DOES CLUSTERING OF SAME-BRAND OUTLETS GENERATE MORE SALES?

Does Clustering of Same-Brand Outlets Generate More Sales?

The 2018 Franchise Business Outlook published by the International Franchise Association shows that the franchise industry is set to grow for the eighth year in a row.¹  As franchise systems expand, the clustering of same-brand outlets, i.e., the geographic concentration of interconnected institutions, becomes an interesting and contentious issue. Should multiple same-brand outlets of a franchise system be situated close to or distant from one another? The research conducted by Moeen Naseer Butt, in collaboration with Kersi D. Anita, Brian R. Murtha, and Vishal Kashyap, attempts to answer this question.

The increased interactions among clustered same-brand outlets may facilitate knowledge sharing, even while inducing intrabrand competition. Prior research has focused on both these possibilities—knowledge sharing or intrabrand competition—in isolation. However, there is limited research which studies both of these possibilities along with clustering. The authors make several key contributions to the understanding of clustering and its performance consequences.

Using data from more than 8,000 observations on the 988 outlets of a large US-based franchise system of automotive services across 41 states, from 1977 through 2012, the authors find that a new franchisee-owned outlet when clustered with mature same-brand outlets will perform better. This may seem counterintuitive. However, this could be because of the efforts of the new franchisee to take advantage of the experience gained and knowledge shared by the clustered mature outlets. On the other hand, mature franchisee-owned outlets clustered with other mature outlets of the same brand will lose sales because of intrabrand competition. Like franchisees, franchisor-owned outlets also experience a mixed bag when clustered with other same-brand outlets. Results suggest that franchisors should avoid establishing these outlets in proximity to other same-brand outlets, whether mature or new.  Additionally, across both franchisor- and franchisee-owned outlets, shared ownership appears to help facilitate knowledge sharing and reduce intrabrand competition. In the case of the organisation that was studied, the sales performance gains accruing from shared ownership were clearly significant.

The knowledge gained from this research would positively help many organisations that are considering or re-evaluating their franchise systems.

Butt, M.N., Anita, K.D., Murtha, B.R., & Kashyap, V. (2018). Clustering, Knowledge Sharing, and Intrabrand Competition: A Multiyear Analysis of an Evolving Franchise System. Journal of Marketing, 82(1), 74-92.
doi: 10.1509/jm.16.0173

About the Author

Moeen N. Butt is Assistant Professor at the SDSB, LUMS. He teaches brand management and retail management. At the Rausing Executive Development Centre, he teaches executive courses in Marketing in the Digital Age, and Sales Force Management. His research interests include franchising, market development and marketing. His research has been featured in the Journal of Marketing and Marketing Science.

Email: moeen.butt@lums.edu.pk

¹https://www.franchise.org/sites/default/files/Franchise_Business_Outlook..., accessed May 2018.