Advertising Fees in the Franchised Channel

Abstract

Most franchisees in business format franchising are required to contribute a specified percentage of their sales revenues as advertising fees to franchisors. According to previous researchers on franchising, these fees are usually deposited in a national promotion fund which is used by franchisors for preserving the chain's brand name strength. This paper postulates hypotheses for the determinants of advertising fees and evaluates them through an empirical analysis of a representative sample of franchisors. Although some of the hypotheses are validated, a further analysis on a sub-sample does not show a significant correlation between franchisors who charge advertising fees and those who use the national media. A discriminant analysis reveals important differences between groups of franchisors, classified according to differences in advertising strategy. The results are used to propose areas for future research as well as for suggesting directions for charging advertising fees which should reduce channel conflict in this popular marketing channel.

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