Does the Franchisor Provide Value to Franchisees? Past, Current, and Future Value Assessments of Two Franchisee Types

The degree to which a franchise system penetrates a target market over time often is influenced by the rate to which its individual franchisees expand. Yet a franchisee's decision to expand the business operation depends, in part, on the perception of value that the franchisee expects to receive from the franchisor in return for a variety of fees (for example, entry fee, advertising fees, royalties). Moreover, the franchisee's experience with its franchisor may strengthen or weaken his or her perception of franchisor value. The change in perception of franchisor value can influence franchisees' decisions to expand their franchise operations. To date, scant research exists on factors influencing a franchisee's decision to expand. In the reported study, a four-stage analysis was conducted to examine empirically whether franchisees' opinions about the value of their franchisors changes over time. The study findings reveal that franchisees had the strongest, positive opinions when asked to recall an earlier decision to expand their franchise operations. These opinions weakened when franchisees contemplating expansion of their operations were asked for their current and anticipated future opinions of franchisor value. Overall, franchisees were undecided when asked about their perceptions of current franchisor value and anticipated future franchisor value. Implications of these findings for theory and practice of franchising are discussed. Introduction Franchising commonly is considered a contractual vertical marketing relationship between a franchisor and one or more franchisees. Franchisees of various types exist, often distinguished by the size of their operation and the modalities of the contractual agreement with the franchisor (Kaufmann and Kim 1995; Kaufmann and Dant 1996). They typically pay an entry fee as well as recurring royalties and advertising fees to the franchisor. In return, franchise owners receive the right to use the trademark or even the entire business format as well as a host of services provided by the franchisor, often including legal advice, consulting on location and real estate development, national advertising campaigns, training, and so forth. The franchisor-franchisee relationship represents a partnership conducted as a form of relational exchange. As such, the strengthening of the franchisor-franchisee relationship, such as through expansion of individual franchisees' businesses, involves a sharing of benefits and costs (see Macneil 1980 for a description of relational exchanges). Accordingly, of particular interest to franchise owners is the balance between the payments made to the franchisor (that is, franchisee costs) and the "value" (that is, franchisee benefits) received in return (Porter and Renforth 1978; Kaufmann and Lafontaine 1994; Michael 1999). Moreover, consistent with partnership theories (for example, Garbarino and Johnson 1999), franchisees are expected to remain in the relationship as long as they perceive to receive adequate value for their contributions to the franchisor. Recognizing that franchisees' perceptions of value of services received versus payments made to the franchisor may change over time, it is important that franchisors effectively manage franchisee perceptions of the value received from the franchisor. Unfortunately, research on franchisees' perceptions of their franchisors is scant. As a first step to filling this gap in the understanding of franchisee-franchisor relationships, we empirically examine whether franchisee perceptions of franchisor value change over time. In essence, we are aiming to answer the question, "Does the strength of perceptions of value assessment change over time?" More specifically, we examine single-unit and sequential multiunit franchisees' perceptions of value received from the franchisor at the present time and compare these assessments to expectations for the future and to expectations they recall from their past. …