The Psychology of Healthy Franchise Relations

These seven evidence-based principles, if properly understood and implemented, will definitely create a positive foundation for creating healthier, more productive franchise relations.

By Greg Nathan, CFE

The franchise relationship has several facets. A useful analogy is the three-legged stool. The first leg is the legal leg. A well-drafted legal agreement is certainly important for defining the formal obligations of franchisees and franchisors. But it is a mistake to confuse the franchise relationship with the franchise agreement. This is like saying a marriage is defined by the marriage certificate. The second leg is the commercial leg. Franchisees and franchisors enter into a franchise relationship to improve their prospects of business success. The commercial aspects of the relationship should enable both parties to reduce their risk by sharing knowledge and experience, improve their financial returns by sharing resources and rapidly grow their market share by sharing a brand. However, many franchise networks with strong legal agreements and commercially sound concepts fail to achieve sustained success because of a weakness in the third component. This is the psychological leg: how franchisees and franchisors feel about being legally and commercially connected. It incorporates trust, commitment and the informal expectations people have of each other. We could call this the “psychological contract.” This psychological aspect of the franchise relationship can be a potent source of competitive advantage by those who recognize its power, as well as a source of misery for those who deliberately or inadvertently ignore it. Before exploring how to strengthen the psychological leg, here’s a word about definitions. When discussing the franchisee-franchisor relationship, sometimes there can be confusion over the term “franchisor.” Is this the company’s founder, the corporate entity that owns the intellectual property or members of the leadership team?  Because companies don’t make decisions — people do — and the founder will often no longer be in charge, franchisor here means the executive team that leads the company.

The ACE Factor

To achieve healthy franchise relations, the psychological leg of the stool must be strong. A measure of this strength will be high levels of franchisee advocacy, commitment and engagement.

1. This represents the willingness of franchisees to recommend the franchise concept to others. This word-of-mouth advocacy is, and has always been, the most powerful and cost-effective way for a franchisor to attract good quality new franchisees. The popular Net Promoter Score question asked of customers, “How likely would you be to recommend this business to a friend or family member?” is just as important when applied to franchisees. 
2. This indicates the willingness of franchisees to stay in the network despite the inevitable growing pains and pressures they will face. All franchisees will experience frustration and disappointment and all franchise networks will experience marketplace challenges. In a healthy franchise relationship, franchisees take these in their stride because they have confidence in the franchisor and they believe there is a bigger picture that deserves their commitment. 
3. This signifies the willingness of franchisees to enthusiastically involve themselves with network activities and brand initiatives. This comes from franchisees having genuine pride in the brand and the products or services they sell, as well as from a feeling of shared identity with other people in the network.

Seven Principles to Build Positive Relationships

Our team of psychologists at the Franchise Relationships Institute has been studying the factors that drive advocacy, commitment and engagement for more than 20 years. Here are seven significant findings that also align with the latest science on the psychology of positive relationships.  

7. Look beyond profitability to explain satisfaction. It is true that the majority of franchisees are primarily motivated by making money. But profit is only one factor that contributes to healthy franchise relations.  Once a certain level is achieved, more profit does not equate to higher satisfaction. Some of the most profitable franchisees can be the least satisfied. Other needs, such as those covered below, must be taken into account. While an unprofitable franchisee will probably not be happy, the assumption, “If they are making money they will be happy,” is not necessarily true.
8. Focus leadership messages on promoting optimism. One of a franchisor’s most important roles is to provide franchisees with a sense of confidence in the future. This is largely achieved through clear, long-term strategies that will keep the franchisor and franchisees’ business safe. Optimism drives positive attitudes and behaviors. Over the years we have seen many franchise networks maintain healthy franchise relations, despite facing significant marketplace or commercial challenges, because franchisees have confidence their franchisor is taking them to a better place.
9. Be firm and consistent with brand standards. Most franchisees understand the interdependent nature of their business, not just with the franchisor, but also with each other. The better performers in particular know that a franchisee who delivers a poor customer experience is potentially damaging everyone’s investment in the brand and they expect their franchisor to do something about it. Franchisors who are fair and firm in insisting on high brand standards have happier franchisees.
10. Pay care and attention to how change is introduced. The badly managed introduction of new initiatives is a common source of franchisee dissatisfaction. While franchisees usually accept the need to adapt to shifts in the market, they may have difficulty accepting the loss associated with any change. This is not always a financial issue. Loss can be associated with identity, status, certainty, convenience or relationships. Effective communication during times of change, especially about these types of losses, will directly impact franchisee commitment to the change.
11. Treat franchisees as respected stakeholders. Possibly the most important of all human needs is the need to be taken seriously. We all want to be valued and appreciated. One question we have asked thousands of franchisees is “Do you have any messages for top leadership?” The most common response, which accounts for 27 percent of all comments, is “Listen to us, consult more on issues that impact on us and take us more seriously.” At the root of many franchisor-franchisee disputes is a perceived lack of respect, usually stemming from a lack of consultation. By the way, consultation (listening to others) does not mean consensus (deciding together).
12. Encourage connection and pride. Another question we regularly ask franchisees is “What is the best thing about being a franchisee?”  Three of the top five themes relate to a sense of belonging, not surprising given the need to belong is such a powerful human instinct. These themes are “Having a sense of connection to the brand and culture; networking with other franchisees; and having the opportunity to interact with customers and staff.” Franchisors wanting to increase franchisee satisfaction should pay attention to how group meetings and conferences are structured, maximizing the opportunity for small-group interaction. Regularly reminding everyone what makes your brand and culture special is also a useful strategy.
13. Don’t hide from the brutal facts. Most franchisees have an innate ability to detect when they are not being told the whole truth. Irrespective of how bad the news is, franchisors who communicate with their franchisees in an honest and frank manner are inevitably rewarded with greater trust. Our research also shows there will usually be an average of 19% of franchisees at any one time who are unhappy for a range of reasons. Directly acknowledging dissatisfaction in an appropriate setting and engaging franchisees, individually or in small groups, in facilitated discussions on what can be done to improve the relationship is an efficient strategy to turn things around.

These seven evidence-based principles, if properly understood and implemented, will definitely create a positive foundation for creating healthier, more productive franchise relations.

​​​​​​​Greg Nathan, CFE, is a registered psychologist and founder of the Franchise Relationships Institute. Find him at fransocial.franchise.org.