Perceived Advantages of the Franchise Option from the Franchisee Perspective Empirical Insights from a Service Franchise

Abstract

PERCEIVED ADVANTAGES OF THE FRANCHISE OPTION FROM THE FRANCHISEE PERSPECTIVE: EMPIRICAL INSIGHTS FROM A SERVICE FRANCHISE In a relatively few years, franchising has become a major component of the distribution system in the United States. Presently accounting for over one-third of all U.S. retail sales, it is predicted that by the year 2000, the franchising format will distribute half of the nation's retail goods (Padmanabhan 1989). Many business analysts already see franchising as the wave of the future and the number of how publications directed at would-be-franchisees grows ever larger. Although many writings aimed at industry and academia list and discuss the advantages of becoming a franchisee, most of this literature is based on the benefits considered significant by the franchisors in marketing their business formats. appears to have been assumed that franchisees perceive the same advantages to be salient; and few studies have aimed at directly comparing the importance of the advantages as seen from the perspective of franchisees. The purpose of this article, then, is to present some initial empirical insights on the question of why the franchisees choose the franchise route, and to assess the influence of selected correlates on this decision. Unlike previous studies, level of agreement measures as well as rankings were obtained for different advantages to ascertain their attractiveness to the franchisees. The impact of three correlates, namely, (1) the number of years in the franchise, (2) annual sales, and (3) prior business experience on the perceptions of the franchisees is also analyzed and discussed. The data were obtained from the franchisees of a major national service franchise system. LITERATURE REVIEW Advantages of Franchise Format to Franchisees Despite an abundance of writings delineating the advantages of the franchising format to franchisors and franchisees (Izreali 1972, Diaz and Burnick 1969, Hunt 1977, Vaughn 1979, Mendelsohn 1985, Stern and El-Ansary 1988, Justis and Judd 1989), no theoretical framework has been proposed for organizing these advantages into a taxonomy or a hierarchical typology. Rather, the advantages suggested (and actually promoted within the industry) stem directly from the very logic and nature of the franchise format. Broadly, one can dichotomize these reasons into (1) the advantages of the franchise route over starting one's own and (2) the advantages of franchising as a business option over being an employee. Although both categories of reasons are likely to be motivators to would-be franchisees, past literature has largely dwelled on franchising's advantages vis-a-vis independent with the notable exception of the relative independence compared to being an employee reason. Presumably, this is so because the independence reason is the only major and unique advantage franchising offers over being a salaried employee. For instance, although earning potential would be another advantage over working as an employee, this reason is also a purported advantage of franchising over independent business. Similarly, other advantages over salaried work such as excitement of running one's own business, desire to succeed, and autonomy are related to independence and higher earning potential. Hunt (1977) summarized what he considered to be the greatest advantage of franchising as follows: franchisees, franchising offers one of the most potent advantages of belonging to a large chain while, at the same time, being an independent businessperson. To compete effectively with corporate chains and others, franchising offers trade-names and trade-marks, and pre-opening and post-opening assistance.. .. Unquestionably, one of the major advantages of a franchise is the trade-name of a franchise. Diaz and Burnick (1969) have suggested similar benefits and stated: It is apparent that they [franchisees] were attracted to franchised businesses because the `franchise package' was recognized as superior to the `package' that the franchisee as an individual could create through his singular efforts. …

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