Prabhat kumar- 19BSP3787

40.
1]
The relationship between KFC and its franchisees grew strained due to the disputes relating
to the new production process and KFC’s new standard franchising contract.
Another bone of contention between the franchisees and the KFC officials was the Skin-free
Crispy product.
KFC wanted to open kiosks in supermarkets, discount stores, and airports and wanted to
include this in the new contract but the franchisees did not accept it. They contended that
setting up kiosks would breach the conditions of the existing contract, where KFC
guaranteed a one and half mile radius between each unit.
The launch of the product was postponed due to the problems related to the product’s
consistency. The product was intended to target health conscious customers and was
therefore expected to yield low profit margins. KFC wanted its franchisee outlets to
introduce frozen chicken but its franchisees were against this decision and preferred fresh
poultry over frozen chicken to be used in the preparation of Skin-free Crispy product and
other products.

HOW IT CAN BE AVOIDED:

In most franchise supply chains, the franchisor or its nominated supplier will supply certain
key products to the franchise network. Where the franchisor is the supplier, the terms of
supply will often be set out either in the franchise agreement itself or in the Manual or in a
separate set of standard supply terms. In our opinion, the third option is the best for the
franchisor as it enables a franchisor to update supply terms from time to time and ensures
that the network is supplied on uniform terms.

MANAGING SUPPLIER LIABILITY:

A clear set of service levels
Clear guidelines and a clear process on what happens when something goes wrong
Warranties which set clear expectations in respect of the goods and services provided.
Indemnities to ensure the appropriate allocation of risk under a contract. .
Penalties
Limitations and exclusions of liability
Insurance and guarantees

2]

Taco Bell faced problems with its franchisees. Taco Bell had introduced a value-oriented
menu, offering its products at very low prices.
VALUE ORIENTED STRATEGY: Value-based pricing is a strategy of setting prices primarily
based on a consumer's perceived value of a product or service. Value pricing is customer-
focused pricing, meaning companies base their pricing on how much the customer believes
a product is worth.
With "VALUE ORIENTED" strategy, the company increased its sales volume. McDonald’s
responded to Taco Bell’s value-oriented strategy by lowering the prices of its products.
McDonald’s move increased the apprehensions in the minds of Taco Bell’s franchisees, the
reason being that if Taco Bell reacted to McDonald’s price reduction by further reducing the
price of its products, then the profit margins of the franchisees would be severely hit. But
Taco Bell did not appear to be too concerned about the franchisees’ growing apprehensions.
In fact, the company began advocating the idea of low price products saying that
franchisees could still enjoy profits by cutting overhead costs. According to the company,
reducing field supervision and preparing labour schedules depending upon the demand
projections for each 15 minutes of operation would help in reduction of overhead costs.

The introduction of kiosks and other scaled-down outlets in non-traditional sites such as
colleges and office buildings by the company.
Though Taco Bell defended its decision to introduce kiosks to expand its reach in the
market, it responded to its franchisees’ apprehensions by deciding to permit the kiosks and
other scaled down-outlets to operate only after getting a license from the company. This
mollified the franchisees to some extent.