Advertising strategies in a franchise system

Simon Pierre Sigué and Pradeep Chintagunta

European Journal of Operational Research, 2009, vol. 198, issue 2, 655-665

Abstract: 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.

Keywords: Game; theory; Marketing; Franchising; Cooperative; advertising; Horizontal; cooperation (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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