PSYC3003 Literature Review : The Performance of Franchisees
Answer:
Introduction
According to Nijmeijer, Fabbricotti and Huijsman (2014), franchising is an arrangement where one party, which is the franchisor, gives the right to use the trade name or the trademark of its own to another party known as the franchisee. It also takes some business processes and systems for the sake of production and marketing of goods and services based on certain particular specifications. The franchisee needs to pay some amount of franchisee fee for one time and even a certain percentage of the sales revenue (Kacker et al. 2016). The franchisee gains tried and tested products, detailed techniques with respect to executing and promoting the business, immediate name recognition, training of the employees of the franchisee, standard design and constant help from the franchisor for the promotion and upgradation of the products.
As per Nyadzayo, Matanda and Ewing (2016), franchising is all about relationships, systems, support, brand and creation of relationships. The most valuable asset of a franchisor is its brand (Sinclair and Lane 2014). Consumers are aware of the brands and do not think about who owns the business (Loussaïef et al. 2014). They look for quality products because of the relationships built with the brand. They rely on the brands because of the value proposition and have trust about meeting their requirements. The franchisors keep this in mind and try to provide full support to their franchisees in various ways. On the other hand, Chiou and Droge (2015) have critically argued that they provide the adequate systems and tools such that the franchisees can maintain the standards of the brands and customer satisfaction is ensured. The franchisors before investing must think about the appropriate support they will be getting from the franchisors (Brown and Sandler 2016). There is an expectation from the franchisors that the franchises will be working independently to manage the daily operations of the business. Again, Khan (2014) has opined that the franchisor provides certain services to the franchisees like training the management team of the franchisee, providing a recognized brand name, research and development of products and services, support from the headquarters and field, initiatives for initial marketing, site selection and development assistance for the site of the franchisee. On the other hand, Clinton (2017) stated that a franchisor is needed to enforce system standards in an effective manner. This helps the franchises to protect themselves from the bad actions of the other brands that are sharing the same brand name. There is a benefit of this system in a way that quality products delivered by a franchise benefits the whole system as the customers treat the franchise systems as chain of operations.
Conceptual Framework
Advantages of franchising
Franchising is having a lot of advantages for any company. The franchises are having less capital expenses than the outlets that are owned by the company itself (Madanoglu et al. 2016). However, most of the risks that the company faces are borne by the franchisee rather than the franchisor (Buchan et al. 2017). On the other way, Thomas (2015) has inferred that a franchisee becomes the employer who takes all the roles and responsibilities for the franchisee and it becomes responsible for the local taxes and business licenses. Another advantage that the company will be having by adopting the franchising strategy is that there will be greater interest of the franchises to get success than the franchisor that has already gained the market acceptance (Adeiza, Azizi and Malek 2017).
A franchisor strategically provides support to the franchises in various ways that are mentioned below.
Mentoring and Peer Support networks
An important part of the franchise network that has been critically analyzed, is the support to be received not only from the franchisor but also from the other franchises within the same network (Healey, Jenkins and Lea 2014). The franchises can be benefitted through this strategy. These include coaching sessions on a monthly or quarterly basis in order to maximize the business performance. The company can hold annual franchise conferences where the best franchisee will be awarded based on its performance and the others will be able to learn to make further developments within the network. According to Gassmann, Frankenberger and Csik (2014), the franchisor may resort to the online social media or forums where they can chat with the head of the franchises and make discussions about the strategies to grow the business and make necessary developments of the franchises. The challenging issues come to the forefront through an effective discussion that benefits both the parties.
Ongoing marketing support
Many franchisors are seen to develop marketing strategies on their own that the other franchises have to follow and pay for that. On the other hand, Nyadzayo Matanda and Ewing have stated that good franchisors have the responsibilities to support the marketing activities of the franchises. Some franchisors also formulate the marketing strategies for the franchises.
Lead generation and technical support
Admin, technical support, finance and lead generation vary considerably from one franchise to another (Li et al. 2015). The franchisor needs to support the franchises by providing adequate information about the brand and providing prospectus so that they can be fully aware about the type of financial management, lead generation and administrative support from the franchisor.
IT support
The franchisor must use the software that will be helpful to conduct the business in an effective way and connect with the franchises on a daily basis. It should provide training to the staffs of the franchises so that they are able to use the software.
Customer Relationship Management
As per Nijmeijer, Fabbricotti and Huijsman (2014), customer relationship management is another important aspect that the franchises should learn from the franchisors. This helps in the long-term growth of the business. Building relationship with the customers is important for the brands, which are not so popular. The franchisor can keep a track of all the items being sold from the franchises and helping them in keeping the records. This helps all the franchises to maintain the same level of quality service and integrity all through. The franchisor may also have complete control over the products and services. The operations of the franchisees are improved.
Location Assistance
The choosing of correct site is very important for the success of any business. On the other hand, Nordstrom, Schnicker and Metzner (2016) stated that the businesses that are dependent on sites should maintain the guidelines for choosing a great site and its ancillary facilities for viability. The franchisor has the onus of selecting the best site possible for the franchisee so that they can get something good out of the competitive market as part of their strategy.
Construction assistance
Rosenbaum and Farhat (2015) have stated that the construction assistance includes the franchisor to make a detailed outline of the components that are necessary for the business. The resources that are required to be ordered and assembled for the sake of the business need to be provided by the franchisor. It can provide support by direct ordering the resources for the franchises and provides support to the construction sites and delivery regarding turn-key store to the new franchises.
Training system
Each franchise system needs to offer constructive training programs to the new franchises so that the new staffs become more competent in their service offering (Parikh 2015). Many franchises are new to the industry and having less prior experience. Some industries require the franchises with no previous experience for the new venture. These are predominant in businesses that require specialized skills like tax services and accounting, restaurant systems and real estate services. However, Kellner (2014) opined that the franchisor can give support to the franchises either by themselves or by paying the cost of training conducted by the franchises. The cost must be borne by the franchise that includes the cost of the training and the other facilities required for the staffs. The manual provided by the franchisor to the franchises for the purpose of training includes the instructions to be carried out for effective training of the employees. It helps in the establishment of the rules, specifications and standards of the franchise. The staffs require intensive training regarding the operating system and the processes of the entire business.
Advertising
The advertising efforts of most of the franchisors at the initial stage are either at the local level or at the national level (Webster and Hume2016). The franchisor can take the help of advertising agencies to give attractive ads in the television and radio, direct mails and efforts regarding public relations about the new franchises. Thus, people get to know about the new franchises through the promotional tools.
Other support
Many franchisors are having hotline facilities so that the franchises can call in case of any emergencies or support. The employees required for the franchisees can be recruited by the franchisor itself through effective recruitment and selection of the employees.
There has been a technological advancement all over the world and the companies are depending on technologies for their competitive advantages and finding out more opportunities in the corporate as well as business world. The franchisees of different brands are relying on different technologies and methods for their exponential growth.
Barcode Readers
The franchisor can help the franchises in using the barcode reader that can ensure that the products are being sold at the right way in the franchisee outlet and human errors will be considerably reduced (Hicks et al. 2014). These errors are regarding pricing or the quantity of products sold. Brun (2017) however felt that a franchisor can save the franchisees by reducing their loss through the effective usage of barcode readers and enhancing their production value.
Security
The strategic usage of technology by a franchisor and the franchisee can increase their security (Lucia-Palacios et al. 2016). The franchisor can take the help of video cameras and other security systems to monitor whether everything is going in the right direction in the franchisees (Castro, Ribeiro and Dreyer 2016). In this way, the franchises can be directed to achieve the goals of the brand.
Communication
According to Ting (2016), the franchisors must focus on communication with the customers as well with the franchises so that the quality of service is maintained at the outlets. It can make full utilization of the technologies like VoIP for the improvement of efficiency for the division of calls across the franchisees (Singh and Advocate 2016). Smith and Telang (2016) have stated that file sharing is another process that can be used for the sharing of documents among the different franchises with the main outlet. This keeps synchronization between the outlets. This has positive impacts on the productivity of the franchisor and the franchisees.
Marketing support
The franchisor can provide marketing support to the franchisees to draw more customers to the new outlets. A brand is renowned to many customers still it needs a proactive plan for the marketing activities. More the number of options available to the franchisor, more effective will be the activities in maximizing the marketing of the business. Usually the franchisor is having a lot of options but no single option is enough to guarantee the success of the marketing activities.
Franchisor Ads
One of the reasons of attraction for the ownership of franchises is the franchisor advertising. The franchisors help the franchises to a larger extent with respect to advertisement. Most of the franchisors have the ability in launching large scale marketing campaigns that can exceed the reach of the individual franchise. The franchisor ads have the advantages of larger geographic scope when competing with smaller brands that have limited reach.
Franchisor Marketing Advice
The franchisees want the same extent of success as that of the franchisor. This needs the franchisor to provide valuable marketing advice to the franchisees to carry out the marketing activities properly to gain competitive advantage (Morales et al. 2015). It should assist the franchisees in choosing the right platforms for launching the campaigns to attract the attention of the customers.
Franchisee support
A franchisee can even get the support of other franchisees with respect to marketing in case the support from the franchisor is less.
Kim and Mauborgne (2014) have opined that assistance on the part of the franchisers for the franchises can come from various ways when there is any economic downturn. The franchisor can arrange for training programs to guide all the franchises to adapt themselves with the present economy. This is strategic move by the franchisor to help the franchises to cope with the economic changes and retain customers. It can also assists by putting emphasis on the allocation of money for constructive promotional activities. A franchisor can also provide assistance by motivating and mentoring them in difficult situations (März, Kelchtermans and Dumay 2016). Dockner and Fruchter (2014) have felt that the franchises can be helped in another way of setting appropriate pricing strategies for the key value items in these situations.
The strategy of the franchisors to take the help of various technologies may lead to increased performance and efficiency of the franchisees (Iyengar, Sweeney and Montealegre 2015). Jap, Gould and Liu (2017) opined that a well-executed strategy of analytics may help the franchises to improve their efficiencies. It can also increase the revenues of each of the franchises at every location. According to Hesford, Pizzini and Potter, the franchisor needs to implement the system of distributed analytics. Some technologies help in reducing the operating costs of the franchises (2014). Other factors that are responsible for the success of a franchise are unique idea behind the franchise and profitability of both the franchise and the franchisor.
Wu (2015) critically stated that franchisors need to formulate strategies to increase the performance of the franchises based on some key performance indicators. They include measure of liquidity, franchise profit, labor costs; franchise cost of goods sold and franchise sales. The measure of liquidity is the level to which the franchise is able to meet the immediate short-term goals (Clerc et al. 2016). Verhezen and Dequae (2017) have opined that a franchisor with an increased liquidity pressure is in need to formulate new strategies to help the franchises. Profit of the franchises is another indicator based on which plans are created to enhance the performance of the franchises (Hoffman, Watson and Preble 2016). Strategy formulation is also dependant on the sales figures of the franchises.
Conclusions
The literature review discusses about the various strategies that the franchisers adopt to help the franchises in getting establishment and retain the customers. The franchises need to create good relationships with the franchisors and the customers so that the operational activities are conducted in an effective manner. It is the arrangement where the trademark of the franchisor is used by the franchisees for the business. Different technologies like business analytics and VoIP are very useful for the companies for to keep connection with the franchisees and monitor their performances. Barcode reader is another system, which the franchisors may use for effective management of data regarding sales of the products. Choosing the location for the franchises is an important decision and strategy of the franchisors as discussed in the literature review. Sometimes changing the strategies of providing support to the franchises may lead to the enhancement of efficiency and performance of the franchises in terms of sales, communication and customer retention. The literature review defines that franchising has been the favored strategy for the expansion of most of the successful brands all over the world irrespective of any industry.
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