Academic journal article Journal of Small Business Management

Franchisee Satisfaction: Contributors and Consequences

Academic journal article Journal of Small Business Management

Franchisee Satisfaction: Contributors and Consequences

Article excerpt

In Australia, the private sector is comprised predominantly of small firms, accounting for 96 percent of all enterprises (DITAC 1992). However, nearly one-third of Australian small businesses fail in their first year, with less than half surviving their first three years (Williams 1987). Furthermore, managerial incompetence is consistently cited as the main cause of small business failure both in Australia (Williams 1987) and overseas (Dun and Bradstreet 1986). Thus, establishing a new small enterprise appears to be fraught with risks and uncertainties, with numerous management skills required of small business owner-managers.

One response to minimize the risks of small business management has been the development of franchising. Franchising can be described as a contractually based business arrangement between two parties - the franchisor or franchise company that develops a product or service, and the franchisee who buys the right to use the franchisor's trade name and sell that product or service. Proponents of franchising claim it is a superior alternative to independent business management, providing the perfect combination of the resources and expertise of a large company with the personal touch and motivation of individual owner-managers. The Franchising Task Force (FTF) estimates there are over 17,000 franchised businesses in Australia, generating $32 billion in sales annually and increasing by 12.7 percent per annum (Franchising Task Force 1991).

Nevertheless, a business technique based on long-term contractual arrangements between two legally independent businesses and relying on certain inputs from both parties for success and survival has significant potential for conflict. Furthermore, with many independent small businesses falling to reach their full potential, it is important to evaluate franchising as an alternative system of business management and to identify the characteristics of franchisors and franchisees which contribute to the satisfactory operation of a franchised small business. Thus, the objective of this study was to investigate a possible relationship between franchisee satisfaction and certain characteristics of the franchisor and of the franchisees themselves. In addition, the consequences of franchisee satisfaction were examined in terms of post-purchase franchisee intentions.

PRIOR RESEARCH

In contrast to research into the widespread practice of franchising, there has been little empirical research into franchise relationships, particularly from the perspective of franchisees. Hough (1986, 19) points out that the franchising literature contains "a plethora of material...correctly criticized for being repetitive and journalistic, and for containing conflicting and unsubstantiated claims."

Early research into franchising tended to view the franchise relationship as potentially conflict-prone with much dissatisfaction arising from the inherent imbalance of power between the two parties (Hough 1986). Furthermore, the health and productivity of franchise systems has more often been defined in terms of the satisfaction of franchisors than in terms of their franchisees, with dissatisfaction and conflict being viewed as dysfunctional to the franchisors' operations (Hough 1986). Early research emphasized the destructive and inevitable aspects of conflict, concentrating on managing, rather than preventing, franchisee dissatisfaction (Assael 1969, Brown 1979).

More recent studies have shown greater diversity, with some (Hunt and Nevin 1974, Lusch 1977) concentrating on sources of power available to franchisors, others (Hough 1986, Ozanne and Hunt 1971) focusing on the franchise relationship, and still others (Knight 1984, Hunt and Mukhi 1986, Withane 1991, McCosker 1989) examining the characteristics of franchisees.

A literature review reveals that individual studies into franchising have focused on isolated areas of inquiry, intentionally or accidentally excluding other areas which may impact on the franchise relationship. …

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