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From franchisee experience to customer experience: their effects on franchisee performance

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Abstract

Despite the importance of experience, the question of whether and how a franchisee’s operating experience affects performance remains undertheorized. Taking a multi-unit franchisee owner’s perspective, we unravel the performance effect of an owner’s operating experience. We theorize on the differential effects of three facets of this experience: local experience, intensity of distant experience, and heterogeneity of distant experience. Bringing customers into franchising research, we propose customer satisfaction as a key intervening mechanism and customer diversity as a key contextual condition for the performance effect of an owner’s operating experience. An analysis of 14,069 stores in the McDonald’s chain over three years and of more than six million customer reviews shows that an owner’s greater local experience and higher heterogeneity of distant experience improve, whereas higher intensity of distant experience impairs, store survival and sales growth through customer satisfaction. Those performance effects are moderated by the extent of customer diversity.

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Notes

  1. Note that we examine the performance implications of the owner’s, rather than the store manager’s, operating experience because of the owner’s higher willingness to accept uncertain returns to innovation (Kihlstrom & Laffont, 1979), higher ability to handle risk, and a longer-term orientation for the store. In contrast, store managers are less likely to engage in adaptation activities because monitoring by the owner discourages them from undertaking adaptation activities and because of managers being compensated by salary. Therefore, owners are more inclined and well positioned to undertake local adaptation activities (Sorenson & Sørensen, 2001).

  2. 24% of the population in zip code 11428 is White, whereas 95% of the population in zip code 26101 is White; 16% of the population in zip code 11428 earns less than $30,000, whereas 47% of population in zip code 26101 does (2010 U.S. Census Data).

  3. The Franchise Disclosure Document (FDD) is a legal disclosure document that must be provided to potential franchisees as part of the pre-sale due diligence process. It contains information essential to potential franchisees. It is noteworthy that McDonald’s franchise owners are active participants in store operations because McDonald’s does not allow owners to be passive investors. Item 15 of McDonald’s FDD specifies that “We require you to provide full time and best efforts to, and personal on-premises supervision of, the day-to-day operation of your McDonald’s restaurant business.”

  4. We use the five-digit zip code for the following reasons. First, five-digit zip code boundaries allow the researcher to define contiguous market boundaries. Second, demographic characterisitics of markets can be measured at the zip code level, using the census data. Third, past studies used the five-digit zip-code for defining retail markets (e.g., Chung & Kalnins, 2001).

  5. Note that we did not consider local experience before 2011 because learning from experience that is more than five years old is unlikely to influence current performance significantly (Kalnins & Mayer, 2004).

  6. \( Eucilidean\ Distance=\sqrt{\sum_{i=1}^n{\left({q}_i-{p}_i\right)}^2} \), where p & q are the dimensions on which markets differ.

  7. Age group consists of the categories of five-year intervals, ranging from under five years old to 85 years old and above. Income group consists of the following categories: less than $10,000, $10,000 to $14,999, $15,000 to $24,999, $25,000 to $34,999, $35,000 to $49,999, $50,000 to $74,999, $75,000 to $99,999, $100,000 to $149,999, $150,000 to $199,999, and $200,000 or more. Education group consists of high school graduate and bachelor’s degree or higher. Ethnic group consists of White, African American, American Indian, Asian, Native Hawaiian, Other Race, and Multi-Race.

  8. Correlation between Demand and Inter-Chain Competition was quite high (0.8). However, the hypothesis test results did not change after both variables or either variable had been dropped.

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Acknowledgements

The authors acknowledge helpful comments and suggestions by the editor, the associate editor, and four anonymous reviewers.

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  1. Department of Marketing, Iowa State University, Ivy College of Business, Ames, IA, 50011-1350, USA

    Pushpinder Gill & Stephen K. Kim

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Appendix 1

Table 11 First stage regression for Model 3.1
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Appendix 2

Table 12 Analysis of moderated mediation effects
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Gill, P., Kim, S.K. From franchisee experience to customer experience: their effects on franchisee performance. J. of the Acad. Mark. Sci. 49, 1175–1200 (2021). https://doi.org/10.1007/s11747-021-00788-w

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