Reviewed by JAMSHED KHATTAK Assistant Professor

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Investigating relationships between relationship quality, customer loyalty and cooperation

An empirical study of convenience stores franchise chain systems
John McDonnell, Amanda Beatson and Chih-Hsuan Huang
School of Advertising, Marketing and Public Relations, Queensland University of Technology, Brisbane, Australia
Abstract
Purpose Franchised convenience stores successfully operate throughout Taiwan, but the convenience store market is approaching saturation point. This study attempts to empirically examine some important elements (e.g. relationship quality, loyalty, and cooperation) that might promote a successful long-term franchising relationship between franchisors and franchisees of convenience stores in Taiwan. Design/methodology/approach A total of 500 surveys were mailed to a random sample of convenience stores franchisees among the four main franchisors in Taiwan. This research rst used correlation analysis to explore the associations between the constructs and then used a regression analysis to further explore patterns of associations. Findings The results show that relationship quality is positively correlated with the cooperation between franchisors and franchisees, as well as with franchisee loyalty. Additionally, the cooperative behavior between franchisees and franchisors is signicantly correlated with franchisees loyalty. Research limitations/implications Data were only collected through four key convenience stores franchise chain systems in Taiwan. To develop a more global perspective, further replications of this study are necessary to examine the stability of our results in other contexts. Practical implications This research has highlighted that small business owners operating in a franchise system should pay attention to the importance of relationship quality, loyalty, and cooperation in stabilizing franchising relationships and enhancing competitive advantage. Originality/value The majority of studies on franchising relationships are conducted in a Western context. To date, there are no studies that explore the interaction between relationship quality, loyalty, and cooperation in a franchising relationship in an Eastern context. Keywords Convenience, Quality, Customer loyalty, Taiwan Paper type Research paper

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Received January 2010 Revised June 2010 Accepted February 2011

1. Introduction Small business has been shown to contribute signicantly to a nations 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 (Chiou et al., 2004); however, a franchise system is not a guarantee of business success (Lee and Karkoviata, 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).

Asia Pacic Journal of Marketing and Logistics Vol. 23 No. 3, 2011 pp. 367-385 q Emerald Group Publishing Limited 1355-5855 DOI 10.1108/13555851111143268

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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), conict 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 specically 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 ndings 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 specically 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 et al. (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 conict 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 rms 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 Taiwans 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 (The 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 difcult for franchisors to attract and recruit new franchisees (Frazer et al., 2008; McCosker, 2000). Under these conditions, the purchase of greeneld sites (no previous presence in the area) increases the challenge (Forward and Fulop, 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 USA has indicated that churn is quite low in franchise systems (Frazer et al., 2008; Holmberg and Morgan, 2003) therefore greeneld 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 protability 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 inuence 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).

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Second, this work addresses a gap in the existing literature by examining factors that might lead to a successful long-term franchising relationship specically 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 ndings can also be applied to East Asian contexts. This paper rst discusses the conceptual framework and the research hypotheses, and then addresses the research methodology and the results. Next, the paper explores key ndings, 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 Reviewing literature in relation long-term cooperative relationship in the franchise eld (Monroy and Alzola, 2005). to some main themes pertinent to Previous studies have conceptualized relationship quality as a higher-order construct your research topic. unless u (de Wulf et al., 2001; Roberts et al., 2003). While there are different conceptualizations of review literaure in relation to this relationship quality it is often agreed that high levels of trust, commitment and frame work n wil not be able to satisfaction are key dimensions of relationship quality (Beatson et al., 2008). develop focus in ur literature In this research, we consequently adopt trust, commitment, and satisfaction as key research and u can not effectivelydimensions of relationship quality within a franchise context. Given that research has review literature (Kumar 2007) indicated a link between stronger channel relationships and economic performance (White, 2010), relationship quality and loyalty is an important goal for franchisors. Theories or issues n which ur Therefore, we propose that highly loyal franchisees will be retained through a successful long-term franchising relationship. Franchising arrangements normally last study is embeded. aspects u for a number of years (Frazer et al., 2008), so the franchisor and franchisee are typically selected from TF to become motivated to cooperate with each other. basis of ur enquiry. CF s the basis This study focuses on three constructs that are proposed to be critical factors in of ur research problem.(Kumar) maintaining a successful long-term franchising relationship: relationship quality, franchisee loyalty, and cooperation. Figure 1 shows the conceptual framework of this study and the following sections outline the specic hypotheses.

What is CF? What is TF? What is TM?

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).
H2a(+) H2b(+) Franchisee loyalty H2c(+) Commitment Satisfaction H1c(+) Trust H1a(+) H1-b(+) Cooperation

Figure 1. Conceptual framework

H3(+)
Direct effects

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:

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H1a. Franchisees perceived trust in the franchisor will positively affect their level of cooperation with their franchisor. Directional and non directional?
Research H and Null H, H of Difference, H of point prevelance, H of association

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 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 protability (Andaleeb, 1996; Petison and Johri, 2008). The benet 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). Satised franchisees are more likely to be protable than dissatised franchisees (Morrison, 1997). While conict 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.

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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.

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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 et al., 2007). Trust is seen to be a key inuencer 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 franchisors 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 Karri, 2005). Higher levels of commitment are related to higher levels of retention, leading to organizational protability (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 inuences 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 nd that satisfaction is a strong predictor of behavioral outcomes, such as loyalty (Ravald and Gronroos, 1996; Wang et al., 2006; Kassim and 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 franchisees 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 satised franchisees will be loyal to the franchisor, leading to a stronger franchise network and reducing conict 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 satised 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-rm cooperation helps rms reduce risks and lower costs (Rindeisch 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 OKeefe (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 greeneld sites,

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i.e. the franchise was new to the area as opposed to purchasing an existing franchise. Before the formal survey, we interviewed ve 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 complete list of all cases 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 374 selected from those listed in the Taiwan Chain Store Almanac (Zhou, 2007). A stratied random sampling procedure was used to identify convenience stores in each city in dividing data into Taiwan and screening questions were used to ensure appropriateness of respondents. subgroups In order to reduce a possible research bias caused by geographical factors, only those exhausitive & mutually convenience stores located in major cities were selected in line with previous research conducted in Taiwan (Chen and Quester, 2006). Geographical delimitation exclusive 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 nal 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 I 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).

Respondents profile
% Age , 25 26-30 31-35 36-40 41-45 . 45 Gender Male Female Educational level High school diploma Senior high school Bachelor Master Cooperative years # 2 years 3-6 years $ 6 years Franchising experience # 3 years 4-7 years 8-10 years $ 11 years 9.2 11.7 30.8 35.0 7.5 5.8 48 52 13.3 10.8 66.7 4.2 20.8 41.7 37.5 30.8 40.0 17.5 11.7

Table I. Sample composition

Construct Measure What s to capture? Scale adopted, adapted or developed How many scale points? Reliability of scale? Number of items? Straight scale or reverse scale? Validity of scale? Face, Content, Predictive, Concurrent, Predictive 4.3 Construct measures Franchise chain
The measures for the study needed to capture franchisees perceptions of their relationship with their franchisor. Some items were modied slightly to suit the context of Taiwanese respondents. Each construct was measured using a seven-point Likert scale. Table II 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 III shows all items used for the constructs. 4.3.1 Franchisee trust. This study examines two types of trust in the franchising relationship: trust in the franchisors credibility and trust in the franchisors benevolence (Doney and Cannon, 1997; Ivens and Pardo, 2007). Trust in the franchisors credibility captures the extent to which the franchisee believes that the franchisors word or written statement is reliable and the franchisor performs its role effectively and reliably. In contrast, trust in the franchisors 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 franchisees desire to continue a relationship with the franchisor because of a positive attitude, accompanied by the franchisees 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 dissatised) to 7 (very satised). 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
No. of items 5 5 9 1 1 2 2 2 Cronbachs alpha 0.73 0.72 0.92 0.79 0.83 Table II. Summary of construct measures

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Original source Ivens and Pardo (2007) Werner (1997) Gauzente (2003) Selnes (1993) Mahama (2006)

Relationship quality Trust Commitment Satisfaction Franchisee loyalty Renewal likelihood Referral likelihood Cooperation Information sharing Problem solving Willingness to adapt to change

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Construct Relationship quality Trust

Item formulation 1. My franchisor keeps promises to my rm 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 nd it necessary to be cautious with my franchisor (reversed) 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 1. Are you satised with your working condition? 2. Are you satised with the social status that your work gives you? 3. Are you satised with your job security? 4. Are you satised with how you use your personal qualities? 5. Are you satised with how you make decisions on your own initiative? 6. Are you satised with your workday occupation? 7. Are you satised with how you put your own working methods into practice? 8. Are you satised that your work offers you a feeling of achievement? 9. Are you satised with your income in relation to the work you do? 1. If you were to continue your business, how likely is it that you would continue your relationship with your franchisor? 2. If another person asked your advice, how likely is it that you would recommend your franchisor? 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 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 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

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Franchisee loyalty Renewal likelihood Referral likelihood Cooperation Information sharing Problem solving

Table III. Construct measures

Willingness to adapt to change

were sourced from Selnes (1993). Two items were used to measure the degree of franchisee loyalty in a franchising relationship. The rst 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).

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 rst 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 (Table IV). The results indicate that trust, commitment, and satisfaction are all positively and signicantly 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 signicantly related to franchisee loyalty (r 0.58, p , 0.01; r 0.62, p , 0.01; r 0.72, p , 0.01, respectively). A signicantly positive correlation also exists between cooperation and franchisee loyalty (r 0.60, p , 0.01). 5.2 Regression analysis The broader patterns of associations between the constructs (i.e. the hypotheses) were tested using regression analysis (Tables V and VI).

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Variable 1. 2. 3. 4. 5. Trust Commitment Satisfaction Cooperation Franchisee loyalty

1 1 0.43 * * 0.63 * * 0.63 * * 0.58 * *

2 1 0.57 * * 0.51 * * 0.62 * *

1 0.65 * * 0.72 * *

1 0.60 * *

Note: Correlation is signicance at: *0.05 and * *0.01 levels (two-tailed), respectively

Table IV. Pearson correlation matrix

Dependent variable Cooperation (n 120)

Independent variable Trust Commitment Satisfaction Trust Commitment Satisfaction Cooperation

b 0.35 0.17 0.34 0.17 0.29 0.45 0.61

t-value 4.21 2.15 3.68 2.28 4.12 5.33 8.28

p-value 0.00 * * 0.03 * 0.00 * * R 2 0.53 F 43.56 * * 0.03 * 0.00 * * 0.00 * * R 2 0.61 F 59.67 * * 0.00 * * R 2 0.37 F 68.53 * *

Franchisee loyalty (n 120)

Franchisee loyalty (n 120)

Note: Signicance at: p-value * , 0.05 and * * , 0.01

Table V. Results of regression analysis

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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 franchisees cooperation with their franchisor was high (b 0.35, p 0.00). Similarly, franchisees with higher commitment to their franchisor also showed higher levels of cooperation with their franchisor (b 0.17, p 0.03). The ndings also conrm 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 (b 0.34, p 0.00). Consequently, H1a, H1b, and H1c were all supported. 5.2.2 Relationship quality and franchisee loyalty. The results indicate that trust, commitment, and satisfaction are also signicant 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 (b 0.17, p 0.03). Findings also showed franchisee loyalty to be high when franchisees had high levels of commitment to their franchisor (b 0.29, p 0.00). Franchisees with higher satisfaction also reported high loyalty levels (b 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 (b 0.61, p 0.00). Thus, H3 was supported by the data. 6. Discussion

what was the aim? The aim of this paper was to investigate elements which can strengthen franchising relationships within in East Asian context. Specically, this research investigated the What was investigated? inuence of relationship quality, franchisee loyalty, and cooperation on franchising What is achieved? relationships. Researchers regard relationship quality as a key factor in successful franchising relationships. This study used trust, commitment, and satisfaction to What is supported measure the strength of relationships between franchisors and franchisees. The ndings show signicant relationships between relationship quality and cooperation from previous studies? in the franchising relationship. That is, relationship quality (conceptualized as trust, What is suggested commitment, and satisfaction) inuences cooperative behavior between franchisors and franchisees. This result supports the association between relationship quality and by ur results?

cooperation on the franchising relationship (Frazer, 2003; Clarkin and Swavely, 2006). What is new is the investigation of this within an East Asian context, specically Taiwan. This is especially relevant given that research suggests that there may
Hypothesis H1a H1b H1c H2a H2b H2c H3 Expected sign Assessment ( p , 0.5) Signicant Signicant Signicant Signicant Signicant Signicant Signicant

Causal path Trust ! cooperation Commitment ! cooperation Satisfaction ! cooperation Trust ! franchisee loyalty Commitment ! franchisee loyalty Satisfaction ! franchisee loyalty Cooperation ! franchisee loyalty

Table VI. Results of the research hypotheses

be differences between a Western franchising context and an Asian context (Choo et al., 2007). Our ndings 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 nding 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 commissions 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 ndings 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 rst 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 inuences them to recommend their franchisor to others. Satised 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.

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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 ndings 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 benets 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 difcult to modify contractual arrangements to be complete and accurate. Rapid and uncertain changes in the franchise eld 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 conicts 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 modied 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 inuence 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 conict, 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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Welsh, H.B., Alon, I. and Falbe, C.M. (2006), An examination of international retail franchising in emerging markets, Journal of Small Business Management, Vol. 44 No. 1, pp. 130-49. Werner, H. (1997), Relational Purchasing Behaviour: Forms and Determinants, Gabler Verlag, Wiesbaden. White, D.W. (2010), The impact of marketing strategy creation style on the formation of a climate of trust in a retail franchise setting, European Journal of Marketing, Vol. 44 Nos 1/2, pp. 162-79. Whittemore, M. (1994), Less a parent more a partner, Nations Business, Vol. 82 No. 3, pp. 49-57. Wiertz, C., Ruyter, K.D., Keen, C. and Streukens, S. (2004), Cooperating for service excellence in multichannel service systems: an empirical assessment, Journal of Business Research, Vol. 57 No. 4, pp. 424-36. Wong, A. and Sohal, A. (2002), An examination of the relationship between trust, commitment and relationship quality, International Journal of Retail & Distribution Management, Vol. 30 No. 1, pp. 34-50. Zhou, J.G. (Ed.) (2007), Taiwan Chain Store Almanac, Taiwan Chain Stores and Franchise Association, Taipei. Further reading Anderson, J. and Narus, J. (1990), A model of distributor rm and manufacturer rm working relationships, Journal of Marketing, Vol. 54 No. 1, pp. 42-58. Wong, A. and Sohal, A. (2006), Understanding the quality of relationships in consumer services, International Journal of Quality & Reliability Management, Vol. 23 No. 3, pp. 244-64. About the authors John McDonnell received his PhD from the University of Western Australia and is a Senior Lecturer in the School of Advertising, Marketing and Public Relations at Queensland University of Technology, Australia. His research interests include sensorial marketing, customer service, entertainment marketing, and climate change marketing. He has published in a variety of journals such as Journal of Promotion Management, The International Journal of Climate Change, and International Journal of Bank Marketing. Amanda Beatson is a Senior Lecturer of Marketing at the School of Advertising, Marketing and Public Relations at QUT. She gained her PhD from the University of Queensland which was followed by a position at Aston University in the UK. Dr Beatsons research interests include services strategy, consumer loyalty, and self-service technology. She was the recipient of the Chartered Institute of Marketing (UK) Research Excellence Award in 2002 and is a Fellow of the Higher Education Academy (UK). Dr Beatson has published in a variety of journals such as Journal of Business Research, Journal of Business Ethics, and Journal of Marketing Management. She has presented her work at a large number of international conferences and universities throughout Europe. Amanda Beatson is the corresponding author and can be contacted at: a.beatson@qut.edu.au Chih-Hsuan Huang is a Graduate Student in the School of Advertising, Marketing and Public Relations at Queensland University of Technology, Australia. His research interests include climate change marketing and franchising.

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