TY - JOUR
T1 - Advertising strategies in a franchise system
AU - Sigué, Simon Pierre
AU - Chintagunta, Pradeep
N1 - Funding Information:
The authors thank several individuals who have provided comments and suggestions for improving the paper. The first author thanks Professors Steffen Jørgensen and Georges Zaccour for their mentorship and Athabasca University for financial support. The second author thanks the Kilts Center for Marketing at the University of Chicago for financial support. The usual disclaimer applies.
PY - 2009/10/16
Y1 - 2009/10/16
N2 - The main question of this research is: Who should undertake promotional and brand-image advertising if the franchisor and franchisees act so as to maximize their respective profits? To address this question, we study a two-stage advertising game between a franchisor and two adjacent franchisees. In the first stage of the game, the franchisor chooses between three advertising models - centralizing or delegating the two types of advertising to the franchisees or delegating only promotional advertising. In the second stage, given the franchisor's choice of an advertising model, the two franchisees decide whether or not to cooperate. Our main findings are that (1) the franchisees should cooperate if the franchisor delegates either both brand-image and promotional advertising or promotional advertising, although cooperation between franchisees does not necessary improve the franchisor's profits. (2) The choice of an advertising arrangement critically depends on the margins as well as the costs of performing both promotional and brand-image advertising. We also discuss the conditions under which the three advertising models should be implemented.
AB - The main question of this research is: Who should undertake promotional and brand-image advertising if the franchisor and franchisees act so as to maximize their respective profits? To address this question, we study a two-stage advertising game between a franchisor and two adjacent franchisees. In the first stage of the game, the franchisor chooses between three advertising models - centralizing or delegating the two types of advertising to the franchisees or delegating only promotional advertising. In the second stage, given the franchisor's choice of an advertising model, the two franchisees decide whether or not to cooperate. Our main findings are that (1) the franchisees should cooperate if the franchisor delegates either both brand-image and promotional advertising or promotional advertising, although cooperation between franchisees does not necessary improve the franchisor's profits. (2) The choice of an advertising arrangement critically depends on the margins as well as the costs of performing both promotional and brand-image advertising. We also discuss the conditions under which the three advertising models should be implemented.
KW - Cooperative advertising
KW - Franchising
KW - Game theory
KW - Horizontal cooperation
KW - Marketing
UR - http://www.scopus.com/inward/record.url?scp=63349111008&partnerID=8YFLogxK
U2 - 10.1016/j.ejor.2008.09.027
DO - 10.1016/j.ejor.2008.09.027
M3 - Journal Article
AN - SCOPUS:63349111008
SN - 0377-2217
VL - 198
SP - 655
EP - 665
JO - European Journal of Operational Research
JF - European Journal of Operational Research
IS - 2
ER -