Monday, April 25, 2011

How the Franchise Industry misused the Internet - Part 3 of 5

This is the third of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at


To best understand how the Internet has impacted on the institutions within the Franchise Industry, one must first understand the scope of this industry and the role of its institutions.

The Franchise Industry is a $624B industry. It is larger than the entire durable goods industry which includes automobiles, computers, trucks and airplanes. It creates nearly 10 million jobs and generates approximately $229 B in payroll. Overall, it accounts for an estimated 7.4% of all private sector jobs. (Source: Economic Impact of Franchised Businesses, A Study for the International Franchise Association Educational Foundation; PriceWaterhouseCoopers, 2004)

The Franchise Industry is comprised of two distinct groups, franchisees and franchisors. Franchisees own local businesses and generate revenues by selling products/services to the ultimate consumer. Franchisors provide support services to franchisees in return for various payments. Each of these groups have different goals. Franchisees desire to maximize their profits by limiting their payments to their franchisor while receiving as many support services as possible. For the Franchisor, the goal is the exact opposite. Franchisors desire to maximize their revenues from franchisees while spending as little as possible on the services they provide. This is a symbiotic relationship where both parties are dependent on the other for survival yet compete to maximize their benefit in this relationship.

When an individual franchisee needs to communicate with their franchisor, for good or bad, they can be at a disadvantage when dealing with a large organization. It is for this reason that the Franchisee Association exists. Franchisee Associations provide many services to franchisees including educational programs, informational newsletters, facilitating communications with franchisors, developing or supporting business development initiatives, educating franchisees and conducting proprietary research.

While all these services are important to ongoing franchise relations, it is research that is least understood and (arguably) of most importance. There are times when franchisor and franchisee look at opportunities or challenges from a different perspective. Perhaps franchisees feel that a particular product is priced too low or that advertising is ineffective. Alternatively, franchisees may feel that vendor product or pricing is too high. In order to justify a change these types of changes, solid documentation is often necessary. It is this ongoing research that provides franchisee groups with the supporting evidence and/or documentation to support this franchisee perspective, or to quantify the negative impact of what may currently be a bad business policy. The need for this documentation is particularly important when the franchisor perspective is in conflict with the franchisee perspective.

Out of necessity, Franchisee Associations have morphed into two types. In the absence of Franchisee Associations paid for and supported by the franchisee community, franchisors have created similar organizations and provided them with funding. Where both forms of association exist, those supported through funding by the franchisor tend to dominate because they have the ear of the franchisor and also the financial resources to undertake initiatives. Unfortunately, these franchisor supported groups can be in conflict with franchisee interests. Their dependence on the franchisor for funding and support services limits their ability to fully represent the franchisees. To cite just one example, there is no reason for a franchisor to support and fund research by a Franchisee Association when the research results could conflict with their own corporate agenda.

The term Independent Franchisee Association refers to the franchisee association that is fully funded by franchisees with a sole purpose of representing franchisee views in all dealings with their franchisor. Because of its independence from the franchisor, this group tends to be better able to represent the franchisee perspective and support their interests.

Franchisee Associations also exist at more global level. These groups can provide a single voice for the numerous franchise specific associations when it comes to broader issues. These associations may serve as a lobby group to the government, for example, or to undertake research of or on behalf of the entire franchise industry. These associations may represent franchisors or franchisees.
About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

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