Franchising (by Matt and Suh-Hee)


Published on

This is the presentation file that Matt Mosley and Suh-hee Choi designed for the HTM681 (advanced hotel management) presentation at Purdue University (West Lafayette, IN, USA)

Published in: Business
1 Comment
  • I am giving you a best business opportunity. If you have simple online knowledge and english you shall earn good money. Just visit and other of our site and

    Just post your details in the below link. I will do explain you further about this new generation business and you shall earn in lakhs if you work with this properly.
    My Best Regards
    Sincerely yours
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • Combs, J. G., Michael, S. C., & Castrogiovanni, G. J. (2004). Franchising: A Review and Avenues to Greater Theoretical Diversity. Journal of Management, 30 (6), 907-931. Lafontaine, F. (1992). Agency theory and franchising: some empirical results. RAND Journal of Economics, 23 (2), 263-283.
  • Franchising (by Matt and Suh-Hee)

    1. 1. January 20, 2009 Matt Mosley Suh-hee Choi Franchising HTM 681 First Topic Department of Hospitality and Tourism Management Purdue University
    2. 2. Franchise—Definition <ul><ul><li>A method of distribution </li></ul></ul><ul><ul><li>A type of strategic alliance </li></ul></ul><ul><ul><li>Agents involved in a franchise system </li></ul></ul><ul><ul><ul><li>The franchisor -- lends his trademark or trade name and a business system </li></ul></ul></ul><ul><ul><ul><li>The franchisee -- pays a royalty (+ an initial fee) for the right to do business under the franchisor's name and system </li></ul></ul></ul><ul><ul><ul><li>the contract (technical meaning) </li></ul></ul></ul><ul><ul><ul><li>the business that franchise operates (actual meaning) </li></ul></ul></ul>
    3. 3. Franchise—Definition <ul><li>(from the Code of Federal Regulations) </li></ul><ul><li>Any continuing commercial relationship or arrangement in which the terms of the offer or contract specify, or the franchise seller promises or represents that: </li></ul><ul><li>The franchisee will obtain the right to operate a business that is identified or associated with the franchisor's trademark , or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor's trademark; </li></ul><ul><li>The franchisor will exert a significant degree of control over the franchisee's method of operation, or provide significant assistance in the franchisee's method of operation; and </li></ul><ul><li>(3) As a condition of obtaining or commencing operation of the franchise, the franchisee makes a required payment to the franchisor or its affiliate. </li></ul>
    4. 4.
    5. 5. Benefits Barbara Beshel, 2001, An Introduction to Franchising, IFA Educational Foundation
    6. 6. Disadvantages <ul><li>Restrictions (product, pricing, site) </li></ul><ul><li>Ongoing royalties and advertising fees. </li></ul><ul><li>Bad reputation caused by </li></ul><ul><ul><li>poor performance of other franchisees </li></ul></ul><ul><ul><li>unforeseen problems of the franchisor </li></ul></ul><ul><ul><li>free-riders </li></ul></ul><ul><li>Limited duration of a franchise agreement </li></ul>Barbara Beshel, 2001, An Introduction to Franchising, IFA Educational Foundation
    7. 7. Franchise Industries
    8. 8. Types of franchising <ul><li>Single-unit franchise </li></ul><ul><li>Multi-unit franchise </li></ul><ul><ul><li>An area development franchise </li></ul></ul><ul><ul><li>A master franchise </li></ul></ul>
    9. 9. Theories <ul><li>Resource Scarcity </li></ul><ul><ul><li>Financial + Intellectual </li></ul></ul><ul><ul><li>Limitations: growth and survival doesn’t guarantee profitability. </li></ul></ul><ul><li>Agency Theory </li></ul><ul><ul><li>Less monitoring costs </li></ul></ul><ul><ul><li>Assumption: economic, rational actors, homogeneity of perception / action </li></ul></ul><ul><ul><li>Costs of local monitoring Vs. Risks of free-riding </li></ul></ul><ul><ul><li>Moral hazard issues </li></ul></ul>Combs, Michael, & Castrogiovanni, 2004 Agency Theory : Lafontaine, 1992
    10. 10. Theories (suggested by Combs et al., 2004) <ul><li>Upper echelons theory </li></ul><ul><ul><li>Emphasizes managers’ characteristics (previous experiences, age, etc.) </li></ul></ul><ul><li>Resource-based theory </li></ul><ul><ul><li>Points out biased distribution / trade of resources </li></ul></ul><ul><ul><li>Increase of conflict management capabilities  Increase of competitive advantages  Increase of franchising </li></ul></ul><ul><li>Institutional theory </li></ul><ul><ul><li>Articulates the importance of social, environmental, institutional, legal factors </li></ul></ul><ul><ul><li>Organizational behavior (propensity for predictability / stability) </li></ul></ul>
    11. 11. Previous Research Control system What Motivates Franchising? • Comparing franchised / independent restaurants • Resource Scarcity ( The effect of resource scarcity on the proportion of franchised outlets) Which industries are more franchised? Which regions are more franchised? Moral issues
    12. 12. Previous Research (cont.) <ul><li>From the franchisors’ perspectives </li></ul><ul><ul><li>geographic expansion </li></ul></ul><ul><ul><li>intellectual scarcity (Oxenfeldt and Kelly, 1969) </li></ul></ul><ul><ul><li>financial scarcity (Oxenfeldt and Kelly, 1969) </li></ul></ul><ul><ul><li>economies of scale (Oxenfeldt and Kelly, 1969) </li></ul></ul><ul><ul><li>innovation (Bradach, 1997) </li></ul></ul><ul><ul><li>survival and growth (Bates, 1995) </li></ul></ul>What Motivates Franchising? (Benefits of Franchising)
    13. 13. Previous Research (cont.) <ul><li>Consumers’ perception </li></ul><ul><ul><li>Higher degrees of satisfaction (Young et al., 2008 – restaurant) </li></ul></ul><ul><ul><li>Brand recognition </li></ul></ul>What Motivates Franchising? (Benefits of Franchising)
    14. 14. <ul><li>Site selection (Park & Khan, 2005) </li></ul><ul><li>Fast Food and Restaurants (IFA, 2006) </li></ul>Previous Research (cont.) Which industries are more franchised? Which regions are more franchised?
    15. 15. <ul><li>e.g. Agency Theory perspectives </li></ul><ul><ul><li>Vertical problems – appropriating royalties, not adhering to standards, etc. </li></ul></ul><ul><ul><li>Horizontal problems – free ride </li></ul></ul><ul><li>Control Systems (Vazquez, 2008) </li></ul><ul><ul><li>Geographic issues (e.g. International franchising) </li></ul></ul><ul><ul><li>Standardization Vs. Adaptation </li></ul></ul>Previous Research (cont.) Moral issues & Control systems
    16. 16. <ul><li>Does franchising really work? </li></ul><ul><li>What types of franchise perform well? </li></ul><ul><ul><li>Financial </li></ul></ul><ul><ul><ul><li>Optimal franchise fee, royalty rate </li></ul></ul></ul><ul><ul><li>Optimal franchising outlet % (e.g. Hsu & Jang, In Press) </li></ul></ul>Previous Research (cont.)