What happen when corporate employees make decision for your franchise business?

There is always a clash in interest between corporate employees who work for the franchisor and the franchisee of the business. It's obvious that franchisee's interest will be profit; low cost and big profit margin. Franchisee relies on the experience of the franchisor for a great marketing plan and new product research. However, how will the franchisor able to gauge the effectiveness of say a new marketing plan which is put in placed? Well like any corporate, the franchisor uses KPI. The trick is the correct KPI to be used and measured. The problem occurs when employees of the franchisor focus on achieving their KPI instead of putting themselves in the shoe of the franchisee. Any KPI target achieved is considered a success to them. The employees have no interest in the profitability of the franchise business as it is not their money at stake. The KPI commonly used by franchisor to gauge the success of a new marketing plan is the number of product sold. Instead of focusing on cost reduction, better new product and operation efficiency, gauging solely on quantity sold may not be a good idea. Obviously, the ideal marketing strategy to increase quantity sold is to make the product cheaper. Done! Quantity product sold goes up and KPI target achieved. Job well done and bonus on the way! This scenario is very common in F&B franchise business due to the competitive nature of the industry. 

The increment in the quantity of product sold indicates a possible wider market penetration OR merely an increased in the frequency of purchase by the consumers. This strategy benefits the franchisor more than the franchisee. Lower price will drive up the quantity sold but may not drive up the total sales. With higher quantity sold, it's already a good sign for the franchisor. Higher sales is just a bonus. In order to achieve the same total sales, more have to be sold by the franchisee. Even with the increment of quantity sold, franchisee may experience similar total sales. However, cost will definitely goes up; higher labor cost, electricity bill, water bill and food cost. The end result, thinner profit margin with the same total sales even though quantity sold goes up.

Such strategy is a win win for the franchisor. Maintaining the sales means same amount of royalty collected by the franchisor. Wow.. same royalty collection with increased number of quantity sold. 2 pluses at the same time. 

Many franchisees face such problem with their franchisors. The decision made by the franchisor is often non negotiable. To make their work easier, the employees of the franchisors use same strategy for all market. Instead of trying to understand the consumer behaviour of each individual market, they assume that consumers in every market are the same. They fail to understand that consumer spending power, government policies, tax laws and market competitors are not the same.