Multi-unit versus single-unit franchising: assessing why franchisors use different ownership strategies

Abstract

The aim of this article is to examine what factors underlie the choice of organisational form when franchisors add new franchised units to their networks. Franchisors may grant new units to existing franchisees (multi-unit franchising (MUF)) or to new franchisees (single-unit franchising). We find that this choice depends on the existence of contractual problems (namely adverse selection and moral hazard) and several network characteristics influence the magnitude of these problems. In particular, we found a positive relationship between the intensity of the use of MUF and network size, geographical concentration of the units of the network, and industries where customers tend to be non-repetitive.

Developing brand champions: A franchisee perspective

“…For example, Grace and Weaven (2011) had a response rate of 9%, while Weaven, Grace, and Manning (2009) reported a response rate of 15%. Similarly, Cochet, Dormann, and Ehrmann (2008), Gillis, McEwan, Crook, and Michael (2011), and Gomez, Gonzalez, and Vazquez (2010) all reported response rate in the low 20s. As non-response bias was of concern, a sample of late responders (n = 55) were compared with the early responders.…”

Network Integration Through Franchised and Company‐Owned Chains: Evidence from French Distribution Networks

“…Therefore, for each new outlet, the upstream firm has the choice between a company‐owned unit and an independent retailer‐owned unit that reflects a trade‐off between incentives and control in this moral hazard situation. According to the agency cost perspective, the upstream firm will be more likely to choose a franchised unit when the costs to monitor the managers of company‐owned units are high, for example, because of the geographic dispersion of the network (Lafontaine and Slade, , Gomez et al ., ). Therefore, we formulate the following hypothesis.…”

Growth, Uniformity, Local Responsiveness, and System-Wide Adaptation in Multiunit Franchising

“…For example, Garg, Priem and Rasheed (2013) contribute to the extant knowledge by suggesting that MUF provides asymmetric cost advantages for franchisors and franchisees. In addition, Gomez, Gonzalez, and Vazquez (2010) find that the use of MUF is impacted by ex-ante and ex-post contractual problems, as well as network characteristics, such as the geographical concentration of units and type of customer contact. From an agency theory perspective, Gillis et al (2011) further support the notion that franchisors use MUF as a reward for franchisees to reduce agency problems that may, for example, arise from the opportunistic behavior of franchisees in fast growing systems (Bercovitz 2003).…”