Alternative profitability measures and marketing channel structure: The franchise decision

Analysis of marketing channel structure in general, and the decision to fra nchise in particular, has assumed that the decision maker is seeking to max imize the long-term economic value of the firm. In this article, we conside r an alternative accounting-based objective function. We explore some circu mstances that might lead to the use of an accounting-based objective Juncti on, including the incentive structure faced by non-owner managers, the life cycle of the firm including an impending initial public offering, and data availability considerations. A simple model of franchisor performance is d eveloped and several scenarios of franchise system expansion examined. Deci sions to open franchised or company-owned outlets are compared using the co mpeting objective functions. (C) 2000 Elsevier Science Inc. All rights rese rved.