In a previous article we talked to you about the advantages of franchising, but now I would like to mention about some disadvantages of franchising. Today more popular becomes such a system of business as a franchising. Many articles tell about its advantages such as easement of attracting financing, the opportunity to attract the best staff, high indices on investment capital gain, and the low level of financial risk. And all of these advantages are really inherent in franchising.
However, we live in the real world where everything that has advantages, it also has its disadvantages. Let’s see what are the disadvantages of franchising and what are they connected?
The first disadvantage of franchising
We must not forget that the franchising is partner system of relations between independent from each other companies. And accordingly, the independent companies have often diverging interests. For example, company franchiser receives royalties in the form of percentage deductions of gross revenues and seeks the most gross revenue in the enterprise franchisee to increase quite often requiring for this price-cutting. However, the franchisee makes a profit from the difference between the cost and selling price, therefore, it is advantageous to maintain prices at a high level. Present a conflict of interest. Also, there are situations when franchisee seeks to minimize their costs at the expense of quality loss of services or decrease in the number of servings. This negatively affects the reputation of the entire network which is contrary to the interests not only of the franchisor, but also other members of the network.
The second disadvantage of franchising
The franchisor in an effort to increase sales, trying to open the maximum number of outlets. So he will be able to fully cover the market and improve the reputation of the network, making it more easily accessible. A franchisee is too dense for the location of the sales outlets is not profitable. Since closely spaced outlets are luring customers from each other.
The third disadvantage of franchising
When a company franchisor implements any business strategy, it is necessary to carefully analyze whether this policy is beneficial to each individual enterprise franchisee. After all, if some measures can be useful for the entire system, but the harm to one or more franchisees, these franchisees will take all possible measures to counter them unprofitable policies and prevent the deterioration of their position in the market.
The fourth disadvantage of franchising
The latest cause of the differences between the franchisor and the franchisee, is that, according to the franchisee, with the time the franchisor ceases to be useful for him. After all, before the opening of the sales outlet franchisor trains the franchisee and its employees, helping to equip and run a sales outlet, gives valuable instruction in the initial period of operation…Then when things will get better and the system works like clock, the franchisee starts to wonder: “And for what I do every month him rolled the big money? I’m here to stick, and he doesn’t do anything, but I must to continue to pay him!” And the franchisee, this situation seems unfair.
Such activities of the franchisor as the development of effective business systems, development and implementation of an advertising company, brand promotion, usually not visible so the franchisee does not take this into account.
As a result, the most successful franchisees acquire the knowledge and business skills quietly often try to get out of the network which would then or simply work on their own or to start building their own competing network. If the franchising wants to prevent such a situation, it should always be necessary for each of its franchisees. It should always provide some services or perform work. Thus, we see that the problems of franchising are a typical problem of partner companies. Therefore, franchising involves a very large negotiating work, work to build relationships with partners.
