Female franchisees; a lost opportunity for franchising sector growth?

Abstract

The purpose of this study is to investigate why female franchisees are under-represented in franchise ownership. A qualitative approach was adopted using a collective, instrumental case study of 30 female franchisees. A number of different types of influences were identified in the literature and then elucidated and assessed. It was found that push and pull factors, work–family life balance, franchising sector characteristics and external influences act as variable incentives and disincentives among female franchisees’ selection of the franchise business model with different levels of risk-taking propensity. The marketing efforts of franchises would be more effective if the way in which the identified influences that impinge on the selection of the franchise business model informed the prospecting of potential female franchisees. A further need is identified for franchises to adjust their recruitment programmes to reflect the variable effect of incentives and disincentives at different levels of capital investment. Limited research specifically examines the selection of the franchise business model by female franchisees with various levels of risk-taking propensity and identifies the nature of influences that act as incentives and/or disincentives on that selection decision.     

Conceptualizing the Franchise System Quality (FSQ) Matrix

Abstract

This empirical study provides some exploratory evidence to the proposed Franchise System Quality (FSQ) Matrix. This is the first study to investigate how franchisees perceive the importance and adequacy of the franchisor-provided services within a franchise system. Using these two dimensions as anchors, the FSQ matrix is conceptualized with four distinct profiles. The analysis of survey responses of 185 Taiwanese franchisees strongly confirms the validity of the four-cell matrix indicating significant differences between them. The results also yield a highly significant comparison between system quality permutations with franchisee performance variables and behavioral perceptions. These results show that franchisees with better performances are worthy of more support and assistance from franchisors. Those franchisees that are identified with highperceived importance of the FSQ matrix have a stronger desire for autonomy.     

A Typology for Hospitality Franchise Systems

Abstract

In spite of the high level of independence that exists in a franchise system, franchisees and franchisers are extensively dependent on each other. Because of this greater interdependence that exists in the system, financial success of one depends on the financial performance of the other. Therefore, any strategic choices made by a franchisee must always include the financial performance of the franchiser. A strategic typology based on the financial performance of franchisees and franchisers is presented in this paper. Potential strategic choices to the franchisees in different given financial performance scenarios are discussed. It is a conceptual paper offering a model and suggestions for future research on strategic management in franchising.     

Influence of franchisee selection criteria on outcomes desired by the franchisor

Agency theory suggests that an efficient contract between a franchisor (principal) and a franchisee (agent) could be established by the use of selection criteria that would screen prospective franchisees based on their likely future outcomes desired by their franchisors. Franchisors can use franchisee selection criteria as a key input control to enhance the outcomes of their future franchisees. This article examines the relationship between key franchisee selection criteria such as franchisees’ financial capability, experience and management skills, demographic characteristics, attitude toward business dimensions (perceived innovativeness, desire for personal development, seek work-related challenges, personal commitment to the business, and business risk-taking), and key measures of outcomes desired by franchisors (perceived cooperation, satisfaction with the business decision, and franchisee opportunism). The findings show that certain franchisee attitudes toward business can be used as an effective input control strategy by franchisors because they explain a substantial portion of the variance in franchisees’ outcome desired by franchisors.     

The Effective Delivery of Franchisor Services: A Comparison of U.S. and German Support Practices for Franchisees

ABSTRACT

Conventional wisdom suggests that more services offered by franchisors should lead to fewer complaints from franchisees, and that franchisees ought to be better off with additional support provided. We set out to differentiate those services that are truly effective and are perceived as beneficial by franchisees from those that may have little effect or may even be perceived as counterproductive. Our survey targeted franchisors in the U.S. and in Germany, comparing the most mature franchise market globally to one that is relatively young. System disruption was found to be dependent on the maturity of the market, as little differentiation is provided in the very mature U.S. market, but considerable differentiation exists in the younger German market. Also, the size of the system matters, as bigger systems typically provide more services. Finally, different types of services have varying levels of effectiveness in the less mature franchise market of Germany.     

Developing brand champions: A franchisee perspective

Abstract

The establishment of a compelling brand lies at the heart of a franchise network’s success. To maintain brand integrity, franchisors rely on franchisees to deliver the brand promise consistently. However, franchisee behaviour is sometimes difficult to manage, impacting negatively on the franchise brand. In adopting an internal brand management theoretical lens, this study provides new insight into the development of franchisees as brand champions. This is achieved through the empirical validation of a model, which encapsulates the dynamics of important antecedent variables (i.e. information generation, knowledge dissemination, the ‘H’ factor, role clarity, franchisee satisfaction, and brand commitment) in creating franchise brand champions. The findings provide significant theoretical and practical implications and lay the foundation for future research in this important research domain.     

An Analysis of Advertising Payments in Franchise Contracts

ABSTRACT

National advertising is an important ongoing marketing activity in a franchise arrangement. A majority of franchisors require franchisees to pay an advertising royalty as a percentage of gross revenues while some require franchisees to pay a fixed advertising fee. These payments are earmarked for national advertising. We investigate the relationship between the franchisor's profits and the different types of advertising payments in franchise contracts. Our model incorporates the idea that the franchisor and franchisee are in an ongoing relationship where there is demand uncertainty. We show that specification of an advertising payment in the form of a fixed fee or a royalty is better than no specification since it commits the franchisor to invest the payments in advertising. We demonstrate that the advertising royalty specification is more flexible since it permits the advertising expenditure to be adjusted based on information that is not available at the time the contract is written.     

Interfirm Arrangements in Different Institutional Environments

Abstract

This paper aims to investigate the effect of the institutional environment variables on the organizational choice by franchise chains that share a business format. Inasmuch as this type of franchising requires strict standardization, a comparative analysis of the same franchise chain operating in different institutional environments allows for the control of several variables, such as product and firm strategies, so that the observed organizational differences may be attributed to institutional variables. Different rules of the game may explain different governance structures in the transaction between franchisor and franchisees and their procurement contracts. In this paper, we did case studies based on semi-structured interviews with procurement and franchising managers of McDonald's in France and Brazil. The main finding is that McDonald's uses in Brazil governance structures that provide more control on transactions, both in the transactions with their outlets and their suppliers. In accordance with our results, institutional environment features explains differences in the organizational choice in each country. Results suggest the need for further research in two directions: a larger sample of countries and the investigation of other franchise chains.     

Franchiser influence strategy use and franchisee experience and dependence

Data from a survey of franchisees of a packaging, mailing, and business services franchise system indicate franchisers make more frequent use of requests, threats, and legalistic pleas, and less use of recommendations to coordinate less dependent franchisees. Franchisee dependence mediates the relationship between franchisee experience and franchiser use of recommendations, threats, and legalistic pleas. At the same time, it is interesting to find that franchiser use of information exchange and promise does not vary as franchisees mature in a system.     

Toward an Understanding of Strategic Inter-Organizational Relationships in Franchise Channels

Abstract

Information technology, globalization and the emergence of boundary-less communication networks are creating strategic networks of inter-organizational relationships. As inter-organizational relationships continue to evolve, there is a growing mandate for high levels of interdependency. Franchises are contractual vertical marketing systems and, by definition, represent highly interdependent linkages between franchisors, third-party providers, franchisees and customers. Organizational learning is posited as a strategic linkage in franchise systems.     

An Exploratory Study to Identify the Site Selection Factors for U.S. Franchise Restaurants

Abstract

The purpose of this study was to identify site selection factors under six categories that are most pertinent for the successful operation of U.S. franchise restaurants. The results highlight the most important site selection factors, which can be used as a guide by franchisors as well as franchisees. The selected six site selection categories as narrowed down in this study included general location, position of site, demographics, traffic information, competition, and cost consideration. The Delphi technique identified 56 site selection factors under these six categories, which were ultimately predicted as necessary for the success or failure of franchise restaurants.     

A longitudinal study of franchisor failure according to Altman’s Z model

Purpose: The foremost objective of this study is to obtain segments/clusters of franchisors that are more likely to fail. A second aim is to evaluate the influence of the usual variables of the franchise contract on the solvency of franchises.

Design/methodology/approach: This study set up a database with information collected from several Spanish franchising yearbooks and franchisors’ websites to establish the census of Spanish franchisors. This article worked with a census of the franchises operating in Spain from 2001 to 2011. Latent class regression analysis is used.

Findings: This research found four segments or classes of franchisors with regard to their failure pattern. In addition, this article defined the most influential variables in the franchisors’ risk of failure. The relationships between the variables that define a franchise contract and the Z scores of Altman’s model have been extracted. The dependent variable has been the Altman’s Z model and the independent variables are those that define the franchise contract.

Research implications: This methodology offers potential franchisees a new criterion for assessing the franchise chains they are investigating, taking into account their risk of failure. This allows franchisees to better highlight those franchisors that have a lower crash risk and avoid the damage incurred by the closure of the chain. The information provided for franchisees should be accessible, usable, and suitable to help franchisees to choose the best franchise systems in which to invest. This methodology is of course very useful for franchisors, because they can comprehend their financial situation and how they could manage the franchising variables in order to improve their solvency.

Practical implications: All the segments are solvent, except Segment 3. The distinguishing feature of this segment is that over 64 percent of the firms are retailer chains. In addition, more than 20 percent of the franchises from our database are in financial danger, and this is the group where the number of service companies is lower.

Originality/value: This research is unique in two ways. First, this study presents a new methodology in this field that allows researchers to use the historical-financial data of franchisors, and the information of the franchise contract to predict franchisor failure. Second, this article helps franchisees to make their own decisions on the basis of the franchisors’ level of risk of failure. Third, this research offer a theoretical contribution about franchisor failure, this topic is scarcely treated by academic literature.     

“Conflict-performance assumption” or “performance-conflict assumption”: Insights from franchising

Franchising is an organizational governance form where relational and formal contracts complement each other and where franchisor and franchisees together may obtain better performance than working alone. Although relational contracts may adapt to changing environments, they are not as efficient in ambiguous settings. In franchised stores, liability for low performance is not always clear. Indeed, franchisor and franchisees work in close collaboration, and, therefore, this ambiguity on causes of low performance may lead to conflicts. The franchising literature, as far as we know, has addressed practitioners' concerns regarding performance on one side, and conflicts on the other side, but no study has exclusively focused on low performance and the emergence of conflicts. Our research contributes to the franchising literature by filling this relative gap and, contrary to “conflict-performance assumption” (Pearson, 1973; Duarte and Davies, 2003) held in the broader context of distribution channels, we consider low performance to be a cause, rather than a consequence, of franchisor/franchisee conflicts. This empirical study deals with franchising in France, the leading market in franchising in Europe and the third largest in the world. We used a qualitative approach based on 44 in-depth interviews with 27 franchisors and executives/high-level managers of franchise chains, as well as 17 franchisees from various industries to get a dual, and so more complete, assessment of franchising practitioners' views of performance-related conflicts. Our research findings show that franchisees, as independent small business owners, give priority to financial results compared to other goals and they are driven to continuously improve the performance of their store(s). When expectations are not met, franchisees sometimes blame franchisors because they are interdependent in their success and liability is not straightforward. As a collaborative team, franchisors and franchisees may benefit from minimizing conflicts and preventing them with the careful selection and management of franchisees that share franchisor's values and have internal locus of control.     

Family Ties that B(l)ind: Do Family-Owned Franchisees Have Lower Financial Performance than Nonfamily-Owned Franchisees?

Over the past three decades, franchisee performance has attracted the attention of scholars in both retailing and entrepreneurship. However, to date, research has not investigated whether the type of franchisee ownership influences franchisee financial performance. Family ownership, the most dominant form of firm organization worldwide, ingrains greater focus on noneconomic goals that could, in turn, reduce the financial performance of a family-owned franchisee. Drawing on the tenets of agency theory undergirding the franchising and family business literature, we examine whether family-owned franchisees have lower financial performance than nonfamily-owned franchisees. Using data from the 2007 Small Business Owner survey and propensity score matching, we observed that family franchisees generated at least 6.7% lower sales per employee than nonfamily franchisees. The inferences are consistent across two additional samples and robust to additional performance outcomes and specifications. Overall, this research provides a novel empirical examination of the influence of family ownership on franchisee financial performance and has managerial implications for both franchisors and franchisees.     

E-Commerce and Encroachment: Evidence From French Franchise Networks

Encroachment is a critical issue affecting relations among franchisees and between franchisees and franchisors. The Internet increases this risk when a franchisor adopts a transactional website, becoming a “ubiquitous outlet.” Using logistic regression we give evidence of the significant impact of the proportion of franchised outlets in the network on transactional website adoption by French franchisors. The analysis is carried out to facilitate comparison with the United States market. A web-to-store strategy and the click-and-collect system implemented by most French supermarket chains are presented as potential solutions to circumventing e-encroachment.     

Antecedents of early terminations in franchising: franchisor versus franchisee cancelations

Franchisors capitalize on franchisee entrepreneurial capacity to grow. However, enabling franchisees to develop their ventures may damage system consistency. This dilemma makes conflict particularly prevalent in the field of franchising. Nevertheless, prior research has reported an incomplete picture of factors leading to serious disagreement and premature termination in franchise partnerships. We address this gap, first, by adding the entrepreneurial autonomy of franchisees as a relevant but underexplored source of conflict and, second, by providing a more fine-grained analysis of franchisors’ versus franchisees’ drivers of termination. Specifically, we focus on the controversial issues of pricing and local advertising policies and analyze how expanding franchisees’ entrepreneurial autonomy in these decision areas is related to contract terminations depending on who ended the relationship (the franchisor or a franchisee). The study also highlights less controversial requirements and conditions (e.g., upfront investments, franchisor experience …) that may reduce early terminations. Our empirical objectives are met by using survey data from a sample of franchisor companies. The results show how the performance outcomes of entrepreneurial autonomy differ depending on the decision area in which it is exercised. Results also throw light on the consequences of various critical franchise policies that may be masked if both types of termination (franchisors vs. franchisees) are considered together.     

Standardisation versus Adaptation: Geographical Pressures to Deviate from Franchise Formats

There is a tension in business format franchising between, on the one hand, standardisation and uniformity and, on the other hand, geographical variations in market conditions and resource availability. Previous research has demonstrated in the case of independent small firms that local geographical conditions influence business strategy. This paper examines whether variations in the local geographical environment, notably in terms of demand and supply side conditions, affect format implementation and whether franchisors permit franchisees to make local adaptations of the format in response to local environmental conditions. The study is based on interviews with 40 UK-based franchisors, all of whom were at the later stages of roll-out or in the consolidation stage of network development. Local variations in the business environment do create a conflict with the need to maintain the uniformity of the franchise format. Adaptation was restricted to peripheral format components. No changes were made to the core format components. Most franchisors recognise that their franchisees are an important source of innovation. However, implementation of franchisee ideas across the system is found in only a minority of cases. These findings link to the franchisee control–autonomy debate, confirming other studies which suggest that franchisees enjoy considerable operational autonomy.     

Franchising in Europe: Exploring the Case of Spain with Self‐organizing Time Maps

Economic crises affect both the organizational side and the brand side of the franchise. Using self‐organizing time maps, this study examines how franchise brand behavior influences decisions by potential franchisees in Spain. The findings confirm that franchising offers an alternative to the business turnaround strategy, which firms apply when faced with adverse changes in the environment such as those caused by the economic crisis in Spain. Results show that all franchise brands within the same sector behaved similarly, except for brands in the catering sector, which displayed varying responses to the economic changes. The authors discuss the implications of these results for future franchisees.