Watershed time for franchising industry

Watershed time for franchising industry

Integrity and reputation will be key business drivers in 2008 with consumers increasing questioning levels of ethics in business - and no business is more at risk to adverse events in these realms than franchising says Hannah Samuels, a business consultant and author who specialises in reputation issues.

“Franchising is a business built on reputation and promises,” says Samuels, “and the bigger the franchising business becomes, the more at risk it is from reputation damage. If you have a 1000 franchisees, that’s a 1000 different ways your business could be tainted by someone with your business name.”

New Zealand is a star in the global franchising scene, worth $10 billion annually. More than 350 franchise systems operate here, giving us one of the highest proportions of franchise per capital in the world. Over 70% of the franchise systems operating in New Zealand originated here and the world’s largest courier franchise, Fastway Couriers, was founded in Hawke’s Bay.

“Investment in franchises is based largely on reputation; patronage of franchises is based on reputation. Reputation by association is a powerful component of the industry,” says Samuels.

“It means that a problem in the industry tarnishes everyone and everything associated with it and a domino effect can occur. The franchising industry is definitely likely to feel the effects of the recent Green Acres situation: it won’t be a mortal blow, but it is severe.
“The number one reputation damager is overpromising and under delivering. In an industry built on promises and reputation it is essential to maintain trust and integrity and reduce doubt. A loss of faith is hard to recover from.”
Hannah says a master franchisor should look beyond what is stated in a contract to ensure those they do business with have shared values and ethics.
“Given the franchisee will be responsible for the brand and the business’s reputation, it’s important that the franchisor is confident about how this person will represent them and deal with any out-of-the-ordinary incidents.”

Says Samuels: “Due diligence should be done seeking references from former colleagues or suppliers where appropriate.

“For those considering franchising to fund expansion of an existing business, remember the more removed from service delivery, the more reliant on others you’ll become.

“You take on more of the back-of-house work and could find yourself dealing with more franchisees who may or may not be doing what you expect of them and who may feel it’s your responsibility to ensure their success. They literally hold your reputation in their hands.”

Samuels, author of Reputation Branding: How to Grow Your Business Without Spending a Cent, says damage control in a worst case scenario could include:

- An open letter - perhaps by way of full page advertisements in daily newspapers to all customers to reassure of your commitment to service

- Invite all existing franchisees to come together to be briefed as to how best to respond to queries and possible accusations and give them an opportunity to air their concerns

- A reputation refocus on likely reputation damagers and enhancers, internally and externally, and an action plan to minimise risks

“How you respond to an adverse reputation event will either shorten or lengthen the time of impact and the damage to your business,” says Samuels.

“This recent situation may have introduced speed wobbles into the franchise industry, but one of the signs of a mature industry is how well incidents are handled.

“It won’t kill the industry, but it’s a timely wake up call for those with a business or interest in franchising.”

ENDS

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