Franchisees’ Websites and Concept Uniformity:
A New Challenge for Franchisors
Rozenn PERRIGOT1
Guy BASSET2
Danièle BRIAND-MELEDO3
Gérard CLIQUET4
1
Graduate School of Management - University of Rennes 1, & ESC Rennes, Center for Research in Economics
and Management (CREM UMR CNRS 6211) & Institute for Business Law, Estate and Torts (CDA-PR UPRES
EA 3195). Address: 11 rue Jean Macé, CS 70803, 35708 Rennes Cedex 7, France; rozenn.perrigot@univrennes1.fr.
2
Graduate School of Management - University of Rennes 1, Center for Research in Economics and Management
(CREM UMR CNRS 6211). Address: 11 rue Jean Macé, CS 70803, 35708 Rennes Cedex 7, France;
guy.basset@univ-rennes1.fr.
3
Faculty of Law and Political Science - University of Rennes 1, Institute for Business Law, Estate and Torts
(CDA-PR UPRES EA 3195). Address: 9 rue Jean Macé, CS 54203, 35042 Rennes Cedex, France; & Lawyer,
daniele.meledo@univ-rennes1.fr & brianddaniele@gmail.com.
4
Graduate School of Management - University of Rennes 1, Center for Research in Economics and Management
(CREM UMR CNRS 6211). Address: 11 rue Jean Macé, CS 70803, 35708 Rennes Cedex 7, France;
gerard.cliquet@univ-rennes1.fr.
This research was supported by France’s National Research Agency (reference: ANR-08-BLAN-0020-01) and
Human Sciences Institute in Brittany (reference: MSHB-RECOMAD). The authors sincerely thank the ANR and
the MSHB for their support, and Kelly PRIOUX for her valuable assistance for the case study.
Franchisees’ Websites and Concept Uniformity:
A New Challenge for Franchisors
Abstract
Online sales and franchising are continuing their parallel development whatever the country:
developed markets and transitional ones, and whatever the industry: retailing and services.
The development of online selling in the specific context of franchising is not without raising
some issues. Adopting a managerial approach with some legal insights, this paper aims to
explore the impact of the set up of franchisees’ websites on network uniformity that is a key
element of franchising. A case study illustrates the different aspects of franchisees’ websites
that can damage the concept uniformity. It deals with Intercaves, a French franchise network
in the wine and alcohol sector. Maintaining network uniformity when there are various
websites set up and run by franchisees entails challenges that are presented in this paper
within a managerial perspective linked to technical and organizational know-how. The legal
perspective in link with Intellectual and Industrial Property Law, Competition Law and
International Law is also discussed.
Keywords
Franchising, Internet, Franchisees’ websites, Uniformity, Business and Law approach
1
INTRODUCTION
The uncertain legal framework in Europe regarding online selling within retail networks
was raised for the first time by the set of guidelines specific to vertical restraints
(2000/C291/01), adopted in application of the European Commission ruling no.
2790/1999 issued on December 22nd, 1999 concerning certain categories of vertical
agreements. The principle stated in these guidelines was explicit and gave every
distributor the right to use Internet to advertise or sell its products, though a number of
limited exceptions had been outlined (see Paragraph 51).
The enactment of a rule (no. 330/2010) pronounced by the European Commission on
April 20th, 2010 along with new guidelines on vertical restraints (2010/C130/01) opened
a new era. This regulation that took effect on June 1st, 2010 will remain applicable
through 2022. Let’s recall herein that these guidelines, as opposed to the regulation
itself, actually stipulate the set of rules to be respected when engaging in online
transactions. Despite carrying no legal enforcement, these guidelines help interpret the
law and are still invoked by judges and competition regulators to better assess the kinds
of situations encountered (Cesarini et al., 2010; Gast, 2011; Vilmart, 2011). In their
most recent version, these guidelines recognize on the one hand that the Internet is a
very powerful tool to sell products which should stay free to be used, and on the other
hand, that a supplier may control the quality of websites used by its distributors (see
Paragraphs 52 and 54).
In this paper, we focus on a specific case of vertical restraints that is franchising, i.e., “a
contractual agreement between two legally independent firms in which one firm, the
franchisee, pays the other firm, the franchisor, for the right to sell the franchisor’s
2
product and/or the right to use its trademarks and business format in a given location
for a specified period of time” (Blair and Lafontaine, 2005, p. 3). A more detailed
definition of franchising is also given by the European Franchise Federation,
“franchising is a system of marketing goods and/or services and/or technology, which is
based upon a close and ongoing collaboration between legally and financially separate
and independent undertakings, the Franchisor and its individual Franchisees, whereby
the Franchisor grants its individual Franchisee the right, and imposes the obligation, to
conduct a business in accordance with the Franchisor’s concept. The right entitles and
compels the individual Franchisee, in exchange for a direct or indirect financial
consideration, to use the Franchisor’s trade name, and/or trade mark and /or service
mark, know-how, business and technical methods, procedural system, and other
industrial and /or intellectual property rights, supported by continuing provision of
commercial and technical assistance, within the framework and for the term of a written
franchise agreement, concluded between parties for this purpose.”
Franchise networks, whatever the industry: retailing and services, are present in many
countries, developed ones such as Australia (1,000 franchise networks), Canada (1,200
franchise networks), the United Kingdom (842 franchise networks), the United States
(2,200 franchise networks), etc., and transitional ones such as Brazil (1,643 franchise
networks), China (4,000 franchise networks), India (1,800 franchise networks), Russia
(420 franchise networks), etc. In brief, there are more than 21,000 franchisors and 2.5
million franchised stores worldwide (European Franchise Federation, 2011). In Europe,
there are more than 10,000 franchisors and 400,000 franchised stores (European
Franchise Federation 2010).
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Several scholars have focused on E-commerce strategy in franchising, and more
specifically on E-commerce strategy of franchisors (e.g. Cedrola and Memmo, 2009;
Dixon and Quinn, 2004; Rao and Frazer, 2006; Watson et al., 2002). Some other
researchers have explored this particular topic through a legal approach, often focusing
on exclusive territories and encroachment (Emerson, 2010; Fontenot et al., 2006). But,
none of them have explored the case of a website (transactional or not) set up and run
by the franchisees.
This paper therefore aims to explore the impact of the use of Internet by franchisees on
the network uniformity that is a key element of franchising. We mainly adopt a
managerial and strategic-based approach even if some legal aspects are mentioned
throughout the text. We shed light on the resulting challenges for franchisors to
maintain network uniformity when having various websites (transactional or not) run by
their franchisees. This study seems to be the only one of this kind, and we must
underline its exploratory nature.
This paper is organized as follows.
We first discuss the importance of network
uniformity in a general context before focusing on the particular context of franchiseedriven online sales and the associated challenges for the franchisors to maintain a
uniform network, with the Intercaves case study. The fourth section offers an analysis
of the issue from two perspectives, a managerial one and a legal one. The last section is
the conclusion.
FRANCHISING AND UNIFORMITY
In this section, we highlight the importance of uniformity in franchise networks before
focusing on the dilemma: standardization versus adaptation.
4
UNIFORMITY IN FRANCHISE NETWORKS
Concept uniformity can be defined as the exact replication of a concept in any store of a
network. It is an important notion in franchising for at least three reasons: 1) it brings
economies of scales concerning purchasing, marketing and implementation (Cox and
Mason, 2007); 2) it strengthens the quality control and cost of monitoring (Bradach,
1998; Kaufmann, 1989), and hence the brand image throughout the network both vis-àvis customers (Falbe and Dandrige, 1992; Kaufmann and Eroglu, 1998; Michael, 2002)
and franchisees (Kaufmann and Dant, 1999); 3) it ensures the link with franchisees and
between franchisees and entails exclusivity arrangements (McAfee and Schwartz,
1994).
As we suggest it in the former paragraph, concept uniformity and brand image are key
elements for franchisors and are a priori closely related. When building a new brand, a
franchisor strives to maintain a uniform image throughout the network, i.e., in every
store wherever it is located, because uniformity across stores has to be respected to
preserve brand equity (Caves and Murphy, 1976). Some franchisors choose contract
tying in order to increase standardization and reduce monitoring costs, and then
strengthen their business strategy especially when specific equipment is required
(Michael, 2000). Others prefer strengthening their organization through more
centralized procedures (Smith and Nichol, 1981). The difficulty of this challenge stands
in the fact that franchising requires “a variety of local activities to execute” (Bradach,
1998, p. 23). For instance, managing service quality needs to adapt the service to local
demand. Then, problems emerge because maintaining the uniformity of the concept is a
real challenge as Bradach (1997) defined it among three other challenges a network
5
should meet. These four challenges are: 1) growth by the addition of new stores; 2)
maintenance of the concept uniformity; 3) local responsiveness; 4) system-wide
adaptation. In this paper, we deal with the second challenge (maintenance of the
concept uniformity) even if it is important to mention that these challenges are all
interrelated, and dealing with one of them can have some consequences on the other
ones.
ADAPTATION VERSUS STANDARDIZATION
Talking about the maintenance of the concept uniformity consists in raising once again
the famous dilemma: adaptation versus standardization which is sometimes at the
international level transformed into: localization versus globalization. The latter has
entailed many debates since the beginning of the 1980s opposing Levitt’s globalization
(1983) to those who denounce the myth of globalization (Douglas and Wind, 1987) and
prone finally a more localized approach (Rigby and Vishwanath, 2006). Douglas and
Wind (1987) examined each marketing-mix variables in order to revisit the
globalization concept and concluded that there were always several variables which
cannot be defined globally. In domestic markets, the problem can be the same. In
franchise networks, the store ownership (franchisor or franchisee) prevents from strictly
imposing a real standardization in an authoritarian way. Pricing for instance may not be
standardized either for legal reasons to avoid breaking antitrust laws in many countries,
or for local strategic considerations (Lafontaine, 1999).
Breaking with this often counterproductive argument, Kaufmann and Eroglu (1998)
proposed a decomposition of the problem showing then that the key question is not
whether franchisors should standardize their concept or not but to which extent they
6
have to standardize or to adapt to local conditions. Adaptation degree and performance
of replication routines is a concern for most franchise networks and most companies in
general (Jensen, 2007).
Kaufmann and Eroglu (1998) defined the concept of a franchise network as a
“collection of unique elements (product/service deliverables, benefit communicators and
system identifiers) that build and maintain a distinct image among consumers”. The
uniqueness of the concept leads franchisors to maintain its uniformity, and hence protect
its image to build the brand which is a very important asset and the raison d’être of the
network. These authors made a distinction between core elements of the concept
(product/service deliverables, benefit communicators and system identifiers) which
should stay invariant throughout the network, and peripheral elements which may be
adapted to local specificities.
Adaptation can also be seen as a “glocal” strategy according to a term defined by
Robertson (1992). Some recent experiences show that the front office, i.e., everything in
front of the customer, can be totally localized whereas the back office dealing with
logistics and production is more or less integrated and standardized as it is implemented
in the U.S. franchise network Great Harvest Bread Co. for instance (Streed, 2007;
Streed and Cliquet, 2008).
Therefore whatever the market, at the domestic or international level, the issue of
uniformity remains of primary importance in franchising. Besides, this issue takes a
total new turn when dealing with franchisees than can set up and run their own website
(transactional or not).
7
FRANCHISING, FRANCHISEE-DRIVEN ONLINE SALES AND UNIFORMITY
In this section, we discuss franchisee-driven online sales before focusing on the
associated challenges for franchisors to maintain network uniformity. The case study
on Intercaves illustrates our developments.
FRANCHISEE-DRIVEN ONLINE SALES
The principle of allowing the franchisee to sell its products and/or services via Internet
has been approved on several occasions, yet a number of exceptions still hinder its
effective implementation.
Principle of franchisee-driven online sales
As far as the principle of franchisee-driven online sales is concerned, in its 2000
guidelines regarding vertical restraints, in summary, the European Commission was
mentioning that:
“every distributor [i.e., every franchisee in our case] must be
free to use the Internet to advertise or to sell products [...]. In
any case, the supplier [i.e., the franchisor in our case] cannot
reserve to itself sales and/or advertising over the Internet”
(Paragraph 51).
The 2010 guidelines, regarding vertical restraints, are indicating now that:
“[the] Internet is a powerful tool to reach a greater number and
variety of customers than by more traditional sales methods”
[...] “[In] principle, every distributor [i.e., every franchisee in
8
our case] must be allowed to use the Internet to sell products”
(Paragraph 52).
Concretely, it means that franchisees are allowed to set up and run their own
transactional websites whatever the existence or not of a website operated by their
franchisor. Nevertheless, some limitations to these practices exist.
Limitations to franchisee-driven online sales
These limitations are linked to exceptional circumstances, requirements of a physical
store and the actual type of sales being transacted.
Exceptional circumstances
As far as exceptional circumstances are concerned, the 2000 guidelines on vertical
restraints were indicating that:
“an outright ban on Internet (or catalogue) selling is only
possible if there is an objective justification” (Paragraph 51).
The 2010 guidelines take into account the new regulation specifying that such an
interdiction on Internet sales is limited to exceptional cases, such as involvement in:
“selling dangerous substances to certain customers for reasons
of safety or health” (Paragraph 60).
This new formulation tends to support the position adopted by the Competition
Authority in its decision upholding that:
9
“Internet selling may be banned in principle, except under
exceptional circumstances that could, for example, be tied to
safety considerations” (Paragraph 94).
Requirements associated with a physical store
Regarding requirements associated with a physical store, on three occasions, within the
retail sectors of watches (Decision 06-D-24 of 24 July 2006), stereos and home cinema
(Decision 06-D-28 of 5 October 2006) and cosmetics and body care products (Decision
07-D-07 of 8 March 2007), the Competition Authority validated the fact that the
manufacturer or supplier, as head of a retail network built from vertical agreements,
grants the right to sell online only to network members operating a physical store. As a
result, the companies engaged in marketing the network’s products exclusively via the
web, also called “pure players”, wind up being separated from the network. This type
of requirement should make it possible to block certain practices induced by a
phenomenon of parasitism, especially in the case of selective distribution. The 2010
guidelines on vertical agreements support the priorities set forth by the Competition
Authority in stating that the supplier (i.e., the franchisor in our case) can:
“demand that its distributors [i.e., its franchisees in our case]
have one or more brick and mortar shops or showrooms as a
condition for becoming a member of its distribution system”
(Paragraph 54).
Consequently, these “pure players” may be excluded from the network by the operator
(i.e., the franchisor in our case) without any objective justification required to carry out
this exclusion.
10
Type of sales transacted (active versus passive sales)
As far as the type of sales transacted (active versus passive sales) is concerned, beyond
the divergences already observed between the 2000 and 2010 guidelines on vertical
agreements (see Appendix 1), it can be briefly stated that active sales in the case of
franchisee-driven online strategy are those that stem from a designated franchisee, result
from a customer prospection effort deployed within a given geographic area outside of
the exclusive territory assigned to the specific franchisee, and rely on means such as
mass mailing, sending of unsolicited e-mails, cold calls, ad campaigns in the media,
including Internet, as well as targeted promotional efforts. It must be pointed out that
the 2010 guidelines, in the Paragraph 53, consider as an additional form of active sale:
“territory-based banners on third party websites” as well as the
step of paying a search engine or online advertisement provider
to have advertisements displayed specifically to users in a
particular territory”.
Regarding passive sales, they correspond to the fact of having to meet specific demands
unsolicited, stemming from individual customers, or triggered by advertisements or
general promotional campaigns capable of reaching customers located in the exclusive
territories held by other franchisees, yet which still constitute a reasonable means for
reaching customers in the given franchisee’s home territory. Both the 2000 guidelines
(Paragraph 50) and the 2010 guidelines (Paragraph 51) authorize online passive sales.
Within the framework of the vertical agreements signed, it has been found that:
11
“[the] protection of exclusively-allocated territories or customer
groups must however permit passive sales to such territories or
customer groups”.
The 2010 guidelines indicate that:
“[In] general, where a distributor uses a website to sell products
that is considered a form of passive selling, since it is a
reasonable way to allow customers to reach the distributor. The
use of a website may have effects that extend beyond the
distributor’s own territory and customer group; however, such
effects result from the technology allowing easy access from
everywhere”.
Passive sales by franchisees are unquestionably accepted on the Internet without the
franchisor being able to limit the percentage of sales to be conducted online. The
franchisor nonetheless holds the possibility of requiring each franchisee to sell a
minimum quantity of products (in either volume or value terms) offline in order to
ensure sustainability of the physical store.
Other cases to be considered
In addition to the limitations presented above, other cases have to be considered. For
instance, the franchisee cannot be forced to renounce efforts to sell online just because a
potential customer’s credit card details reveal an address that lies outside the
franchisee’s exclusive territory (2010 guidelines, Paragraph 52). Moreover, if the
transactional website is designed for consultation in several languages, then the passive
12
nature of the sale will remain intact. The franchisor cannot prevent potential customers
located outside a franchisee’s exclusive territory from consulting the franchisee’s
website, nor does the franchisor have the means to automatically redirect these potential
customers to its own website or that of other franchisees. Such approaches are referred
to as “re-routing” (Gurin, 2011).
Upon review of the developments discussed above, it is clearly apparent that the
European Commission, despite being highly favorable to online selling, would still like
to avoid certain excesses resulting from network operators or third parties that are
capable of destabilizing the network’s physical stores (Perrot et al., 2010). This
concern would explain the exclusion of “pure players” as well as the quality
requirements placed on distributor websites (i.e., franchisee websites in our case), with
the aim of ensuring a level of uniformity within the network that proves desirable, or
even necessary. This is particularly this last point, i.e., the challenge for franchisors to
maintain network uniformity when their franchisees set up and run their own websites
(transactional or not) that we will examine now, illustrated with the case study on
Intercaves.
THE IMPACT OF FRANCHISEES’ ONLINE SALES ON NETWORK UNIFORMITY
Quality standards must be respected by the franchisees when they set up and run their
own website in order not to damage the network uniformity and brand image. The case
of Intercaves illustrates the potential issues in the context of multiple websites set up
and run by the franchisees.
13
Requirement of quality standards from the franchisor and key aspects to be
considered
The 2010 guidelines refer to “quality standards” that are, for instance, key elements of
the franchise networks’ marketing-mix.
Requirement of quality standards from the franchisor
As mentioned previously, franchisees can set up and run their own websites
(transactional or not). In such a case, the issue of network uniformity is raised because
differences in terms of technical, human and financial resources and entrepreneurship
orientation exist among the franchisees and can be reflected through the franchisees’
websites. According to the Paragraph 54 of the 2010 guidelines:
“[the] supplier may require quality standards for the use of the
internet site to resell its goods, just as the supplier may require
quality standards for a shop or for selling by catalogue or for
advertising and promotion in general”.
Briefly, as far as the exclusive territories are concerned, Internet cannot be treated as a
store according to the 2010 guidelines on vertical restraints, but practically maintaining
uniformity across the network of stores and maintaining the uniformity across the
network of franchisees’ websites are almost similar in terms of managerial and
marketing tasks.
14
Key aspects to be considered for maintaining network uniformity
Within a managerial perspective, several aspects are important to be considered.
Uniformity across the websites concerns the marketing-mix elements. First, uniformity
in terms of products/services deals with the products/services that must be presented
and available for sale on the franchisees’ websites. A customer will not appreciate to
see a product/service available in a store of a specific brand, or on a website of a
franchisee and not available on the website of another franchisee of a same brand. So,
the question of products/services assortment and overlap is relevant. Second,
uniformity in terms of price is very important as well. The price represents one of the
essential elements of brand positioning, and can have an impact on customer
satisfaction and loyalty. High differences in prices could be not understood by
customers even though imposing prices is contradictory to anti-trust laws (Lafontaine,
1999). Thirdly, uniformity in terms of communication deals with promotion. The
management of promotional activities in a uniform way across the websites is essential.
Some other elements have to be considered for underlining network uniformity. They
deal with the URL (respect of the brand name use, use of the city name, etc.) and the
graphical chart (respect of colors, fonts, etc.), and also the associated services such as
delivery, after-sales services, etc.
The case of Intercaves
We present the franchise network Intercaves before focusing on its uniformity-related
issues.
15
Presentation of the case study
We choose to illustrate the uniformity-related issues faced by franchisors when their
franchisees set up and run their own websites (transactional or not) using a qualitative
approach, and more specifically the single case approach. This approach has been often
used in the retailing literature (Jackson and Sparks, 2005; Jones, 2003; Palmer, 2005)
and in the franchising literature as well (Boyle, 2002; Dos Santos and de Azevedo,
2007; Perrigot et al., 2011a). This is a way to better understand a specific phenomenon,
here the uniformity-related issues in franchise networks.
We selected a specific franchise network, namely Intercaves, because it illustrates well
the different uniformity-related issues than can face a franchisor when its franchisees set
up and run their own websites. Intercaves is a French franchise network in the wine and
alcohol sector. It is important to mention first that France is the franchising leader in
Europe with a continuous growth since the 1970’s. There are 1,477 franchisors (+ 5.8
% compared to 2009), 58,351 franchised stores (+ 9.9 % compared to 2009).
Franchising employs 335,000 people and generates more than 47.88 billion euros of
turnover (French Franchise Federation, 2011). As far as Intercaves is concerned, the
brand was created in 1978, and the development through franchising started in 1992. In
2011, there are 128 franchised stores, two company-owned stores in the French
territory, and one store abroad. The franchise contract – whose duration is five years –
specifies direct royalties of 3 % of the total sales of the franchised store.
The main form of data collection in this case study is websites’ observation. This
observation was conducted on a short period of time in order to limit all kinds of biases
(modification/updating of the content of the websites, creation/suppression of the
16
websites, etc.). It thus took place on May 2011, 6th by the afternoon. The URL of the
franchisor’s website was indicated in the franchise directory published by the French
Franchise Federation. Regarding the franchisees’ websites, we searched their URL
using Google search engine, with the name of the franchise network as the keyword.
We looked at the first twenty first pages of Google results, and if a franchisee’s website
appeared on one of the last five pages of results, i.e., on pages 15 to 20, we pursued the
search process within five additional pages of Google results. At the end, we found the
existence of fourteen websites run by Intercaves franchisees.
We explored the content of all these fourteen websites along with this of the franchisor,
making screenshots of all the pages of each website. This leads to the elaboration of a
Word document of 117 pages, with two screenshots per page. The franchisor’s website
represents a total of 23 Word pages, i.e., 46 screenshots, the franchisees’ websites
represents 6.71 Word pages in average, with a minimum of three Word pages and a
maximum of 21 Word pages. A first comment from these minimum and maximum
values refers to the lack of uniformity in terms of content and structure of the
franchisees’ websites.
The franchisor’s website is transactional, the franchisor is thus considered as having
adopted an E-commerce strategy. However, its website seems to meet regular technical
problems, and even when it works, it appears not really professionally-made. The
website indicates that the delivery of the products is managed by the franchisee located
in the geographical area of the Internet user. When indicating several zip codes, we
found that some franchisees, even located at 500 meters from the Internet users potential
address do not deliver. This can create a certain disappointment among the Internet
17
users who want to buy online. It also shows that the E-commerce strategy of Intercaves
is only at its beginning, with some significant room for improvement. Moreover, on its
website, the franchisor does not provide the Internet users with the links of the
franchisees’ websites. This indicates a lack of a clear multi-channel strategy, of crosschannel optimization. Besides, only one franchisee tried to set up and run a
transactional website, but this latter one is not really operational.
In this brief case study, we explore these fifteen websites, more specifically all the
similarities/dissimilarities that, at the end, refer to the uniformity of the network. We
focus on the elements mentioned in the previous section: the marketing-mix elements as
well as other elements.
Marketing-mix elements and network uniformity
Uniformity and products’ assortment within Intercaves network. On the franchisor’s
website, the assortment includes nine categories of products: “Everyday wines, wines
for buffets and receptions”, “Wines to drink and keep”, “Champagnes”, “Whiskies”,
“Alcohols”, “Cocktails and Aperitifs”, “Gourmet products”, “Packagings”, “Gifts and
accessories”. On the franchisees’ websites, the assortment range varies from two
categories to twelve categories. Only one of the franchisees’ websites proposes exactly
the same assortment than this available on the franchisor’s website. Most of the
franchisees (in fact, eight) display less than nine categories of products on their website,
and three franchisees propose more than nine categories. Moreover, some franchisees
display some products and services that are not available on the franchisor’s website
(e.g., soft drinks, beer tap rent, food and snacking). It therefore means that most of the
franchisees do not offer the Internet users the entire assortment set up by the franchisor,
18
this available on the franchisors’ website. Even if it is one of the franchisees’ rights,
these differences in terms of products’ assortment can have a negative impact on the
brand image of the franchise network as a whole, and customers can perceive a lack of
uniformity related to products’ assortment.
Uniformity and prices’ levels / indication within Intercaves network. The franchisor
explicitly displays the products’ prices on its website, of course due to the transactional
nature of the website. Nevertheless, most of the franchisees do not display any
products’ prices on their website. Some franchisees indicate the prices of some
products only, to attract the Internet users in their own store, while some others only
mention “from X euro”. Only one franchisee proposes a catalogue of the products it
sells, but the corresponding webpage is not operational, and prices are thus not available
for the Internet users. Even if franchisees are free to display prices on their websites,
prices that they set by themselves, the differences highlighted during the observation, in
terms of prices’ level and indication, can raise some issues and damage the brand image
of the franchise network as a whole. Moreover, customers can perceive a lack of
uniformity related to the price policy of the franchisor and of the franchisees as well.
Communication / Promotion within Intercaves network. At the time of the observation,
the franchisor neither mentioned any specific promotion, nor any loyalty program, on its
website. But, at the same time, many franchisees inserted information about promotions
on their websites, e.g., “Special offer - beautiful days”, “Special offer - Club and
association”, “Offer – Beers”, “For 45€ of purchase… a barbecue set offered”, “Weekend package”, etc. Consequently, all these promotions are upon each franchisee
initiatives, underlining a lack of uniformity in terms of communication strategy.
19
Regarding the loyalty program, only one franchisee highlighted its loyalty program,
loyalty card usable in the specific store only, and not in all the stores of the network.
Finally, one of the franchisees still advertised in May on promotions available for the St
Valentine’s Day, three months before. This lack of information updating can also
damage the brand image of the whole network, and not only the brand image of the
specific store associated to this website.
Other important elements and network uniformity
URL. As far as the URL is concerned, several elements point out a lack of uniformity.
The URL for the franchisor’s website is: http://www.intercaves.fr. Additionally to the
fact that the franchisees have URLs ending by “.fr” (two), “.com” (eleven), and “.info”
(one) on the one hand, and that some spell the franchise network “inter-caves” (two) or
“intercaves” (ten), two out of the fourteen franchisees’ websites under investigation do
not refer at all to the name of the franchise network in their URL. Six URL are in the
following format: http://www.intercaves-NAME-OF-THE-CITY.com. Five franchisees
do not mention the name of the city in the URL of their websites, but instead, they
indicate the department. The dissimilarities in the URLs of the franchisees’ websites
show that franchisees do not follow any guidelines when they set up their website. This
can raise some issues and damage the brand image of the franchise network as a whole.
Moreover, customers can perceive a lack of uniformity related to the visibility of the
franchisor, and of the franchisees as well.
Graphical chart. In November 2009, one of the specialized websites dedicated to
franchising, i.e., www.lobservatoiredelafranchise.com, displayed the new logo of
Intercaves. Two years later, in May 2011, our observation of the franchisees’ websites
20
point out that ten out of the fourteen franchisees’ websites display the former logo and
not the updated one, along with the former graphical chart with warm colors (i.e., red
and chestnut) contrary to the current trendy colors (i.e., purple and apple green). This
lack of uniformity in terms of use of the logo and graphical chart raises an issue related
to the identity of the franchise network. On one side, we have an image of a “traditional
and authentic brand” and on the other side, we have an image of “young and trendy
brand”. Internet users can be lost when visiting several franchisees websites associated
to the brand, and also when visiting the physical stores.
Websites design. Whereas the franchisor’s website seems to have been “in-house”
created, due to a clear lack of professionalism in terms of design, ergonomics, etc. and
the frequent unavailable pages, some of the franchisees have recruited a web expert to
design their websites. Over the fourteen franchisees’ websites, we noticed that at least
six web experts have worked on an Intercaves website. One of these six web experts
has designed the websites of four different franchisees. This can contribute to
maintaining brand uniformity in terms of websites design. But, some franchisees
created a blog instead of a website, not in accordance with the other websites, and two
franchisees created their website via the “Yellow Pages” services. This company,
additionally to offer the national phone directory, now propose the creation of websites
with very standardized and non flexible designs.
MANAGERIAL AND LEGAL PERSPECTIVES
The exploration of the topic linked to uniformity and Internet use by franchisees leads
us to adopt two complementary perspectives, the managerial one and the legal one.
21
MANAGERIAL PERSPECTIVE
In this paper, we highlighted the consequences of the set up and run of websites
(transactional or not) by franchisees on network uniformity. In fact, for franchisors,
there are two ways to face this challenge and maintain network uniformity. Both are
linked to know-how that is a core element of franchising, as reminded in the definition
of franchising (see Introduction).
Technical know-how
According to the European Franchise Federation, “[technical] know-how means a
body of non-patented practical information, resulting from experience and testing by
the Franchisor, which is secret, substantial and identified. ‘Secret’ means that the
know-how, as a body or in the precise configuration and assembly of its components, is
not generally known or easily accessible; it is not limited in the narrow sense that each
individual component of the know-how should be totally unknown or unobtainable
outside the Franchisor’s business. ‘Substantial’ means that the know-how includes
information which is indispensable to the franchisee for the use, sale or resale of the
contract goods or services, in particular for the presentation of goods for sale, the
processing of goods in connection with the provision of services, methods of dealing
with customers, and administration and financial management; the know-how must be
useful for the Franchisee by being capable, at the date of conclusion of the agreement,
of improving the competitive position of the Franchisee, in particular by improving the
Franchisee’s performance or helping it to enter a new market. ‘Identified’ means that
the know-how must be described in a sufficiently comprehensive manner so as to make
it possible to verify that it fulfills the criteria of secrecy and substantiality; the
22
description of the know-how can either be set out in the franchise agreement or in a
separate document or recorded in any other appropriate form.”
In other words, according to the Commission Regulation (EU) No 330/2010, “‘knowhow’ means a package of non-patented practical information, resulting from experience
and testing by the supplier, which is secret, substantial and identified: in this context,
‘secret’ means that the know-how is not generally known or easily accessible;
‘substantial’ means that the know-how is significant and useful to the buyer for the use,
sale or resale of the contract goods or services; ‘identified’ means that the know-how is
described in a sufficiently comprehensive manner so as to make it possible to verify that
it fulfils the criteria of secrecy and substantiality”.
The franchisor can thus create an E-Bible, i.e., an operational manual that details the
technical know-how related to Internet activities, in particular the rules to be followed
when setting up and managing a website (transactional or not). An operational manual,
also called “Bible”, already exists for offline activities. It provides the franchisees with
all the standards and rules to be applied in the physical stores. The E-Bible will
complement the already existing Bible as far as online activities of the franchisees are
concerned.
Organizational know-how
According to some franchising experts, the benefits for a franchisee to set up and run its
own website (transactional or not) are greatly diminished if the franchisor had been able
to previously develop a website offering an effective communication platform,
eventually with an E-commerce functionality, provided the franchisor had successfully
integrated its franchisees into a multi-channel strategy. As a result, the set up and run of
23
a website (transactional or not) could be considered as part of the franchisor’s
organizational know-how. Franchisors develop know-how relative to network
engineering and management, these are called organizational know-how. This type of
knowledge and skills is not necessarily shared with franchisees (El Akremi et al., 2009;
Perrigot et al., 2011b). According to these authors, such organizational know-how
reflects the systemic and cross-disciplinary capacities that allow a franchisor to
coordinate on a sustainable basis the generation and use of its strategic assets, along
with its professional skills, in pursuit of achieving objectives. Based on a study
conducted among 211 franchisors, several categories of organizational know-how have
been pointed out (El Akremi et al., 2009). They deal with codification / transmission /
replication, as well as support for human resources management, monitoring / oversight
of store operations, external communication, internal cohesion / uniformity building,
organizational flexibility, purchasing / logistics, and access to financing sources. It may
be considered that over time, an E-commerce activity proves to be a standalone
organizational know-how or a component of one of the previously identified
organizational know-how, particularly as regards organizational flexibility, external
communication and logistics.
In this specific case, the franchisor has to do everything in its power to ensure a mastery
of the know-how components tied to E-commerce, by investing sufficient amounts of
financial, technical and human resources. The franchisor’s transactional website has to
derive its full legitimacy and meet franchisees’ expectations in terms of establishing the
brand’s web presence. Under such a scenario, franchisees will find no great benefit in
setting up and managing their own transactional website and facing the associated
challenges, whether logistical, financial, etc.
24
Moreover, this lack of franchisee interest in setting up a transactional website will abate
even further as the franchisee becomes more heavily involved in setting up the multichannel strategy. The franchisor can share with its franchisees the management of its
transactional website. Two operating modes can coexist. The first one consists of
identifying, in collaboration with franchisees, a franchisee remuneration formula on the
basis of sales transacted via the franchisor’s website. The major difficulty inherent in
this approach is the search for a remuneration formula with maximum objectivity, and
acceptable to all parties, thereby avoiding to the greatest extent possible any potential
conflict. A network like De Neuville has experimented with this strategy, which
remains an uncommon practice (Guiserix, 2007). The second operating mode entails
centralizing orders on the franchisor’s website and then relaying the compiled orders to
the nearest franchisee as Carrefour does within the network Carrefour Market
(Kaufmann et al., 2010). Such an approach now appears to be winning over many
franchisors, and experts in the field as well. It thus offers the advantages of being
widely accepted and financially profitable to franchisees, while allowing the franchisor
to generate a useful file of Web customers and better oversee its E-commerce strategy.
The level of confidence inspired throughout the network will then generate a greater
propensity to cooperate (Gueye, 2009), and will minimize the internal conflicts. The
franchisor will work on network strategy managing online sales, and the franchisees
will have time to focus on operational management in their store.
25
LAW PERSPECTIVE
In a juridical approach, the concept of uniformity has several meanings. It relies on a
global understanding and conceptualization of a phenomenon which is – or can be –
basically multidimensional.
Nevertheless, in the field of retailing, the concept of uniformity is better known and
used in a marketing way. Moreover, in the marketing field, the concept of uniformity
seems to be mainly a dynamic process. And particularly in the franchising field, the
concept of uniformity enables to define both the element of characterization and the
goal of the franchise network. Consequently, in an Economic Law perspective, the
question of the concept of uniformity applying to the franchising sector can be analyzed
on the basis of the marketing and economic analysis.
We have to focus on mainly three issues. First, uniformity may be perceived as being
the main element of protection of intellectual and industrial properties. Secondly,
uniformity may be perceived as being in contradiction to the free competition principle.
Thirdly, uniformity may be perceived as being in contradiction with the International
Law.
Uniformity and Intellectual and Industrial Property Law
As explained in this paper, uniformity characterizes franchising. In a juridical view, the
know-how characterizes franchising. And the know-how is developed under a specific
trademark.
Concerning the existence of know-how, the goal of a franchisor is to build a project
which includes the identification and the development of several complex applications,
26
data or tools, to aid in production or commercialization and management proceedings.
The franchisor adopts defined frameworks and points from early concept to post
implementation. In a marketing and economic view, uniformity must characterize this
know-how.
In a legal view, uniformity must also characterize the know-how. First, to exist as an
industrial property, the know-how must be characterized as explained earlier in this
paper. Secondly, to subsist as an industrial property, the know-how must have a
uniform implementation so that uniformity is a precondition of the existence of knowhow.
Concerning the legal protection of know-how, the owner does not have to register this
industrial property, as he does for a trademark. Consequently, the protection of the
know-how must be explained in the franchise agreement. These measures have the
function of ensuring compliance by contractor with its obligations under the agreement.
So that, most of these measures have the function of preserving the uniformity of the
concept and the know-how, for the traditional stores and for the websites.
Indeed, according to the law, E-commerce represents only one sort of business. A
franchisee is allowed to sell its products/services through its traditional store or its
online store, so that the respect of uniformity is a precondition of the protection of
know-how.
But the aim of protection of industrial property can be in contradiction with trade rules
as the industrial property rules contain monopolistic rules.
27
Uniformity and Competition Law
According to the Competition Law everywhere in the world and to the World Trade
Organization rules, the principle is freedom of trade and freedom of competition. In this
framework, the concept of uniformity can be in contradiction with the necessary
differentiation between the franchisor and the franchisees.
Competition Law must be applied to independent companies and not to intermediates.
According to the Competition Law, each company must conduct its own business by
itself. Consequently, in a franchise network, each franchisee is an independent
company and not an intermediate. This would pose a first question of interpretation
since the competition rules prohibit that a franchisor requires the franchisees to respect
the concept and the know-how and uniform rules. This would pose a second question
since the competition rules prohibit discrimination between the rules of traditional sales
and E-commerce.
The first question is: may a franchisor prohibit the creation of a website?
According to the European Competition Law, the franchisor is not allowed to prohibit
the E-commerce for the franchisee. But exceptions to that rule are explained in the
European guidelines on vertical restraints. There is, however, a fundamental issue: the
guidelines are not obligatory rules which courts can demand compliance on the part of
all the countries of Union. And yet, only the guidelines give rules upon websites. As a
result, the basic principle of Competition Law must be applied to the websites and
especially the rules of the article 101 §1, the article 101 §3 and of the block exemption
regulation 330/2010. Consequently, if we apply the general rules and not the guidelines
upon websites, a second point must be analyzed.
28
The second point deserves further considerations. The competition rules accept the
exclusivity of the owner of industrial property if competition is not prohibited and if
principle of proportionality is applied. For example, nothing on a website should be
construed as granting any license or right to use any trademark, trade names, logos
without the written permission of the owner. Nothing on the website should be
construed as granting any right to work against corporate or network identity. Besides,
the competition rules in the block exemption must not contradict the protection of the
know-how. As uniformity is a condition of the existence of know-how, the framework
of the rules of uniformity in the know-how must be identified. Maybe, according to the
block exemption regulation and not to the guidelines, a franchisee could not create its
own website.
The second question is: may E-commerce be considered by a supplier as a special
business allowing specific rules?
This question may concern national Competition Law. For example, in France, a
supplier may establish general sale terms and specific sale terms. So that, a supplier
may establish sale specific terms for E-commerce. As a result, in these specific sale
terms, the supplier, i.e., the franchisor, may introduce for the franchisee specific tariffs,
conditions, so that the consumer would prefer to buy in traditional stores.
If European Law is not applicable, these French rules could be applied, except if these
terms establish an abuse of domination or an unlawful agreement according to the
French Competition Law. If European Competition Law must be applied, the general
rules of competition would be applied, but guidelines are not obligatory rules. As a
result, these specific sale terms for websites could be allowed except of an abuse of
29
domination or an unlawful agreement. These specific sale terms could prohibit
indirectly the practice of E-commerce.
Uniformity and International Law
The applicable Law for an international situation is a national Law. Basically, the Law
is national, and the Business is global. Consequently, E-commerce is basically global.
The concept of uniformity applied in a franchise network must respect stricter
regulatory limits on the territories where the E-commerce concerns active sales.
According to the International Contract Law, the supplier who practices active sales,
must respect the national rules of the country where it exports its goods or the national
rules of the consumer’s country.
As a result, a website cannot be uniform. Uniformity could be unlawful. Even if we
consider E-commerce as a passive sale, some websites can use technical measures
which practice active sales. And all the sales must take into consideration consumer
rules of the country where the goods are sold. In consideration of this reality, the
concept of uniformity in a website must be analyzed to identify the framework of the
uniform values, the uniform concept, and to identify the framework of the rules which
must be adjusted.
The subject of concept of uniformity and International Law underlines the complexity
of the question which deserves complementary studies.
In summary, it appears that the concept of uniformity is anything but uniform! In order
to be sustainable, the concept of uniformity must adjust to economic, business, social
and international rules and designs several frameworks.
30
CONCLUSION
This paper is a first attempt that raises the challenge for franchisors facing the existence
of various websites (transactional or not) set up and run by their franchisees. More
research, from both fields Business and Law, are needed in the future. Besides, other
practices being able to lead to the same kind of issues in terms of the use of Internet and
network uniformity could be explored in further research. They deal with the presence
of the brands on social networks such as Facebook, LinkedIn, Viadeo, etc. Recently, the
US franchisor Applebees worked with a media company to propose to its franchisees
specific and regular contents to be included on their own Facebook page. It thus
highlights the know-how of the franchisor and its involvement. It is also a way to
maintain the uniformity of Applebees on this social network. Another track for future
research deals also with the case of franchise networks without any physical store, that
rely only on Internet to develop their business.
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Appendix 1: Evolution in the notion of active versus passive sales, as defined in the
two sets of guidelines issued on vertical restraints (October 13th, 2000 and
May 19th, 2010)
2000 guidelines
2010 guidelines
Active sales
‘Active’ sales mean actively
approaching individual customers
inside another distributor’s exclusive
territory or exclusive customer group
by for instance direct mail or visits; or
actively approaching a specific
customer group or customers in a
specific territory allocated exclusively
to another distributor through
advertisement in media or other
promotions specifically targeted at
that customer group or targeted at
customers in that territory; or
establishing a warehouse or
distribution outlet in another
distributor’s exclusive territory.
‘Active’ sales mean actively approaching
individual customers by for instance direct mail,
including the sending of unsolicited e-mails, or
visits; or actively approaching a specific
customer group or customers in a specific
territory through advertisement in media, on the
internet or other promotions specifically targeted
at that customer group or targeted at customers in
that territory. Advertisement or promotion that is
only attractive for the buyer if it (also) reaches a
specific group of customers or customers in a
specific territory, is considered active selling to
that customer group or customers in that territory.
Passive sales
‘Passive’ sales mean responding to
unsolicited requests from individual
customers including delivery of goods
or services to such customers.
General advertising or promotion in
media or on the Internet that reaches
customers in other distributors’
exclusive territories or customer
groups but which is a reasonable way
to reach customers outside those
territories or customer groups, for
instance to reach customers in
nonexclusive territories or in one’s
own territory, are passive sales.
‘Passive’ sales mean responding to unsolicited
requests from individual customers including
delivery of goods or services to such customers.
General advertising or promotion that reaches
customers in other distributors’ (exclusive)
territories or customer groups but which is a
reasonable way to reach customers outside those
territories or customer groups, for instance to
reach customers in one’s own territory, are
considered passive selling. General advertising or
promotion is considered a reasonable way to
reach such customers if it would be attractive for
the buyer to undertake these investments also if
they would not reach customers in other
distributors’ (exclusive) territories or customer
groups.
38