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8 Ways Poor Online Reviews Hit Franchise Brands Especially Hard

I’ll bet you have read at least one online customer review in the past week. It’s hard not to. They are all over the web. The reason? According to a recent study, we want to read online reviews.

Online reviews have disrupted the way we shop for goods and services. Today, consumers trust online reviews as much as personal recommendations and are heavily influenced by reviews when making purchase decisions. Even Google and the search engines love online reviews; featuring them in local search results. And, while everything’s great when a business gets positive reviews — poor online reviews causes their reputation and sales to suffer.

However, for franchise brands, the damage from poor reviews can affect many facets of the organization. You can blame the nuances of the franchise model for enabling this situation. From the not-always-smooth franchisor-franchisee relationship, to inconsistent franchise laws, to cumbersome internal governance procedures, these idiosyncrasies open the door for poor online reviews to create deeper and stickier problems for franchise systems compared to other business types.

While certainly not a complete list, below are 8 ways poor online reviews hit franchise brands especially hard.

1. Lowers Revenue

This is not unique to franchising, but it bears mentioning. If a franchisee has poor reviews, revenue suffers. Negative reviews about your company can risk you losing 67% of potential customers. In online search results, a franchise location with a low average star rating can lead consumers to purchase elsewhere.

2. Lowers Royalty Revenue

The main income stream for franchisors, royalty payments from franchisees are based on a percentage of gross sales and typically paid monthly. A franchise experiencing lower sales due to poor reputation causes a ripple effect in the form of reduced royalty revenue for the franchisor.

3. Weakens Business Valuation

A dream for many franchise owners is to one day sell their business. Factors such as business longevity, cash flow and market potential all impact the value of a business, but don’t discount the role online brand reputation can play. Negative online reviews from customers, suppliers and other stakeholders can cause the market to have a lower perceived value for the franchise. (Strong franchise unit valuation is important to the franchisor as well.)

4. Hinders Franchise Resales

For franchisors, reselling existing franchise territories is an important part of the business. However, shopping a franchise with a history of problems regarding poor reviews can lead to a longer sales cycle. The due diligence done by today’s franchise buyers goes beyond the hard business metrics and into reputation and customer loyalty. An available territory with negative reviews attached will sour potential buyers and force your sales staff to spend more time selling it.

5. Jeopardizes National Referral Relationships

Whether developed locally or negotiated at the franchisor level, many franchise systems forge formal preferred service provider relationships with a business referral partner. Providing excellent customer experiences to the referral partner’s customers is a given if the franchise wants to ensure future repeat business. A franchisee getting just one negative review can threaten the relationship for the entire network.

6. Increases Field Operations Costs

Territories that have franchise units with poor reputations require increased attention from the franchisor’s field operations and marketing staff to assist those franchisees in repairing the negative perception of the brand.

7. Puts the Next Owner at a Disadvantage

Launching any franchise business is exciting and at the same time daunting. But what about taking over an existing franchise that has a history of poor online reviews? This situation puts the new owner at a decided disadvantage. Even with help from the franchisor, they will have an uphill climb to build back a positive local reputation.

8. Drags Down Neighboring Franchises

A franchisee with poor online reviews can bring down the reputation of those around him. Potential customers searching for businesses online are likely to apply “guilt by association” and write off an entire brand after seeing poor reviews from one franchise location.

Final Thoughts

Franchise brands pay a much higher price compared to other types of businesses when it comes to the effects of poor online reviews. Many of those effects can be avoided by taking a proactive approach to protecting brand reputation.

This includes working with franchisees in communicating the importance of online brand reputation, taking control of online reviews by investing in an online reputation management service and implementing a sound customer experience program for the entire organization.

Ignoring bad online reviews is not a good idea for any business. For franchise brands, the consequences can be even more painful.

This article originally appeared on LinkedIn.

Malcolm Stone is the founder of ReviewIgnite, an internet marketing company that helps businesses leverage online customer reviews. Malcolm has more than 15 years of experience in the areas of brand marketing, reputation management and customer experience.