What is a significant disadvantage for a franchisor when dealing with franchisees?

A significant disadvantage for a franchisor when managing relationships with franchisees is indeed the potential negative impact on reputation due to poor management by franchisees. This occurs because franchisees operate under the franchisor's brand name and are expected to maintain certain operational standards and quality levels. If a franchisee fails to manage their business effectively—through poor customer service, subpar product quality, or inadequate compliance with brand standards—this can reflect poorly on the entire franchise network. Customers often perceive the franchise as a single entity rather than separate businesses, so the actions of one franchisee can damage the brand's reputation, potentially affecting sales and customer loyalty across all locations.

Limited market reach, high initial investment costs, and overhead costs for company-owned outlets do present challenges in the franchising model, but they do not directly affect the reputation of the brand in the same way. Market reach can be expanded through successful franchising, while initial investment costs and overhead relate more to financial management than to the franchisor’s public image. Hence, the danger to brand reputation due to franchisee mismanagement stands out as a more significant concern for franchisors.