This is the author’s version of a work that was submitted/accepted for
pub-lication in the following source:
McDonnell, John,
Beatson, Amanda T., &
Huang, Chih-Hsuan
(2011)
In-vestigating relationships between relationship quality, customer loyalty and
cooperation : an empirical study of convenience stores’ franchise chain
systems.
Asia Pacific Journal of Marketing and Logistics,
23(3), pp.
367-385.
This file was downloaded from:
http://eprints.qut.edu.au/47150/
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Copyright 2011 Emerald Group Publishing
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1. Introduction
Small business has been shown to contribute significantly to a nation’s economic development. Small business owners typically confront challenges, uncertainty, and risks while operating new businesses. Franchising has become a way to minimize the risks of small business management (Chiouet al., 2004); however, a franchise system is not a guarantee of business success (Lee and Karkovista, 2001). A poor franchising relationship between franchisors and franchisees can result in franchise failure, such as termination and closure, or franchisee exit (Frazer and Winzar, 2005).
Previous research has investigated several areas of franchising relationships, such as franchisee satisfaction (Hing, 1995, 1997), franchise fees (Frazer and Perry, 1998),
franchising failures (Frazer, 2002), conflict and franchise agreement terminations (Frazer and Terry, 2002), and franchisee selection (Clarkin and Swavely, 2006). Little research, however, has been conducted to determine factors that contribute to successful franchising
relationships (Merrilees and Frazer, 2006; White, 2010). White (2010, p. 163) states that franchise relationships are ‘far more complex than is the case with traditional business relationships’; and there is a need to specifically investigate relationships within a franchise system. Given that the success of franchising systems is based on the strength of the franchising relationship (Nathan, 2000; Weaven
et al
., 2010) and worldwide franchising is
the fastest growing retail format in history (White, 2010), it is imperative to investigate this franchise relationship in detail. The current study therefore aims to investigate elements that strengthen the franchise relationship. To further contribute to this investigation, this study is set in an East Asian context. Although franchising is reaching mature growth period in Asia, little research has been conducted to understand what is happening under these conditions of intense competition (Choo, 2005) what research that has been conducted is largely theoretical or exploratory (Welsh et al., 2006) or trade focused (Choo et al., 2007). This study aims to overcome this shortcoming in our knowledge by investigating if research findings conducted in Western contexts can also be applied in East Asian contexts. The next section of this paper investigates the literature relating to the franchisor-franchisee relationship specifically focusing on the background of the area and elements to enhance this relationship.
2. Literature Review
Researchers have long regarded relationship quality as an important aspect of channel relationships (Ulaga and Eggert, 2006). Superior relationship quality creates a long-term business relationship (Shani and Chalasani, 1992). Within the franchise system relationship quality has been highlighted as an important indicator for successful long-term cooperative relationships (Lee, 1999; Monroy and Alzola, 2005; Lvens and Pardo, 2007).
Researchers also consider retention and loyalty to be an essential source of long-term business success. The franchising sector is growing internationally (White, 2010). Thus, understanding relationships with franchise partners is a necessary method for retaining and enhancing these relationships in the long-term (Chiou et al., 2004).
A franchise system essentially comprises a network of interdependent relationships (Lashley, 2000). Thus, the success of such a system is based on the strength of each franchising relationship (Nathan, 2000; Weaven et al., 2010). Researchers widely regard each interdependent franchising relationship as long-term (Frazer, 2003; Monroy and Alzola, 2005). To enhance such a relationship, franchisors and franchisees need to work together as a team in pursuit of their shared goals (Brown and Chekitan, 1997).
Baucus, Baucus and Human (1996) state that cooperation between franchisors and franchisees is an essential factor in the success of long-term relationships. A cooperative environment enhances coordination and leads to better franchise system performance (Whittemore, 1994). While conflict and disputes are inevitable, the complex nature of the franchisor-franchisee relationship requires that the parties work cooperatively to achieve mutual satisfaction (Frazer and Terry, 2002; Weaven et al., 2010). Despite several recent studies on the topic, our knowledge of the factors that affect cooperation within franchise
firms is still limited (Clarkin and Swavely, 2006).
2.1 Franchising in Taiwan
Recent trends indicate a revolution in retail marketing in Asia. Western-style hypermarkets, as well as large chains of convenience stores, are rapidly displacing many small independent stores (Hsu, 2006). Foreign franchised chain stores have been entering the local market in Taiwan since the late 1970s. These foreign franchised companies, such as 7-Eleven and Baskin-Robbins, have also introduced business techniques and management skills from abroad. This trend created a franchising revolution, not only in local chain store management but also in Taiwan’s food industries (Chiu, 2001).
The last three decades have seen rapid growth of the franchise chain system in Taiwan (Lai, 2007). Franchising has not only been widely accepted as a method of business expansion, but has become one of the most popular business formats in Taiwan (Business Wire, 1998). According to a 2006 survey, convenience stores not only comprise the largest proportion of stores in comprehensive retailing, but are also the fastest developing industry in franchise chain systems in Taiwan (Pan, 2007). Taiwan also had one of the densest convenience store populations in the world in 2005 (Lee, 2003), with each store serving an average of 2,670 people (Hsu, 2006). Both quantities and operating revenues of convenience stores have
grown; however, the growth rate is slowing.
Given that the franchising sector is highly competitive, it is becoming increasingly difficult for franchisors to attract and recruit new franchisees (Frazer et al., 2008; McCosker, 2000). Under these conditions, the purchase of greenfield sites (no previous presence in the area) increases the challenge (Forward and Fullop, 1996). As there is no established reputation and there may be additional start-up costs under this framework, risks may be increased for the franchisee. Research in Australia and the US has indicated that churn is quite low in franchise systems (Frazer et al., 2008; Holmberg and Morgan, 2003) therefore greenfield expansion may be the only way to acquire new franchisees.
Creating a cooperative long-term franchising relationship between franchisors and franchisees is essential to maintain the success of convenience stores and increase competitive advantage among convenience stores in Taiwan.
Research within Australia suggests that disputes over profitability and territory are the second and third most common form of disputes (respectively) in franchise systems (Frazer et al., 2008). As the number of convenience store franchises increases in Taiwan these types of disputes may be evidenced in this market as well. Combined with this, franchised retail trade
operations have the second highest amount of disputes (Frazer et al., 2008) between
franchisors and franchisees of any industry within Australia. These issues within franchising combined with continued recruitment of new franchises suggest the need to focus on
relationship management to enhance and strengthen existing relationships to ensure long term franchise relationship success.
Given the complexities of the franchisor-franchisee relationship, this research is twofold. First, franchised convenience stores have successfully operated throughout Taiwan, yet the convenience store market is increasing rapidly thus intensifying the level of competition. Methods to maintain and enhance successful relationships are important as these numbers increase. By ensuring successful relationships this reduces the pressure as new franchisees are recruited into the system. Consequently, this study develops and empirically tests a model that investigates the influence of relationship quality, franchisee loyalty, and cooperation on franchising relationships. Based on previous Western based research, relationship quality, cooperation, and franchisee loyalty are essential elements in franchising relationships (Monroy and Alzola, 2005).
Second, this work addresses a gap in the existing literature by examining factors that might lead to a successful long-term franchising relationship specifically within an East Asian
context which is an under researched area in franchise research (Choo, 2005; Choo et al., 2007). To ensure success in expanding markets like Taiwan, research is needed to investigate if previous Western franchise research findings can also be applied to East Asian contexts. This paper first discusses the conceptual framework and the research hypotheses, and then addresses the research methodology and the results. Next, the paper explores key findings, their implications for management, and recommendations for future research.
3. Conceptual Framework and Hypotheses
The present study proposes that success of a franchise system relies on the strength of the franchising relationships. Consequently, it is important to understand the unique challenges of relationships in this context in order to strengthen a long-term franchising relationship. Relationship quality is an important determinant of the success of a long-term cooperative relationship in the franchise field (Monroy and Alzola, 2005). Previous studies have conceptualised relationship quality as a higher-order construct (see for example De Wulf et al., 2001; Roberts et al., 2003). While there are different conceptualizations of relationship quality it is often agreed that high levels of trust, commitment and satisfaction are key dimensions of relationship quality (Beatson et al., 2008).
In this research we consequently adopt trust, commitment, and satisfaction as key dimensions of relationship quality within a franchise context. Given that research has indicated a link between stronger channel relationships and economic performance (White, 2010),
relationship quality and loyalty is an important goal for franchisors. Therefore, we propose that highly loyal franchisees will be retained through a successful long-term franchising relationship. Franchising arrangements normally last for a number of years (Frazer et al., 2008), so the franchisor and franchisee are typically motivated to cooperate with each other.
This study focuses on three constructs that are proposed to be critical factors in maintaining a successful long-term franchising relationship: relationship quality, franchisee loyalty, and cooperation. Figure 1 illustrates the conceptual framework of this study and the following sections outline the specific hypotheses.
Figure 1: Conceptual Framework Direct effects H2c (+) H2a (+) H2b (+) H3 (+) Trust Commitment Satisfaction
Franchisee Loyalty Cooperation
H1a (+)
H1c (+) H1-b (+)
3.1 Franchisee Trust and Cooperation
The ideal franchisor-franchisee relationship is one established on mutual trust and
cooperation, which is necessary for the success of both parties (Lee, 1999). Trust is thought of as being able to rely on one another in the relationship and is believed to be the basis by which all successful relationships are established (Morgan and Hunt, 1994). By showing high levels of trust partners are more likely to have shared values and open lines of
communication and more likely to act to enhance the relationship. Successful ccooperation in relationships relies on high levels of trust (Morgan and Hunt, 1994; Doney and Cannon, 1997; Terawatanavong and Quazi, 2006). More trust in the relationship ensures that the partners in the franchise system are more willing to be cooperative in the relationship as there is less of a need to guard against opportunistic behavior (Scherling and Wang, 1997; Petison, and Johri, 2008; White, 2010). The higher the level of trust franchisees have, the higher the level of cooperation with their franchisor will be. Thus, we propose the following hypothesis:
H1a: Franchisees’ perceived trust in the franchisor will positively affect their level of
cooperation with their franchisor.
3.2 Franchisee Commitment and Cooperation
Researchers widely recognize commitment as a key determinant of high-quality relationships (De Wulf et al., 2001). Commitment is not only an important element to maintaining a
Comment [M1]: Additional references
successful franchising relationship, but also an expression of franchisee willingness to engage in a relationship with their franchisor (Frazer, 2003). Commitment often results in
cooperation and enhances profitability (Andaleeb, 1996; Petison, and Johri, 2008). The benefit of cooperation in a network is relationship success (Morgan and Hunt, 1994). Cooperation encourages effective competition and the ability to work together to achieve independent and collective goals (Mehta et al., 2001; Weaven and Frazer, 2007). Achrol and Etzel (1992) also claim that franchisee-franchisor goals should include commitment and cooperation (as well as communication and coordination). Franchisees with higher levels of commitment to their franchisor may display more cooperative behavior. Thus, we propose the following hypothesis:
H1b: Franchisees’ perceived commitment to the franchisor will positively affect their
level of cooperation with their franchisor.
3.3 Franchisee Satisfaction and Cooperation
Franchisee satisfaction is one of the critical factors that contribute to successful franchising relationships (Frazer, 2003; Gauzente, 2003). Satisfied franchisees are more likely to be profitable than dissatisfied franchisees (Morrison, 1997). While conflict and disputes are inevitable, the complex nature of franchisor-franchisee relationships requires the parties to work closely to achieve mutual satisfaction (Frazer and Terry, 2002). As there is the potential
for power imbalance in franchise relationships due to the vertical nature of the relationship, franchisee satisfaction is enhanced through non-coercive interactions and fairness in the relationship (Lee, 1999). Franchisee satisfaction is also enhanced if it is felt that the success of the franchise is due to the franchisor (Lewis and Lambert, 1991), such as training and operational guidelines (Chiou et al., 2004). Gauzente (2003) suggests that the satisfaction of channel members will encourage them to cooperate more fully thus increasing the success and openness of the relationship. Spinelli and Birley (1998) conclude that franchisees with low satisfaction levels exhibit poor cooperation and coordination with their franchisor. This study hypothesizes that greater franchisee satisfaction leads to greater franchisee cooperation with the franchisor. Thus, we propose the following hypothesis:
H1c: Franchisees’ perceived satisfaction with the franchise system will positively
affect their levels of cooperation with their franchisor.
3.4 Franchisee Trust and Loyalty
Trust leads to loyalty. Once trust has been established, loyalty may then follow (Reichheld and Schefter, 2000; Chung and Shin, 2010). Successful franchising relationships rely on the parties trusting each other. A recent study by Chiou et al. (2004) suggests that if franchisees have a high level of trust in their franchisor it will enhance their satisfaction and increase their intention to remain in the franchise system. By having high levels of trust, franchisees
are more likely to identify with the franchisor, which will result in a more positive relationship (Dickey, McKnight and George, 2007). Trust is seen to be a key influencer of attitude toward the relationship (Dickey et al., 2007). This suggests that trust is a key determinant to long term relationship success (Qureshi et al., 2008). Through trust, non-compliant opportunistic behavior is reduced (which may have damaged the franchisor’s brand equity and system uniformity) and franchisees may be more compliant with future directives (Dickey et al., 2007). We propose that greater levels of franchisee trust will enhance loyalty, and thus present following hypothesis:
H2a: Franchisees’ perceived trust in a franchisor will positively affect their loyalty in
the franchising relationship.
3.5 Franchisee Commitment and Loyalty
Previous studies propose that commitment is one of the most critical variables for
understanding the strength of a buyer-seller relationship. Further, it is a useful construct for measuring the likelihood of loyalty (Morgan and Hunt, 1994). Moorman et al. (1992) point out that committed partners are more likely to continue a cooperative relationship. Although franchise contracts provide commitment, parties do better when feelings of commitment go beyond contractual commitment (Caldwell and Kari, 2005). Higher levels of commitment are related to higher levels of retention, leading to organizational profitability (Wong and
Sohal, 2002; Chung and Shin, 2010). Commitment is very important in franchising relationships because the franchise arrangements last for several years. For example, Australian research has indicated that the average length of a franchise relationship is seven years (Frazer et al., 2008). Both the franchisee and franchisor need to strive for mutual goals, such as maintaining quality relationships and achieving improved market share (Frazer, 2003). To maintain the continuity of the franchising relationship, it is important for franchisees to make a long-term commitment to their franchise network. Franchisee commitment directly influences their intention to remain in the franchise network and their propensity to recommend the franchise network (Gauzente, 2003). Franchisees that are highly committed to their franchisor will experience increased levels of loyalty. The following hypothesis is thus proposed:
H2b: Franchisees’ perceived commitment to a franchisor will positively affect their
loyalty to the franchising relationship.
3.6 Franchise Satisfaction and Loyalty
Researchers commonly find that satisfaction is a strong predictor of behavioral outcomes, such as loyalty (Ravald and Grönroos, 1996; Wang et al., 2006; Kassimand Abdullah, 2010). Franchisees with higher levels of satisfaction are more likely to remain in the franchise system and contribute more to the relationship (Morrison, 1997; Gauzente, 2003; Chiou et al.,
2004). A franchisee’s satisfaction plays an essential role in maintaining a long-term relationship with the franchisor as it increases morale, encourages greater cooperation, and reduces relationship breakdowns (Gauzente, 2003). Chiou et al., (2004) also suggest that satisfied franchisees will be loyal to the franchisor, leading to a stronger franchise network and reducing conflict between the franchisor and the franchisee. These outcomes have a positive impact on the long term nature of the relationship. This suggests, that when franchisees are satisfied with their franchisor their level of loyalty increases. The following hypothesis is thus proposed:
H2c: Franchisees’ perceived satisfaction with the franchise system will positively affect their loyalty to the franchising relationship.
3.7 Franchisee Cooperation and Franchisee Loyalty
Cooperation consists of coordinated actions taken by parties to achieve mutual goals (Lewin and Johnston, 1997; Weaven et al., 2010). Inter-firm cooperation helps firms reduce risks and lower costs (Rindfleisch and Moorman, 2003). Franchising relationships need to be sustained over a long period of time (Frazer et al., 2008). Thus, cooperation between the franchisor and franchisee is essential for the franchise system to grow and prosper as a network (Frazer, 2003). The type of cooperation that may be seen within franchise relationships may revolve around advertising, sales campaigns and store layouts thus helping establish mutual goals
(Dahlstrom and Nygaard, 1999). Lawson-Body and O'Keefe (2006) further point out that this enduring desire to maintain a valued cooperative relationship should in turn impact loyalty. Wiertz et al. (2004) conclude that cooperation is positively related to behavioral intentions. When franchisees have higher levels of trust and cooperation, this enhances interactive relationships with the franchisor thus reducing opportunism (Morrison, 1997). We propose that if franchisees and franchisors have a highly cooperative franchising relationship, franchisees will have exhibit higher levels of loyalty. The following hypothesis is thus proposed:
H3: Cooperation between franchisees and franchisors will positively affect
franchisees’ loyalty.
4. Method
4.1 Sample
Convenience stores are the fastest developing industry in franchise chain systems in Taiwan and the industry is becoming increasingly competitive (Pan, 2007). With the number of convenience stores in Taiwan rapidly increasing, the competition among franchises is becoming more intense. Building a superior franchising relationship is essential for both the franchisor and franchisee to increase their competitive advantage among convenience stores in Taiwan. In order to test the hypothesized relationships, data were collected from franchise
owners working as the managers of their franchised convenience stores in Taiwan. These owners had all purchased ‘greenfield’ sites, i.e. the franchise was new to the area as opposed to purchasing an existing franchise. Before the formal survey, we interviewed five
supervisors/managers of franchisees as a pre-test to ensure the survey was relevant and clear to respondents.
4.2 Response and Sample Characteristics
A total of 500 surveys were mailed to a random sample of convenience stores’ franchisees among the four main franchisors in Taiwan. The sample frame was selected from those listed in the Taiwan Chain Store Almanac (Zhou, 2007). A stratified random sampling procedure was used to identify convenience stores in each city in Taiwan and screening questions were used to ensure appropriateness of respondents. In order to reduce a possible research bias caused by geographical factors, only those convenience stores located in major cities were selected in line with previous research conducted in Taiwan (Chen and Quester, 2006).
A total of 135 questionnaires were returned for a response rate of 27 percent. Fifteen of the 135 completed questionnaires were unusable because of missing data or inappropriate responses. As a result, the final sample size was 120, yielding a response rate of 24 percent. Of the 120 respondents, 58 percent of owners of franchisees are male and 42 percent are
female. The majority of respondents (65 percent) are between 31 and 40 years old. Table 1 outlines the sample composition. Most respondents (66.7 percent) hold a Bachelors degree, have over four years franchise experience (69.2 percent), and have worked at least three years with their franchisor (79.2 percent).
Table 1: Sample Composition
Age Percent (%) Cooperative Years Percent (%)
<25 9.2% 2 years 20.8% 26-30 11.7% 3-6 years 41.7% 31-35 30.8% 6 years 37.5% 36-40 35.0% 41-45 7.5% >45 5.8%
Gender Franchising Experience
Male 48% 3 years 30.8% Female 52% 4–7 years 40.0% 8–10 years 17.5% 11 years 11.7% Educational Level High school diploma 13.3%
Senior high school 10.8%
Bachelor 66.7% Master 4.2%
4.3 Construct Measures
The measures for the study needed to capture franchisees’ perceptions of their relationship with their franchisor. Some items were modified slightly to suit the context of Taiwanese respondents. Each construct was measured using a seven-point Likert scale. Table 2 presents a summary of the measures used for each construct. The Cronbach alpha values for each scale
exceeded 0.70, indicating acceptable scale reliability levels. Table 3 shows all items used for the constructs.
Table 2: Summary of Construct Measures
Construct Measure Original Source No. of
Items Cronbach’s Alpha Relationship
quality
Trust Ivens and Pardo
(2007) 5 0.73
Commitment Wemer (1997) 5 0.72
Satisfaction Gauzente (2003) 9 0.92 Franchisee Loyalty Renewal likelihood Referral likelihood Selnes (1993) 1 0.79
1 Cooperation Information sharing Mahama (2006) 2 0.83 Problem solving 2 Willingness to adapt to change 2 4.3.1 Franchisee Trust
This study examines two types of trust in the franchising relationship: trust in the franchisor’s credibility and trust in the franchisor’s benevolence (Doney and Cannon, 1997; Ivens and Pardo, 2007). Trust in the franchisor’s credibility captures the extent to which the franchisee believes that the franchisor’s word or written statement is reliable and the franchisor performs its role effectively and reliably. In contrast, trust in the franchisor’s benevolence is based on the extent to which the franchisee perceives the franchisor is concerned about the welfare of the franchisee. The trust scales used in this study were sourced from Ivens and Pardo (2007). Five items were used to measure the extent of franchisees’ trust during encounters with their
franchisor. The items were measured on a seven-point Likert scale, ranging from 1 (strongly disagree) to 7 (strongly agree). Two items of the trust scale were reverse-scored.
4.3.2 Franchisee Commitment
Commitment is the franchisee’s desire to continue a relationship with the franchisor because of a positive attitude, accompanied by the franchisee’s willingness to maintain the franchising relationship (Morgan and Hunt, 1994; Kumar et al., 1995). The scale for measuring
commitment was sourced from Werner (1997). Five items were used to measure the
franchisees’ intention to continue the franchising relationship with their franchisor. Responses to these items were recorded on a seven-point Likert scale, ranging from 1 (strongly disagree) to 7 (strongly agree).
4.3.3 Franchisee Satisfaction
Franchisee satisfaction is an essential predictor of the intent to remain in a relationship and is critical for the long-term survival of the franchise. Franchisee satisfaction was measured as job satisfaction, using a scale sourced from Gauzente (2003). Nine items were used to assess franchisee satisfaction in the franchising relationship. These items were measured on a seven-point Likert scale, ranging from 1 (very dissatisfied) to 7 (very satisfied).
4.3.4 Franchisee Loyalty
Loyal franchisees are less likely to seek out alternative franchisors and more likely to continue a contract with an existing franchisor, as well as to recommend the franchisor to others (Selnes, 1993). Measures of franchisee loyalty were sourced from Selnes (1993). Two items were used to measure the degree of franchisee loyalty in a franchising relationship. The first item was the likelihood that franchisees would continue the relationship with their franchisor. The second item was the degree to which franchisees would recommend their franchisor to others. Responses to these items were recorded on a seven-point Likert scale, ranging from 1 (strongly unlikely) to 7 (strongly likely).
4.3.5 Cooperation
Close cooperative relationships between the franchisor and franchisee are critical for establishing a successful long-term franchising relationship. The measures of cooperation in this study were based on those reported by Mahama (2006). Six items were used to measure the cooperative relationships between a franchisor and their franchisees. These items were measured on a seven-point Likert scale, ranging from 1 (strongly disagree) to 7 (strongly agree).
Table 3: Construct Measures
Construct Item formulation
Relationship quality
Trust 1. My franchisor keeps promises to my firm.
2. My franchisor is not always honest with me. (reversed) 3. My franchisor is truly interested in my success. 4. My franchisor is trustworthy.
5. I find it necessary to be cautious with my franchisor. (reversed)
Commitment 1. I intend to maintain my relationship with my franchisor as long as possible.
2. I do all I can to not threaten my relationship with my franchisor.
3. I am ready to invest more than usual into this relationship. 4. My cooperation with the franchisor is peaceable.
5. Occasionally, I seek for alternatives to the products or services I obtain from the franchisor.
Satisfaction 1. Are you satisfied with your working condition? 2. Are you satisfied with the social status that your work
gives you?
3. Are you satisfied with your job security?
4. Are you satisfied with how you use your personal qualities?
5. Are you satisfied with how you make decisions on your own initiative?
6. Are you satisfied with your workday occupation? 7. Are you satisfied with how you put your own working
methods into practice?
8. Are you satisfied that your work offers you a feeling of achievement?
9. Are you satisfied with your income in relation to the work you do?
Franchisee loyalty
Renewal
likelihood 1. If you were to continue your business, how likely is it that you would continue your relationship with your franchisor?
Referral
likelihood 2. If another person asked your advice, how likely is it that you would recommend your franchisor?
Cooperation
Information
sharing 1. We provide each other with any information that might be helpful. 2. We keep each other informed about events or changes that
may affect us. Problem
solving 1. In most aspects of this relationship, we are jointly responsible for getting things done. 2. We treat problems that arise in the course of this
relationship as a joint rather than an individual responsibility.
Willingness to adapt to change
1. When some unexpected situation arises, we would rather work out a new deal than hold each other to the original terms of the contract.
2. If expected events occur, we would expect to modify our agreement.
5. Results
This study developed hypotheses to investigate the relationships between three constructs, namely relationship quality, loyalty and cooperation, which are critical to maintaining long-term franchising relationships. This research first used correlation analysis to explore the associations between the constructs and then used regression analysis to further explores broader patterns of associations between the constructs.
5.1 Correlation Analysis
The correlations among the variables offer some initial support for the hypotheses (see Table 4). The results indicate that trust, commitment, and satisfaction are all positively and significantly associated with cooperation (r = 0.63, p< 0.01; r = 0.51, p< 0.01; r = 0.65, p< 0.01 respectively). Similarly, trust, commitment, and satisfaction are all positively and significantly related to franchisee loyalty (r = 0.58, p< 0.01; r = 0.62, p< 0.01; r = 0.72, p< 0.01 respectively). A significantly positive correlation also exists between cooperation and franchisee loyalty (r = 0.60, p< 0.01).
Table 4: Pearson Correlation Matrix Variable 1 2 3 4 5 1. Trust 1 2. Commitment 0.43** 1 3. Satisfaction 0.63** 0.57** 1 4. Cooperation 0.63** 0.51** 0.65** 1 5. Franchisee loyalty 0.58** 0.62** 0.72** 0.60** 1 * Correlation is significant at the 0.05 level (2-tailed)
** Correlation is significant at the 0.01 level (2-tailed)
5.2 Regression Analysis
The broader patterns of associations between the constructs (i.e. the hypotheses) were tested using regression analysis (see Table 5 and 6).
Table 5: Results of Regression Analysis
Dependent variable Independent variable Beta (β) t-value p-value Cooperation (n = 120) Trust 0.35 4.21 0.00** Commitment 0.17 2.15 0.03* Satisfaction 0.34 3.68 0.00** 2 R = 0.53 F = 43.56** Franchisee loyalty (n = 120) Trust 0.17 2.28 0.03* Commitment 0.29 4.12 0.00** Satisfaction 0.45 5.33 0.00** 2 R = 0.61 F = 59.67** Franchisee loyalty (n = 120) Cooperation 0.61 8.28 0.00** 2 R = 0.37 F = 68.53** * p-value＜0.05 ** p-value＜0.01
Table 6: Results of the Research Hypotheses
Causal Path Hypothesis Expected Sign Assessment (p < 0.5)
Trust → Cooperation H1a + Significant
Commitment → Cooperation H1b + Significant Satisfaction → Cooperation H1c + Significant Trust → Franchisee Loyalty H2a + Significant Commitment → Franchisee Loyalty H2b + Significant Satisfaction → Franchisee Loyalty H2c + Significant Cooperation → Franchisee Loyalty H3 + Significant
5.2.1 Relationship Quality and Cooperation
The results indicate that trust, commitment, and satisfaction are important predictors of cooperation and account for 53 percent of its variance. In franchising relationships
characterized by high levels of trust, when franchisees dealt with their franchisor, the degree of franchisee’s cooperation with their franchisor was high (β = 0.35, p = 0.00). Similarly, franchisees with higher commitment to their franchisor also showed higher levels of cooperation with their franchisor (β = 0.17, p = 0.03). The findings also confirm the positive association between satisfaction and cooperation, since franchisees with higher satisfaction within the franchise system also report a higher degree of cooperation with their franchisor (β
5.2.2 Relationship Quality and Franchisee Loyalty
The results indicate that trust, commitment, and satisfaction are also significant predictors of loyalty, accounting for 61 percent of its variance. When franchisees had a high level of trust in their franchisor, the level of franchisees’ loyalty was higher (β = 0.17, p = 0.03). Findings also showed franchisee loyalty to be high when franchisees had high levels of commitment to their franchisor (β = 0.29, p = 0.00). Franchisees with higher satisfaction also reported high loyalty levels (β = 0.45, p = 0.00). Thus, H2a, H2b and H2c were supported.
5.2.3 Cooperation and Franchisee Loyalty
Regression results revealed that cooperation is an important predicator of franchisee loyalty, accounting for 37 percent of its variance. When franchisees and franchisors had a highly cooperative franchising relationship, franchisees reported higher levels of loyalty to their franchisor (β = 0.61, p = 0.00). Thus, H3 was supported by the data.
6. Discussion
The aim of this paper was to investigate elements which can strengthen franchising relationships within in East Asian context. Specifically, this research investigated the influence of relationship quality, franchisee loyalty, and cooperation on franchising
relationships. Researchers regard relationship quality as a key factor in successful
franchising relationships. This study used trust, commitment, and satisfaction to measure the strength of relationships between franchisors and franchisees. The findings show significant relationships between relationship quality and cooperation in the franchising relationship. That is, relationship quality (conceptualized as trust, commitment and satisfaction) influences cooperative behavior between franchisors and franchisees. This result supports the
association between relationship quality and cooperation on the franchising relationship (Frazer, 2003; Clarkin and Swavely, 2006). What is new is the investigation of this within an East Asian context, specifically Taiwan. This is especially relevant given that research suggests that there may be differences between a Western franchising context and an Asian context (Choo et al., 2007). Our findings suggest that in a Taiwanese context there appears to be no difference from previous Western based research on relationships in franchises. This is an interesting finding as it may fast track knowledge acquisition of franchising in East Asian contexts as we may be able to apply the results of previous Western academic empirical research into some East Asian contexts. As the majority of franchising research available in emerging markets, including East Asia, is found in business and franchising trade magazines, government statistics reports, foreign trade commission’s reports and local newspapers (Choo et al., 2007), or is theoretical or exploratory (Welsh et al., 2006) it was presumed that there was a great deal unknown about these franchise markets. This may not be completely so.
The findings from this study support Western franchise relationship research suggesting that high levels of trust on the part of franchisees toward their franchisor enhanced the mutual cooperative relationship. To develop a more cooperative franchising relationship, both franchisors and franchisees need to trust each other.
Franchisees with a great commitment to their franchisor also advance the cooperative franchising relationship. Franchisees who display higher levels of commitment to their franchisor often exhibit a stronger intent to continue the franchising relationship as long as possible. The results also suggest that franchisees with a high level of satisfaction are more cooperative with their franchisor. This clearly suggests that a successful long-term
cooperative franchising relationship relies on franchisees displaying high levels of commitment and satisfaction.
The loyalty of franchisees can be improved through higher levels of relationship quality between franchisors and franchisees. Trust, commitment, and satisfaction were proposed to have a direct and positive effect on franchisees’ loyalty. The results suggest that trust not only enhances franchisees’ intentions to continue the franchising relationship with their franchisor, but also encourages franchisees to recommend their franchisor to others. To gain franchisee loyalty, franchisors must first gain their trust (Reichheld and Schefter, 2000; Chiou et al.,
2004). Gaining franchisee commitment is essential to maintaining continuity of the franchising relationship. The results suggest that franchisees would recommend their franchisor to others once they are highly committed to the franchising relationship. Additionally, franchisee satisfaction not only enhances franchisees’ intent to continue the relationship with their franchisor, but also influences them to recommend their franchisor to others. Satisfied franchisees will be loyal to the franchisor, resulting in a stronger franchise network (Frazer, 2003). Franchisees’ satisfaction is thus a strong predictor for gaining franchisee loyalty. Clearly, this study suggests that franchisors should focus on building better quality relationships with their franchisees in order to retain their loyalty.
Positive associations were found between cooperative franchising relationships and franchisees’ loyalty. A high level of franchisee loyalty results from a great cooperative franchising relationship between franchisors and franchisees. This result is reported across the marketing literature (Morgan and Hunt, 1994; Wiertz et al., 2004). The results show that franchisees with a strong intention to continue the cooperative relationship with their franchisor would recommend their franchise system to others. Consequently, it is important for franchisors and franchisees to maintain a cooperative long-term franchising relationship as this relationship results in franchisee loyalty.
6.1 Managerial Implications
A number of studies have investigated franchising relationships, yet there are no studies to date that explore the interaction between relationship quality, loyalty and cooperation in a franchising relationship in Taiwan. The majority of studies on franchising were conducted in a Western context. However, as franchises are increasing in number in East Asia, there is a need to investigate if research conducted in a Western context is also supported in an East Asian context.
Overall, this study highlights that franchisors should pay attention to the importance of franchisee relationship quality, loyalty and cooperation in enhancing competitive advantage. Relationship quality is crucial to maintaining a successful franchising relationship. Trust, commitment, and satisfaction all result in franchisees being more likely to both continue a contract with an existing franchisor in the future and to recommend the franchisor to others. These empirical findings indicate that even though most franchisees are highly commitment to their franchisor, they still searched for any substitute products or services obtained from their franchisor. Franchisors should therefore provide competitive services/products distinct from other franchisors to retain their franchisees and enhance the relationship.
This study also supports previous studies by examining the benefits of enhanced cooperative relationships between franchisors and franchisees. The results show that a cooperative relationship positively relates to behavioral outcomes, such as franchisee loyalty. Franchisors should pay more attention to their franchisees and communicate with them to maintain a cooperative franchising relationship. Franchising relationships are long-term contractual relationships that operate in uncertain conditions. These uncertain conditions are complex so it might be difficult to modify contractual arrangements to be complete and accurate. Rapid and uncertain changes in the franchise field may take it necessary for regular contact between franchisors and franchisees for franchisors to keep on top of events. Fairness in the joint decision-making process is also necessary for two parties to enhance two-way trust in communication process (Ando and Rhee, 2009). Several practical studies in franchise management suggest that communication is the road to solid franchise relationships (Laurie, 2000; Kane, 2001). Franchisors who communicate effectively with their franchisees may enjoy fewer conflicts and less disruption in the franchising relationships (Frazer, 2003).
6.2 Limitations and Recommendations
This study has several limitations. First, this study focuses on convenience stores’ franchise chain systems in Taiwan. The generalizability of these results to other franchise systems,
industries, or countries may be limited. To develop a more global perspective, further replication of this work is necessary to examine the stability of our results in other contexts (and to further support the notion that Western franchise relationship research can be applied to an East Asian context). Additionally, research in other cultural settings would help to increase the generalizability of this model and ensure its relevance to other eme.
Second, this study collected data using a cross-sectional design. The interdependency between franchisors and franchisees takes time to fully develop but may last for many years. The associations between relationship quality, cooperative relationship, and loyalty of franchisees could change over the different stages of the franchising relationship. To provide stronger inference, testing the proposed model using a longitudinal study design may be required.
Finally, the study has limitations due to several measurement issues. This work modified several measurement scales to contextualize the constructs, which may have negatively impacted scale performance. Further, there is no way to guarantee that every critical explanatory construct was included in the study (Wang et al., 2006). Important variables could potentially influence the relationships between the constructs that this study. Additional variables could be included in future iterations of the proposed model. For example,
communication might be a key factor that leads to a superior franchising relationship. While this was explored implicitly through cooperation, the explicit investigation of communication may yield a more in-depth understanding of this unique context. Franchisors who
communicate effectively with their franchisees deal with fewer disputes and suffer less disruption in their operations (Frazer, 2003). A number of variables might moderate the links between relationship quality, franchisees’ loyalty, and cooperation. Further studies might also consider franchise system size particularly smaller new franchise systems, level of conflict, or the franchise system support structure to identify their moderating effects. Additionally, to get a more holistic view of satisfaction, future studies may also focus on the comparison of churn rate, with satisfaction and the franchisors’ perspective (on the relationship).
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