2752.htm

The funding for this research was provided via an Australian Research Council Linkage Projectgrant with the collaboration of industry partner, the Australian Competition and ConsumerCommission (ACCC).

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Vol. 15 No. 1, 2012pp. 87-103

q Emerald Group Publishing Limited1352-2752

DOI 10.1108/13522751211192017

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and enabling access to pertinent information about the franchise prior to entering anagreement. The Code recognizes that despite these safeguards, disputes inevitablyoccur. The level of litigation in the sector declined following the introduction of theCode (Lim and Frazer, 2002) as more disputes were resolved through mediation.

The majority of substantial disputes reported by franchisors occur in larger andolder systems (holding more than 50 units and franchising in excess of 14 years) in theretail sector (Frazer et al., 2008). The main causes of disputes were reported to relate tocompliance with the system, misrepresentation issues, profitability, site suitability,territorial issues, communication problems and franchise fees (Frazer et al., 2010).However, disputes occur when conflict is not dealt with adequately, and they oftenescalate into destructive behaviour that has the power to irreparably damage thefranchising relationship. The term “kamikaze conflict” was coined by Giddings et al.(2008) to describe actions that are principally aimed at harming the other party.

While conflict in franchising relationships has, undoubtedly, been shown to havemany detrimental effects on both franchisor’s and franchisees, to date, there has beensparse research identifying the antecedents of conflict, or exploration of the inter-playbetween such antecedents in the manifestation of conflict (Giddings et al., 2011).The study addresses this deficiency in the literature and, as a result, important researchpropositions are presented, thus providing a solid foundation for further empiricalresearch in this important area of franchise management.

Literature reviewStrong inter-organisational relationships promote improved sales and profitability(Palmatier, 2008), innovation, cost reductions, and new market opportunities, largely onaccount of improved levels of communication and reductions in dysfunctional conflictbetween network partners (Cannon and Homburg, 2001; Palmatier et al., 2006). Withinthe channels and relationship marketing literatures inter-organisational relationshipperformance has been examined within the context of transaction cost economics(David and Han, 2004), trust and commitment (Dwyer et al., 1987; Lado et al., 2008),communication (Koza and Dant, 2007), power distribution and dependency (Hibbardet al.,2001), relational contracting theory (Macneil, 1980) and (integrative) resource views ofrelational exchange (Palmatier et al., 2006). Generally, researchers have adoptedrelational exchange and/or relational equity perspectives to explain the impact of trust,commitment, and relational governance approaches on measurable outcomes such assatisfaction, opportunism and conflict (Harmon and Griffiths, 2008; Dant et al., 2011).

Franchising is a form of relational exchange (Kaufmann and Stern, 1988;Palmatier et al., 2006) in which franchise channel members are commerciallyinterdependent and co-create value through ongoing negotiation and exchange (Parsa,1999). Extant literature examining franchise performance has focused upon franchisorperceptions of franchisee selection criteria ( Jambulingam and Nevin, 1999),communication practices (Mohr and Spekman, 1994), and cooperation, commitmentand conflict in franchise systems (Gassenheimer et al., 1996; Koza and Dant, 2007;Palmatier, 2008). Generally, there is some consensus within the relational exchangeframework, that higher levels of franchisee satisfaction increases a franchisee’scooperative intent with the franchisor, leading to lower levels of intra-systemconflict (Koza and Dant, 2007). However, franchisee satisfaction is predicated uponfranchisee perceptions of the value of franchisor-provided services (Falbe et al., 1999;

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Grunhagen and Dorsch, 2003; Grace and Weaven, 2010). Curiously, to date, the literatureexamining franchisee perceptions of relationship quality is deficient within the literature(Weaven et al., 2009a, b; Huang et al., 2007) and multi-perspective investigations into thesources and management of franchising conflict is limited (Giddings et al., 2009).

Conflict refers to the existence of underlying differences between channel membersresulting in responses to potential or actual obstructions that impede one (or more)partner entities from realizing their goals (Bradford et al., 2003). Common sources ofconflict include disagreements over the pricing and sourcing of goods, constraints onsystem standards, quality of provided training, permitted levels of autonomy, andfranchisee decision-making authority (Anita and Frazier, 2001; Burkle and Posselt, 2008;Huang et al., 2007). Although conflict is expected in channel relationships (Pondy, 1967),at some point conflict may damage the quality of relational exchanges (Pondy andHuff, 1985). From a transaction cost perspective (Williamson, 1975), franchiseeappraisals of franchisor service provision will define a franchisee’s zone of tolerance andpredict subsequent behaviour (Spinelli and Birley, 1996). Should franchisees becomedissatisfied, they may engage in opportunistic behaviours such as misrepresentingrevenues, failing to meet contractual stipulations (fees, royalties), reducing servicequality or refusing to adopt systemwide adaptations. Such behaviour will inevitablyresult in disputation and may ultimately lead to the termination of the relationship(Giddings et al., 2009; Weaven et al., 2010).

Although, there has been some investigation into the sources of conflict, in therecent review of the Franchising Code of Conduct (1998), the National AlternativeDispute Resolution Council (NADRAC) identified a number of further influences uponfranchising conflict arising from disputes with external advisors, and personalcharacteristics of franchisees, suggesting that the full range of factors generatingconflict have not been fully revealed. This is of critical importance as conflict theoristsand mediation specialists have called for a greater understanding of the root causes offranchising conflict to inform the development of workable systems-based approachesto conflict management in franchise systems (Levingston, 2008; Giddings et al., 2009).To this end, the following broad research question of this study is:

RQ. What are the major factors that influence the manifestation of conflict in thefranchising relationship?

Research designMethodologyA qualitative methodology was used in this research for several reasons. First,qualitative research is appropriate when the purpose of the study is to betterunderstand the reasons and context for particular phenomena occurring (Carson et al.,2001). Whereas quantitative research emphasizes the measurement and analysis ofcausal relationships among variables, a qualitative approach is concerned more withprocess and capturing the perspectives of the subjects being studied (Silverman, 2006).Hence, the focus in qualitative research is on constructing “social reality” (Neuman,2006, p. 13) through analysing what people observe and experience.

Because we sought to understand “what” causes conflict in franchising, the studywas exploratory in nature (Yin, 2009). As such the research needed to be flexible,allowing the direction of inquiry to alter its path where necessary (Neuman, 2006).For instance, as new themes in the research emerged we constantly refined the model

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to incorporate and test the propositions on subsequent interviewees. We adopted aninvestigative approach in order to explore all relevant sources of information and tookadvantage of serendipity, such as the opportunity to examine evidence availablethrough a government inquiry into franchising which was underway at the same timeas our research project. We were also conscious of the need to be creative and openminded when conducting the research (Neuman, 2006). An exploratory study wasappropriate in this instance as it helped shape research questions and formulatehypotheses in preparation for a large-scale survey planned for the final stage of theresearch (Yin, 2009).

In keeping with a qualitative methodology, a recursive process was adoptedwhereby the data collection and analysis took place concurrently (George and Veal,2005), allowing hypotheses to be developed as the research progressed. Although webased the study on relevant theory, there was a synthesis of the theory and data(Neuman, 2006). In brief, a qualitative methodology was adopted because it was themost appropriate approach for this research.

Data collection methodsMultiple case studies (Yin, 2009; Myers, 2009) were undertaken in this research as theyproduce findings that are more powerful than single case studies (Silverman, 2006).Moreover, case studies are a common method of conducting business research(Yin, 2009), enabling researchers to connect the behaviour of individuals to a broadersocial phenomenon under scrutiny (Vaughan, 1992). Indeed, case studies are mostappropriate when the issue being studied is not readily discernable from its context(Yin, 2009). A disadvantage of conducting case studies is the substantial time requiredbut they enable important empirical insights to be explored (Carson et al., 2001).Comparative case study methodologies are used extensively in dispute resolutionresearch as they provide opportunities to explore aggregate systems-like units, probedeeply into cultural practices and behaviours as well as seek explanations of variationin closely matched units of analysis (Druckman, 2005).

Empirical case databaseA total of 11 case studies were analysed in this research, comprising 11 franchisorsplus (in most cases) two franchisees from each organisation. Purposive samplingwas employed to select informative cases (Neuman, 2006). There are no clear guidelinesregarding the appropriate case size, with various authors offering different rationales.For instance (Patton, 2002) contends that there are no specific rules to follow whendetermining case size, whereas Lincoln and Guba (1985) suggest that cases should beadded until the point of redundancy. In the current research, 11 cases were selectedinvolving 25 interviewees at different hierarchical levels (Carson et al., 2001). Wherepossible, two franchisees from each organisation were selected to represent low andhigh conflict states, providing theoretical replication in the sample (Yin, 2009).

Consistent with a qualitative methodology, case selection was theoretically groundedrather than statistical (Silverman, 2006) and cases were chosen to provide a variety ofscenarios. Hence, across the 11 cases, examples were selected to provide insightsregarding the impact of factors including the size and ages of the system, the industriesinvolved, mode of operation, origin, degree of regulation as well as operational featuresincluding multiple concepts, multiple systems, multiple unit franchisees, and plural

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forms (franchised and company units within a single enterprise). Table I plots the11 cases across the various dimensions, illustrating the diversity in the theoreticalsampling. We did not attempt to achieve representativeness in the sample(Neuman, 2006), rather we were interested in how the selected cases would clarify anddeepen our understanding of franchising conflict.

Data collectionIn-depth protocol discussions with the franchisors and franchisees provided the data forthe case studies (Qu and Dumay, 2011). Protocol discussions were deemed the mostappropriate data collection technique because the topic was exploratory in nature,the sample size was manageable, and the information gained from each protocoldiscussion was personal and complex (George and Veal, 2005). Protocol discussions withfranchisors were conducted first, lasting approximately one hour. Franchisors wereasked to nominate franchisees in their systems who had experienced either a “low”or “high” conflict situation or who represented other dimensions of interest such asmultiple unit ownership. In most cases the franchisor made the initial approach to thefranchisees and we then followed up with our request. Protocol discussions withfranchisees tended to last about 30 minutes. With the permission of respondents,the protocol discussions were tape recorded and transcribed immediately. A mixtureof telephone and face-to-face protocol discussions were used, depending on ease ofaccess to the respondent. Face-to-face discussions were conducted with only onemember of the research team present so as not to intimidate participants.

AnalysisWithin-case and cross-case analysis was used in this study. Single case analysis wasconducted first in order to provide data for the cross-case analysis (Carson et al., 2001;Patton, 2002). The data were initially analysed manually by coding groups of words in thetranscripts into categories that were either defined in theory or discovered during theresearch (Carson et al., 2001). Next, the data were examined through the use of qualitativedata analysis software (NVivo) in order to assist in the development of theoretical ideas(Gibbs, 2002) and to provide a more rigorous analysis. We looked for consistenciesin the data but also explored rival explanations (Yin, 2009) in case there were otherplausible reasons. As the data collection and analysis occurred simultaneously, data werecompared by generating pattern codes (Miles and Huberman, 1994).

In particular, we used the “constant comparative” method (Silverman, 2006) ofcomparing data in order to progressively test provisional hypotheses as the researchprogressed. The franchisees were selected because of the level of conflict experienced orsome other dimension peculiar to the system, such as a pioneering versus a newfranchisee or a multi-unit versus a single unit franchisee. This analysis enabled us tohighlight issues that were relevant under particular conditions or circumstances.In doing so, we were mindful of avoiding “anecdotalism” (Silverman, 2006, p. 211) bycritically evaluating a broad spectrum of data, rather than relying on particularexamples. Triangulation in the research is important in addressing this issue (Neuman,2006) and hence we used a variety of data sources (protocol discussions with franchisorsand franchisees and franchising inquiry submissions) as well as multipleobservers (three experienced franchising researchers with backgrounds in either

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Table I.Case study profiles

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law or marketing). In summary, multiple techniques were used to ensure that the datacollection and analysis in this research was rigorous.

Results and discussionThe research findings are segmented into four thematic categories, all of which revealgreater insights into the characteristics and causes of conflict. To begin,interviewees were asked to describe the main causes of relational conflict withintheir franchise system. The following statement (franchisor) is indicative of a majorityof responses:

On a broad basis, it is really just a question of expectation versus reality. There is a differencebetween what they (the franchisees) expect and what they get; this is a usual cause forconflict. Now whether what they expected is because they were misled or because they heardwhat they wanted to hear or they haven’t spent enough time understanding or just becausethey can’t understand something until they get into it. They have a dream of what it is likeand the dream and the reality of it is different [. . .] I think this is the basis on which all theconflicts start is the expectation versus the delivery, it is different.

Four dominant themes were identified during the course of the protocol discussions:

(1) the expectation gap;

(2) trust in the franchise relationship;

(3) relational satisfaction; and

(4) perceived conflict.

Each thematic category is discussed in the following sections.

Theme 1: the expectation gapInitial protocol discussion questions centred predominantly upon their expectationsprior to, and following entry into the franchise system. A strong majority of franchiseesself-identified that they had initially held unrealistic expectations at the pre-entrystages of entering the franchise system. In addition, most interviewees agreed that thesemisconceptions (in relation, for example, to profit potential and the quality and extent offranchisor-provided services) significantly contributed to higher levels of conflict intheir franchise networks. Importantly, most interviewees nominated that franchiseeexpectations were predominantly reliant upon the franchisor’s provision of timely andmeaningful information to their franchisees. Thus, the concept of informationdissemination was viewed as an important ingredient in the formation of franchiseeexpectations regarding the future value of the franchise offering. In this context,information dissemination refers to the degree to which the franchisee perceives thatappropriate and relevant information was provided by the franchisor to franchiseecandidates prior to purchase.

Protocol discussions with franchising experts uncovered what one franchiseebranded as “franchisor cowboys”, that is franchisors who deliberately mislead potentialfranchisees by misrepresenting and often “inflating” the potential of the investment inorder to encourage unit sales. This behaviour inevitably resulted in escalating levels ofconflict as franchisees became aware of inconsistencies between their initialexpectations and actual performance. A majority of franchising experts believed that

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franchisees were often misled by franchisors who acted opportunistically in an attemptto sustain growth in their systems. For example, one franchisor commented:

Of course, that’s one of the first things you learn when you start franchising. We have had anumber of these (incidents) and now we have a number of introductory meetings and that’swhere we try to get their perceptions out of them and then try to give them the reality of whatit actually is. We do this a number of times to try to make sure our perceptions match theirsby the time they are ready to sign the franchise agreement.

Furthermore, another franchisor stated:

We (the franchisor) unfortunately, of course, end up being the scapegoats because we are stillaround and the pre-existing licensee has disappeared. We end up being the one who has toput out the fire. We try now to say, “before you come in, show us a business plan, show uswhat your level of debt is, show us what your level of assets are, show us how you are goingto service that debt.” That goes some way toward us being able to work out whether or notthey are suitable as a licensee. At least then we have some idea of what information we needto give them to ensure that they enter our business without the “blinkers on”.

However, just over half of the interviewees nominated that franchisors were not alwaysat fault in encouraging the formation of unrealistic expectations. Intervieweesconsistently recalled instances in which franchisees dismissed factual information(e.g. disclosure documentation, third-party advice) in favour of retaining the falseperception that franchising represented a business model which provided a “license toprint money”. Given the prominence of this type of mindset in the franchisee population,many of the interviewees conveyed the importance of franchisees conducting adequatedue diligence prior to entering franchise agreements. For instance:

Franchisees don’t always do their homework. We have found that often they are “hell-bent”on buying, even though they do not fully understand what they need to do to be a successfullicencee. We had one client, a bakery, where the franchisee was not even aware that he had tostart work at 4am. It is astounding what they do not bother finding out.

Therefore, based upon the preceding discussion, we propose:

P1. “Information dissemination” will have a significant positive effect onexpectations confirmation.

P2. “Information search” will have a significant positive effect on “expectationsconfirmation”.

A recurrent sub-theme in the protocol discussion related to the conduct of franchisee duediligence. A majority of franchise experts suggested that an independent entrepreneur’scapacity to conduct adequate levels of due diligence was largely dependent upon theirlevel of formal education and prior business experience. Overall, these variables wereviewed as influencing the formation of franchisee expectations. For example,one franchisor within the retail food sector suggested that franchisees within hersystem would not fully understand the risks involved in franchising due to their lack ofbusiness experience:

I think in some of them (the franchisees) it’s a bit of naivety in running their own business[. . .] a lot of them have not had any experience in running a business, and you still have tohave some nouse otherwise you just don’t know what you are getting into.

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Moreover, another interviewee (Lawyer) stated that:

Inevitably I think that people have a vision that running a business will make them richbecause all businesses are rich, that is the outside perception, a lot of people’s perception. A lotof people think, “if I get my own business everything will be rosy, it will be great and I can earnall this money,” In reality, a lot of franchisees do not have the education, business orotherwise to know where to look for the right information [. . .] the right advice, or even whatquestions to ask.

The protocol discussions revealed that franchisees have a multitude of avenuesavailable to them when researching their chosen franchisor and franchise system. Mostinterviewees nominated information sources including franchise websites, professionalbusiness advisors, government regulatory bodies (e.g. the Australian Competition andConsumer Commission) and communication with other franchisees. However, duringthe course of the protocol discussions it became evident that a strong majority ofthe franchisees that were interviewed did not adequately research their system prior toentering the franchise agreement. Importantly, it appears that franchisee’s oftendeveloped a strong emotional attachment to the franchise brand, and expectations wereformulated on the franchisees perception of an “ideal” state which would most often centreupon a specific area of interest to each individual franchisee. For example, 14 franchiseesnominated that “lifestyle” advantages dominated their business evaluation process, while15 franchisees equated “financial security” as the dominant reason for enteringfranchising. Thus, we propose that:

P3. “Formal education” will have a significant positive effect on “expectationsconfirmation”.

P4. “Business experience” will have a significant positive effect on “expectationsconfirmation”.

Overall, a strong majority of interviewees mentioned that they were aware ofnumerous examples in which franchisees “let their heart rule their head” in evaluatingthe franchise option. Moreover, it was common for interviewees to recall instances inwhich franchisees who had not conducted adequate due diligence prior to purchasewould often possess unrealistic expectations of the value of the franchise businessculminating in noticeably lower levels of trust in their franchisor, often manifesting inongoing adversarial behaviour. In particular, these individuals tended to be lesssatisfied in the franchise relationship and had lower levels of cooperative intent inmaintaining the relationship. For instance, one franchisor stated that:

A lot of franchisees have not reviewed their business operations rationally, and so there is agap between what they are expecting and what they actually achieve. The disturbing thing isthat they do not see this as a fault of their own, but it’s the franchisor’s problem, they were theones that told the untruths, in their mind. But what happens is that they now do not have anyconfidence in head office or the franchisor and they just want to exit out of the system.

Moreover, one franchisee commented:

I just lost confidence in everything. I really believed that I would get a good return on myinvestment and I would have some flexibility [. . .] but it just did not happen. I could not evenlook at [the franchisor] and I was keen to leave, because the whole situation was untenable.

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I could not understand how I got it so wrong and, of course, I knew that I could not trust thefranchisor to look after my supplier arrangements.

Based upon the above discussion, we present the following proposition:

P5. “Expectations confirmation” will have a significant positive effect on “trust”.

Theme 2: trust in the franchise relationshipOur franchisee research participants were very clear that trust played a significant rolein operations, the management of their relationship with their franchisors and the levelof satisfaction they derived from the relationship. Repeatedly, these intervieweeswould nominate the importance of a franchisor’s “credibility”, “trustworthiness” and“integrity” in facilitating productive relational exchanges. However, this sentimentwas not limited to franchisee participants, with all interviewees viewing trust as animportant antecedent of successful franchise management and franchisee satisfaction.For instance, on franchisor commented:

[. . .] if they [franchisees] believe in what you are doing and that your strategy will give themthe edge in the market, then they will cooperate with all of the head office directives. If you donot get that trust, then you are finished.

Moreover, another franchisor suggested:

We don’t have the type of technology that enables us to track turnover accurately. With ourpeople, 70 per cent of their income is cash so you are heavily reliant on trust with thefranchisee. I know of some other systems that send out mystery shoppers and do other thingsto check franchisee income [. . .] I feel that this is setting up for a “I don’t really trust you”relationship so I am going to send someone to check on you. I don’t like that, it is apartnership that we are supposed to be operating.

In addition, the following response from a franchisee in the property services sector isindicative of the majority of franchisee comments:

[. . .] we have found that we not only bought-into a business, but we bought-into thefranchisor [. . .] I mean, you have to assume that [the franchisor] will do the right thing. This iswhat franchising is about, having trust in your franchisor to support you in developing yourbusiness and the entire concept.

During the course of the protocol discussions, it was revealed that a central tenet ofbuilding trusting franchise relationships was the level of franchisor openness. Inparticular, franchisees apportioned value to franchisor honesty, open communicationapproaches between head office and agents, and transparent conflict managementsystems focusing upon beneficial outcomes for both parties in the dyad. On a number ofoccasions, the interviewees would nominate that, in order to cultivate a network ofhappy, cooperative and satisfied franchisees, franchisors needed to “support theirfranchisees”, “have their [franchisees’] back”, “keep them [franchisees] in the loop” and“ensure franchisees got something from the [conflict management] process”.The following statement is indicative of the majority of responses:

[. . .] the franchise model is a funny thing. People buy into it so they can get access to all formsof help from their franchisor, and if this is not communicated from the outset and all throughthe relationship, then they will never trust the business or the business owners again. I haveseen it happen in so many systems, where the franchisor and franchisees are not talking

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and litigation ensues. But the good systems keep their franchisees close and talk to them, andtry to work out the problems so everyone wins.

Moreover, franchisee commentary placed a similar emphasis on the role of franchisoropenness and support. For instance:

[. . .] being a good franchisor is about communicating with us [franchisees] about how theyare growing the brand nationally. It is important that we feel that we can count on head officewhen we need them. Just the other day, I had some concerns over our promotion inQueensland and how it was not helping us in our territory. I got on the phone and got to speakwith the franchise development manager. It was all sorted out and then I knew why they weredoing this sort of promotion. If they had not taken my call [. . .] and listened to me, it may havebeen another story [. . .] it could make you consider leaving or even speaking to my solicitor.

The level of perceived support that the franchisor provided to the franchisee impactedon levels of trust. As one franchisor stated:

There’s a bit of a trust issue here [. . .] we’re not talking to each other as much as what we usedto and this is hurting our relationship. The breakdown of our communication happened along time ago and I think it really contributed to where we are at now.

Moreover, one franchisor stated that:

So many business owners have approached me, from one time to another, about how they cansolidify their relationship with their franchisees. I tell them that it is about communication whichhas to be ongoing and accessible to all parties. It is also about how you problem-solve, rightthrough from negotiating over a new territory, to handling mediation or litigation. At everystage, the franchisee needs to know exactly what the franchisor is doing and why, otherwise thefranchisees will become dissatisfied and refuse to follow standard practices and [. . .] often leave.

Therefore, although maintaining trust in circumstances where the parties’ interests donot coincide is often a difficult process, franchise systems that encourage relationaltrust will promote a franchisee’s cooperative intent and satisfaction in the relationship.This sentiment has some support in the conflict management literature (Koza andDant, 2007). Therefore, we propose that:

P6. “Franchisor openness” will have a significant positive effect on “trust”.

P7. “Perceived support” will have a significant positive effect on “trust”.

P8. “Trust” will have a significant positive effect on “relationship satisfaction”.

Theme 3: relationship satisfactionThe franchisee interviewees that professed to being satisfied with the relationship withtheir franchisor usually reported encountering lower levels conflict than those that werein disagreement with their franchisors (e.g. regarding issues such as the use of marketinglevy, tying agreements with suppliers, territorial encroachment). Although the protocoldiscussions revealed that franchisee satisfaction was a fairly dynamic concept whichwas often determined by the profitability of individual franchisee units, mostinterviewees agreed that the quality and extent of franchisor openness and supportdetermined a franchisees overall satisfaction with the franchise. As one franchisorcommented “not every franchisee is in it for the money. Quite often it’s the relationshipsthat they build as franchisees that makes the difference.” However, franchisors that

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utilised unilateral communication processes focusing on adherence to system standardsand restrictive directives (e.g. caveat on local marketing, restrictive supplier agreements)tended to exhibit higher franchisee turnover rates. For instance, one franchisor said:

They join [franchise] because they know it works. I have proven that over a very long time. Ifthey do not stick with my program, then it will damage my brand. They should know this butthey don’t [. . .] so this probably explains why we have some turnover.

Conversely, another franchisor recounted his strategy focusing upon understandingwhy franchisees joined his system so that he could assist in making the relationshipmore satisfying for incumbent franchisees:

When people want to start their own business I think that means two things. It means theywant to be in control of their own destiny, they don’t want to be answerable to someone else.But I know they need some help, otherwise they would not have joined our franchise. So I haveto find out what makes them “tick”. You know, how I can talk to them [. . .] how often we haveto meet and how we can learn to navigate through our problems. Once they know this, thenthey are not fearful of talking to me and they know I will handle their complaints so we canwork out a viable solution so we are both happy.

Previous research attests that franchisees that are not in satisfying relationships mayreduce their cooperative intent, act opportunistically (e.g. deviate from acceptedstandards of quality), engage in conflict, and (ultimately) withdraw from the system(Dwyer et al., 1987; Giddings et al., 2009; Koza and Dant, 2007; Rosenberg and Stern,1971). Overall, the protocol discussions confirmed these sentiments, with a strongmajority of interviewees agreeing that dissatisfied franchisees were more likely toengage in conflict with their franchisors. For example, one franchisor commented:

It is just human nature [. . .] unhappy franchisees will litigate if they feel they have a goodcase. Most of the time it is about simple disagreements that could have been solved fairlyeasily. But it is the “last straw” in a string of incidents and both parties just stop talking. Sothis lack of communication is a real issue. They feel alienated from one another and all thefranchisee wants to do is get out and start [. . .] again.

Based upon the above discussion, we present the following three propositions:

P9. “Franchisor openness” will have a significant positive effect on “relationshipsatisfaction”.

P10. “Perceived support” will have a significant positive effect on “relationshipsatisfaction”.

P11. “Relationship satisfaction” will have a significant negative effect on“perceived conflict”.

Theme 4: perceived conflictAlthough a majority of interviewees confirmed that conflict was an inevitable part of thefranchising relationship, it appeared that a franchisee’s level of experience influencedconflict initiation and resolution. In particular, just over half of the intervieweesnominated that more experienced franchisees tended to discount the value offranchisor-provided services (e.g. training, financial assistance, promotional campaigns)and apportion success to their own efforts, which has some support in the literature(Peterson and Dant, 1990; Grunhagen and Dorsch, 2003). For instance:

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[. . .] franchisees that have been in the system for a long time are often the hardest to manage.They think that it is all about them and that somehow they can do it better than us.They forget that we have these systems in place for a reason and that the royaltycontributions are used to ensure that we have a visible brand in the market.

Moreover, more experienced franchisees appeared to be less satisfied overall with thequality of franchisor communication and conflict management strategies and were morelikely to be in disagreement with their franchisors. For example, one franchiseerecounted an incident relating to the management of the marketing funds in his system:

I was so angry with the entire situation. I mean, I have been in the system for a long time andI know exactly what they [corporate office] are spending on advertising and it wasn’t verymuch. All this money, over 1.2 million dollars, just sitting there when we are struggling in adifficult economy. I spoke to a number of licensees and we all believe we can do a better jobwith this. We do not care if we get a newsletter or email talking about our re-brandingstrategy, it misses the central issue, and we are going to do something about it.

From a relational exchange perspective, franchising relationships entail a series ofpositive and negative critical incidents which shape perceptions and subsequentbehaviour (Macneil, 1980). Our results suggest that the longer people have been in thefranchise system, the more likely they are to have different comparison levels (Petersonand Dant, 1990) and the more susceptible they are to experiencing conflict with theirfranchisors. Therefore, we posit that:

P12. “Years in relationship” will mediate the relationship between “relationshipsatisfaction” and “perceived conflict”.

LimitationsAs this study was conducted using a realist paradigm (Perry and Coote, 1994) andqualitative methodology, analytical, and not statistical generalization may be claimed(Johnson, 1997). Future research should clarify and confirm the appropriateness of theproposed relationships espoused in this research through a large-scale survey offranchisees. This is necessary in order to assess and confirm the strength and directionof relationships and provide a nomological network of relationship that will help usunderstand the dynamic nature of conflict in franchising.

Recommendations and conclusionThis study provides a solid foundation for future research in conflict managementassociated with franchising relationships. The results of this study clearly indicate theimportance of franchisee expectations confirmation, trust and relationship satisfactionin minimizing potential conflict within the franchising relationship. Knowledge of therelationship between these constructs by franchising sector participants includingfranchisors, franchisees, franchising advisors, government regulators and franchisingsector suppliers may enable potential conflict situations to become diffused early in theprocess and thus avoid escalation to a major dispute further down the track. Thisresearch has produced clear practical outcomes for business in addition to theoreticalpropositions for future academic research.

Recognizing the needs of industry, the importance of confirmation of expectations ofpotential franchisees highlights the need for better education of prospective franchiseinvestors, including how to undertake proper due diligence when contemplating

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the purchase of a franchise opportunity. To address this need a free online pre-entryeducation program for prospective franchisees has been developed by the Asia-PacificCentre for Franchising Excellence in collaboration with the industry partner in thisresearch (ACCC)[1]. It is anticipated that easy access to this important information mayalleviate the major cause of conflict identified in this research.

Furthermore, a number of research propositions have been developed through thisresearch in order to assist with the future quantitative testing of proposed relationships.On this basis, this study makes a significant contribution to the literature and hasprovided the groundwork for future research in this important research domain.

Note

1. www.franchise.edu.au/pre-entry-franchise-education.html

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About the authorsProfessor Lorelle Frazer is Director of Griffith University’s Asia-Pacific Centre for FranchisingExcellence and Dean, Teaching and Learning in the Griffith Business School. One of Asia’sleading franchising researchers, she has been researching the sector for more than a decade andhas worked with franchise businesses across all industries. Professor Frazer also teachesfranchising at Griffith University and provides advice to the Australian Government on issuesrelating to the sector. In 2010 Professor Frazer was awarded the “Contribution to Franchising”award by the Franchise Council of Australia for her leadership in the field of franchise education.Lorelle Frazer is the corresponding author and can be contacted at: L.Frazer@griffith.edu.au

Associate Professor Scott Weaven is Deputy Director of Griffith University’s Asia-PacificCentre for Franchising Excellence and currently teaches in the Department of Marketing, GriffithUniversity. His research interests include franchising and small business management and hisresearch has been published in international journals including the Journal of the Academy ofMarketing Science, Journal of Retailing, European Journal of Marketing, Journal of BusinessEthics and International Small Business Journal, amongst others.

Professor Jeff Giddings is the current Director of the Legal Practice Centre, Director ofProfessionalism and Convenor of the Graduate Program in Dispute Resolution at GriffithUniversity. He has over 20 years’ experience in dispute resolution, in the areas of mediation,community legal services and legal aid. His research has been published in journals including theAustralasian Dispute Resolution Journal, Washington University Journal of Law and Policy,British Journal of Law & Society, Monash University Law Review and Alternative Law Review.

Associate Professor Debra Grace teaches Marketing at Griffith University, Gold Coast, Australia.She holds a Bachelor of Business with Honours in Marketing and Management and a PhD inMarketing. Her research and teaching interests lie within the services marketing, branding andconsumer behaviour areas. As such, she has a number of publications within journals that have theirfocus in these areas, such as the Journal of Retailing, Journal of Service Research, Journal of ServicesMarketing, European Journal of Marketing, Journal of Retailing and Consumer Services and more.

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