Maintaining Franchise System Isotropy: A Grounded Theory of Franchised Co-Branding

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McAuley, Andrew

Parry, Kenneth

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Winzar, Hume

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Franchising is a popular form of distribution for products and services that makes a significant contribution to the Australian economy. Traditionally, franchisors (the principal in the franchise relationship) maintain rigid control over their systems. Thus the focal point for this research, co-branding (the blending of another brand into the original franchise concept), is in itself a conundrum worthy of investigation. Franchising research is dominated by theoretical foundations of agency theory, resource constraints theory and transaction cost economics which debate the initial adoption of the franchising model and its subsequent use by organisations. Academic investigation in an Australian context is found to be disparate at best with little development found regarding franchise models of growth. Two American studies of franchise co-branding are identified but fall short of explaining this phenomenon as an expansion strategy in mature franchise systems. Therefore the significance of this study resides in the creation of theory explaining the adoption of the complex growth strategy of co-branding in the context of franchising. A grounded theory methodology is adopted to gather and analyse data from a limited range of organisations using franchisors as the unit of analysis. Almost three hundred pages of data were gathered from a range of national executives and company documents to triangulate to an organisational perspective. Throughout meta-triangulation a further one hundred and fifty pages of notes/analysis were created. This process identifies dynamics between brands (as representations of the organisations involved) through comparison so problems and issues most important to respondents are presented. These comparisons form propositions. Propositions form the basis of the theory. The theory of maintaining franchise system isotropy is multi-faceted. Systems establish external co-brand alliances utilising high quality brands. Once external relationships are established franchise systems create brands internally. This results in higher levels of system resilience. In the search for resilience, franchisors subjugate their positions in order to minimise exposure to external brand alliances and maximise franchisee adoption of the internally created co-brand. Transition from external co-brands to an internally created strategy is identified as transcendence. Transcendence is characterised by the original franchise brand transferring its brand attributes to the newly established co-brand. Maturity of the co-brand relationship results in bilateral leveraging of brand attributes. To maximise the retail co-brand strategy brand migration is instigated to establish the most effective locations. When these facets are combined, the theory of maintaining franchise system isotropy emerges. Franchise systems view themselves as invariant (unaffected by a designated operation or transformation). This view drives strategy decisions from which franchise operations remain the same. This behaviour is described as isotropic and explains the strategic organisational process in this context. This approach forms the basis of a compelling argument against the ownership redirection debate (where franchise systems may choose to buy back franchised outlets as they mature). The combination of franchising and incentives/subsidisation produces extra-contractual obligatory behaviour highlighting new perspectives for the agent-theoretic argument by characterising the principal/agent relationship as ‘deeper’ and therefore must be redefined within the context of franchising. Further, an increase in transaction costs from this strategy notionally supports a need for company-owned operations (as franchisees needed to be compelled by subsidy to adopt this strategy). Hence, the theory of maintaining franchise system isotropy provides an explanation that extends previous thought in this area and introduces new concepts and perspectives to more effectively understand this complex organisational process. Therefore this study has academic implications for franchising research and the broader marketing management and channel strategy areas. Further implications for franchise systems are also identified. Future investigations to develop the different facets of the theory are necessary to provide a fuller understanding of this phenomenon.

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Thesis (PhD Doctorate)

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Doctor of Philosophy (PhD)


Griffith Business School

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Franchised co-branding

Franchising and co-branding

Franchise system isotropy

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