IMPACT OF POSITIONING STRATEGIES ON FRANCHISE FEE STRUCTURE

OGIRALA VENKAT ROHITH 1902153

VINAY KUMAR REDDY 1902143
PASILA PRAVEEN KUMAR 1902160
WHY THIS TOPIC?

 Positioning activities positively impact a firm's

long-term competitive advantage
 We do not have adequate evidence about the types
of positioning strategies that work in B2B context
 If they existed we donot know whether they have
any tangible influence on the firm's pricing
structure.
 This paper addresses the gap by focusing on
positioning strategies employed in business format
franchising – a typical B2B context
OBJECTIVES

 To offer a typology of positioning strategies employed in the franchise

setting and the associated underlying elements.
 To outline the importance of resources and capabilities as the
underlying drivers of a firm's positioning strategy and offer a typology
 To offer evidence that franchisors can strategically leverage key
elements of their positioning strategy to differentiate themselves and
extract a premium from their franchisees.
 BACKGROUND ANALYSIS

 A successful positioning strategy is linked to the firm's key capabilities illuminating the firm’s unique way of
delivering value to customers.
 The advantages of positioning strategies are not confined to consumer markets only.
 A few studies that focus on branding and brand positioning in the B2B context indicate

Brand acts as a differentiator in the B2B context

Both functional and emotional contribute to the development of industrial brand equity.

Brand image elements - Product solution, service, distribution and relationship positively
influence price premium
IMPORTANCE OF POSITIONING

 Franchising depicts a typical B2B relationship where two parties franchisors

and franchisees, are dependent on one another. The franchisor licenses the
franchisee to sell products or services under the franchisor’s brand name
 The fee charged is subjective because

Franchisees do not have complete information about the franchisors’

performance
Franchising involves the transfer of intangible assets such as brand name
and operating format
 The right positioning strategy can help franchises differentiate themselves
 So, here we identify the multitude of positioning strategies that franchisors
employ to differentiate themselves and attract the right kind of franchisee.
METHODOLOGY

 Used content analysis to identify various strategies used by franchisors to position their value proposition
 Randomly selected 100 franchisors of diverse natures listed in the Entrepreneur magazine operating in the USA.
 The ‘business opportunity’ section of these franchisors and extracted the text from their webpages has been used
for content analysis.
 Following a few iterative adjustments, a coding scheme was developed, These raw codes were next categorized
into six broad elements:

Franchise
Network size Internationalization Support Training Selective
experience
FINDINGS
 Each ‘business opportunity’ web page was considered as the unit of analysis
 Percentage units owned by the franchise were grouped under:

• Franchising Experience(12%)
Reliability • Network Size (15%)
• Internationalization (10%)

Service Oriented
• Support (18%)
• Training (22%)

Selective • Selection (23%)

RELIABILITY AND FEE STRUCTURE (FRANCHISING
EXPERIENCE)
 Focus lies on fee structure, i.e., upfront franchise fee and royalty rate charged by the franchisor as the outcome
variable
 The findings indicate that a franchisor aspiring to position itself as a reliable brand can leverage one or more of the
four elements:
 a) franchising experience b) network size c) internationalization and d)ownership percentage.
 With experience, franchisors become better at franchising, efficiently manage resources and improve operations,
marketing, and other expenses
 The franchisor's franchising experience is an intangible and valuable resource that is not easily replicated or
acquired.
 So, Franchisor's franchising experience is positively associated with franchise fee and royalty rate

EX: McDonald’s established in 1955 with 14000 units in USA and 35000 units across world has higher brand value
RELIABILITY AND FEE STRUCTURE (FRANCHISOR'S NETWORK
SIZE, INTERNATIONALIZATION & OWNERSHIP)

 Large sized franchisors perform well, due to their streamlined retail format, economies of scale, deep and stable
ties with suppliers and customers, they are more visible, prestigious, and resourceful.
 Franchisors with large international presence are more knowledgeable about product features, market segments
and technology in international markets.
 The speed, scale, and scope of international growth contribute to a franchisor's resources and capabilities
 Franchisors as they become mature, start buying back profitable franchisee units. This results in a higher
ownership percentage of the franchisor owned units, which in turn results in greater control over resources.
 The franchisor can leverage its high ownership percentage to charge a premium from its franchisees.
 Thus these all contribute to positive association on franchise fee and royalty rate.
SERVICE ORIENTATION AND FEE STRUCTURE

 The above hypotheses are in harmony with the literature on franchising that has used a resource-based view
 Potential franchisees would want to know if the franchisor will help them
 A franchisor aspiring to position itself as service oriented can leverage one or all of the three elements a)
classroom training b) on the job training c) support system
 Support and training offered by franchisors, transfer of knowledge and capabilities provides unique capabilities.
 Also this could inturn help in charging higher premium both on royalty and franchise fee
SELECTIVITY AND FEE STRUCTURE
 It promises access to its brand name to only those franchisees who fulfil a certain net worth criterion.
 The net worth barrier sends a positive signal about the franchisor’s intention to establish relationships with
‘credible’ franchisees.
 Franchisees that bring to the table resources that can strengthen the franchisor's brand and avoid any sort of brand
dilution by associating themselves with weak parties
 EX: 7-Eleven has a net worth requirement of $100,000 - $250,000 for a prospective franchisee. By outlining this
requirement, the franchisor is positioning itself as a ‘selective’ brand
 Net worth requirement by franchisors is positively associated with a) franchise fee and b) royalty rate