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Economics and Management of Franchising Networks pp 160–173Cite as

Contract Design and Range of Services in Franchising: An Empirical Contribution to the Effect of Incentives and Reputation

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Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

Abstract

A major problem in franchise systems is the effect of contract design and range of services on success. This study interprets the consequences of contract design in franchise chains in terms of sales. Therefore, the royalty rate dependent on sales and the initial lump sum fee will be investigated. Furthermore, the impact of the franchisor’s activities and policies on the sales volume of the franchisee will be studied. The following hypotheses reflect the impact of incentives and reputation on success:

  • the higher the fixed fee the higher the revenue of a franchisee

  • the lower the royalty rate, the higher the revenue of a franchisee, the higher the degree of freedom for individual franchisees, the higher the revenue of a franchisee

  • the higher the initial investment, the higher the revenue of a franchisee

These hypotheses were tested using a questionnaire sent to a representative sample of franchise systems operating in Germany. The OLS-regression results offer strong support to the tested hypotheses. The results show that high fixed fees combined with low variable fees and a certain degree of freedom for franchisees are positive indicators for a high individual revenue for a franchisee.

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Author information

Authors and Affiliations

  1. Center for Entrepreneurship, University of Muenster, Leonardo-Campus 18, 48149, Muenster, Germany

    Thomas Ehrmann

Authors
  1. Thomas Ehrmann
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Editor information

Editors and Affiliations

  1. Center for Business Studies, University of Vienna, Brünner Straße 72, 1210, Vienna, Austria

    Josef Windsperger

  2. Center for Research on Economics and Management, University of Rennes 1, 11 rue Jean Macé, CS 70803, 35708, Rennes Cedex, France

    Gérard Cliquet

  3. Erasmus University Rotterdam, Rotterdam School of Management, Office F3-51 Burg. Oudlaan 50, 3000 DR, Rotterdam, The Netherlands

    George Hendrikse

  4. School of Business & Economics, University of Jyväskylä, P.O. Box 35 (MaE), 40351, Jyväskylä, Finland

    Mika Tuunanen (Research Fellow) (Research Fellow)

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© 2004 Springer-Verlag Berlin Heidelberg

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Ehrmann, T. (2004). Contract Design and Range of Services in Franchising: An Empirical Contribution to the Effect of Incentives and Reputation. In: Windsperger, J., Cliquet, G., Hendrikse, G., Tuunanen, M. (eds) Economics and Management of Franchising Networks. Contributions to Management Science. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-2662-3_9

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  • DOI: https://doi.org/10.1007/978-3-7908-2662-3_9

  • Publisher Name: Physica, Heidelberg

  • Print ISBN: 978-3-7908-0202-3

  • Online ISBN: 978-3-7908-2662-3

  • eBook Packages: Springer Book Archive

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