A variety of efficiency justifications have been said to entice entrepreneurs towards franchising as an effective business growth strategy for an expanding organisation. Economies of promotion allow franchisors to benefit from national promotional and advertising activity. Franchising makes possible the opening of more outlets in a relatively short period of time. Total promotional and advertising costs are therefore spread over a number of outlets thereby lowering the per outlet cost throughout the business. Company-owned outlets might also benefit from such cost savings, if they establish a large number of outlets in a relatively short time.
5.9.1 Analysis of the economies of promotion factor for franchising cases
The case study 1F owner realised the benefits of opening new sites in clusters to capitalise on economies of promotion, but this was not considered to be important in making the expansion mode decision. Ultimately, as the group and number of outlets grew, the franchisor would achieve these economies by reaping the benefits of group advertising rates within print, radio and electronic media.
The entrepreneur of case study 2F believed that individual owner-operators with local marketing knowledge provided the most appropriate means for setting-up his business sites. These independent franchisees would promote their business and drive membership at a local level. While not a factor in the initial stages of development, economies of promotion became more appreciated as the group expanded. The company benefited from economies of national promotion through a shared website, radio and print promotion.
Table 5.13 below provides a summary of the importance of economies of promotion as a factor in the decision to grow through franchising.
Table 5.13: Dant factor - achieving economies of promotion and companies that expanded by franchising
Case Importance to decision to franchise
1F Was not an initial consideration in the choice of growth mode. 2F Was not an initial consideration, other factors were deemed more
important.
5.9.2 Analysis of the economies of promotion factor for company cases
Similar findings were seen with the company-owned cases. Economies of promotion did not play an important part in the decision-making of the case 1C owner when expansion of the business presented itself. Reacting to opportunity rather than following a specific growth strategy, the case 1C business grew without deliberate long-term planning, motivated as it were by the entrepreneur wanting to help others enter the industry and start their own business. No consideration was ever given to promotion economies in determining organisation mode.
Similarly, economies of promotion played no part in the decision process for the method of growth for case 2C. Each new outlet was run on its own merits, with individual membership prices and their own separate marketing and promotional campaigns. Case 2C's marketing strategy was clearly focussed on the retention of existing members. Boasting a retention rate in excess of 70 per cent, the owner believed if members enjoyed and used their gym membership regularly, not only would his centres be constantly busy, but the ongoing chase for new members and extensive marketing would not be required. He believed member retention would remain strong and members would be likely to introduce their friends to the centre.
Prior to opening the fitness centres, the owner of case study 3C was operating a fitness marketing company, providing telemarketing and lead generation services to Australian fitness centres. Drawing on this related service, the owner was able to leverage economies of promotion by tapping into this telemarketing service. Further, quick expansion from two to seven clubs within twelve months allowed the business to capitalise on group promotion efforts and thus benefit from scale economies. Like the other two company-owned cases, however, this benefit did not play any part in the choice of growth method.
Table 5.14 below provides a summary of the importance of the economies of scale in staying for the three cases with company ownership modes.
Table 5.14: Dant factor - achieving economies of promotion and companies that expanded through company-owned outlets
Case Importance to decision to stay with company ownership
1C No consideration was given to such criteria. 2C Factor was not a consideration in expansion.
5.9.3 Summarising the relevance of the economies of promotion factor
Of the cases studied, only case 3C started their expansion with any thought of the possibilities that economies of promotion could offer the business. Operating a substantial lead generation and sales company, the entrepreneur was able to capitalise on these economies with existing benefits. While the case 1F owner did not expand the business with the idea of what promotional economies could bring the group, they did capitalise on such a strategy once a critical mass of group outlets was achieved. Cases 2F, 2C and 1C operated their businesses on a local basis, preferring to concentrate on local community marketing and promotion activities. Economies of promotion were not a driving factor for these entrepreneurs in deciding to expand their businesses or in selecting a growth strategy.