1 Introduction

The franchising system is present in a large variety of both daily and sporadic activities in many countries. It has been one of the most popular means of engaging in business in recent years (Minguela-Rata et al. 2009; Peretiatko et al. 2009). The service industry is one of the great driving forces behind the growth of franchising in many countries. For example, in the USA in 2005, there were 158,625 franchisees in the service industries in the restaurant sector, business services and personal services (IFA 2010). These franchisees provided 4,145,613 jobs. The output of these franchisees was $209.4 billion. In recent years in Mexico, more than 25% of the total brands were in the service industry (Mexican Franchise Association 2010). In Spain, according to data published by the consulting company Tormo & Associates from 2005, there were 313 brands in the service industry, representing 39% of the total brands. Regarding the number of franchised establishments, the service industry had 30,418 establishments, representing 53% of the total number of franchised establishments. Finally, the turnover in the service industry was €4,550 million, representing 28% of the total franchising turnover in Spain. All of these statistics show the importance of this sector within the whole franchise system.

In franchising, the partners enter into a dyadic relationship, whereby franchisors select potential partners (Rahatullah and Raeside 2009). Selecting the right partner is vital for the success of relationships. In this sense, the decision to incorporate a franchisee cannot be based on a feeling towards the candidate, but must be objectively based on the personal suitability of the franchisee candidate (Ramirez 2007).

An inappropriate selection of franchisees can generate conflicts between the partners. To avoid relationship conflicts, franchisors should select franchisees with compatible characteristics (Hoy and Shane 1998). For this purpose, franchisors must seek an ideal profile of franchisee. The ideal franchisee profile combines a series of personal and business characteristics that largely mark the success or failure of the franchisee’s activity and, consequently, the success or failure of the franchise chain. Although it is difficult to establish a generic franchisee profile due to the diversity of franchises, it is possible to obtain basic criteria that are common to all franchise systems. Within these common basic criteria, it is possible to emphasize, among other qualities, the entrepreneurial capacity (Knight 1986; Jambulingam and Nevin 1999; Tormo & Associates 2004), professional experience (Tatham et al. 1972; Edens et al. 1976; Knight 1986; Hing 1995; Fenwick and Strombom 1998; Clarkin and Swavely 2006), motivation (Kasselmann et al. 2002), financial capacity (Tatham et al. 1972; Edens et al. 1976; Knight 1986; Hing 1995; Jambulingam and Nevin 1999; Clarkin and Swavely 2006), personality (Edens et al. 1976; Forward and Fulop 1993), extroversion (Kahn 1994), communication capacity (Edens et al. 1976) and desire for success (Knight 1986; Withane 1991; Hing 1995; Berni 2002).Footnote 1

The aims of this study are to identify the characteristics of franchisees preferred by franchisors that operate in the Spanish market and to show how the simulation of franchisees with conjoint analysis constitutes a powerful tool for the appropriate selection of franchisees. Various simulations were carried out in this study to select individuals in the service industry.

This research differs essentially from the majority of previous studies in three different aspects. Firstly, in the study of the franchisee profile, an exploratory analysis of a specific set of defined a priori variables is not carried out, but variables defined a posteriori by a set of experts are analysed. Secondly, the franchisee profile was obtained using a methodology that is rarely employed in this field: conjoint analysis. Thirdly, previous studies have focused on the analysis of data from various industries without taking into account the potential variability that may arise from doing so. In this study, we use data only from the service industry.

The first part of this paper analyses the importance of the correct selection of franchisees. The second section identifies the existing franchisee profile characteristics in the literature analysed by different researchers, followed by a description of the methodology. Conjoint analysis is later applied to sector data, and the different simulation models in this methodology are shown. We go on to apply the models with different profiles from possible franchisees, from which we obtain various important conclusions. We finally indicate certain business implications, along with the most important conclusions and limitations of the study.

2 Franchisee selection and its business implications

Franchising is seen as an important organizational activity in the service management literature. In spite of its importance, literature on franchising continues to be vague and incomplete (Altinay and Wang 2006).

Franchising is a particular type of partner selection (Jambulingam and Nevin 1999; Altinay 2006; Clarkin and Swavely 2006). A direct relationship exists between effective partner selection and cooperation between franchisors and franchisees (Wang and Altinay 2008). Franchisors must select partners to ensure their expansion by opening new franchise outlets. This indicates that franchisor success relies on the capability to balance the ‘quality’ and the ‘quantity’ of franchise partners (Wang and Altinay 2008).

In this sense, the franchise system supposes the existence of a marketing relationship between two agents, the franchisor and the franchisee. For franchisors, the selection of franchisees is perceived as the most important operational mission. The appropriate selection of franchisees can bring remarkable results, whereas poor selection can cause problems in the franchise system (Castrogivoanni and Justis 2007; Justis and Judd 1989) that arise from conflicts between the franchisor and the franchisee (resulting in different agency costs, per the agency theory). According to agency theory, these conflicts bring about high costs for the franchisor, highlighting monitoring or control costs (Brickley and Dark 1987; Eisenhardt 1989; Jambulingam and Nevin 1999; Shane 1998). Another cost is associated with the transaction cost theory. Within this theory, it is necessary to emphasize opportunism (acting in one’s own interest) at the cost of harming others, which requires that more complete and expensive contracts be designed in franchising (Moro 2002). In this sense, a good selection of franchisees allows for the reduction of opportunistic conduct of the franchisees and of the costs derived from such conduct.

The future success of a franchisor depends, largely, on the use of a systematic investigation process to carefully ensure the selection of good potential franchisees (Olm et al. 1988). The franchise system can be more appropriate for some franchisees than for others. Some enter the franchise system and make greater contributions to the success of their brand and system and some fail in their tasks (Jambulingam and Nevin 1999).

Howe (2003) considers that the franchisees form the spine of the franchise system, being an appreciable source for the development of the business. Sturgis (1993) also believes that the backbone of a franchise is its network of franchisees. A consistent, focused and well-trained network of franchisees can become a powerful sales and distribution element in the success of the franchisor company. In fact, the capacity to train franchisees is perceived as a very important capacity that only some companies arrange, according to the limited resource theory. Therefore, an examination of the characteristics of potential franchisees can prevent the selection of franchisees who are looking for opportunistic conduct, which is harmful to the rest of the franchisees of the network, as indicated in the transaction cost theory.

Schultz (1999) considers that successful relationships in a franchise are based on confidence, mutual respect and a desire to share a common goal. In the same sense, Sanders (2002) also holds that the synergic relationship between the franchisor and the franchisee is a key element of the system’s success.

A recent study by Jambulingam and Nevin (1999) focuses on the franchisee selection process. The authors found that the use of several selection criteria had a positive effect on the levels of cooperation between franchisors and their franchisees. In fact, the ability to select franchisees correctly represents a competitive advantage for companies, as described in the limited resource theory. According to this theory, the franchisor must have the ability to identify and select a franchisee with high and different capabilities (Diez and Rondan 2004; Lopez and Veciana 2004).

Therefore, the potential growth of franchises will be influenced by the relationships that are developed within them and by the establishment of lasting bonds between parties (Garcia et al. 2004); for both of these factors, the correct selection of franchisees is required.

The degree to which a franchise system penetrates a market is often influenced by the proportion of franchisees that expand (De Castro et al. 2009; Grünhagen and Dorsch 2003). The decision of franchisees to expand depends on the perception of value desired from the franchisor in exchange for a series of payments. Furthermore, the experience of franchisees with their franchisor can strengthen or weaken their perceptions of value regarding their franchisor. Therefore, the franchisee is a key element in the determination of the success in the franchisor–franchisee relationship; this is proven by the fact that franchisees can leave the system if they are not given adequate attention. In order for the franchise system to work well, it is very important for franchisors to pay close attention to the type of people they select as franchisees, as it is the people in the system (rather than the system itself) that truly define the success of a franchise (Berni 2002). In fact, the leading franchises have a series of tangible and intangible qualities that many other franchisors wish to follow. Among these qualities is the fact that these companies work hard to select and consolidate future franchisees, which is a positive force that permits differentiation between franchise leaders and followers (Carroll and Bassuk 2002).

The Franchising Task Force (1991) identified the main causes of failure of the franchise system in Australia. These causes include low economic levels, inadequate market selection, poor selection of franchisees, avarice of franchisors resulting in excessive fees and various other economic and competitive factors. Among these main problems, the poor selection of franchisees is indicated.

In relation to selection of franchisees, Clarkin and Swavely (2006) indicate that little is known about how franchisors evaluate characteristics in franchisees. Furthermore, according to these authors, the importance that the franchisors give to the different criteria used in the selection process has not been sufficiently examined.

Thus, there is general agreement that the suitable selection of franchisees is of great importance to the success of the franchisor–franchisee relationship. Therefore, determination of the personal and business characteristics of franchisees is a key aspect in the development of a franchise system, as the establishing these characteristics will provide a franchisee profile that assures a higher level of success in the franchisor–franchisee relationship.

3 Literature on the characteristics of the franchisee profile

The identification and study of the characteristics that franchisees must possess is a fundamental aspect for franchisors. The study of such characteristics can allow franchisors to develop strategies using knowledge of the characteristics that affect the success or failure of franchisees (Falbe and Welsh 1998). These characteristics also permit the differentiation of franchisees in such a way that the business results generated among them can differ to a large degree.

In Spain, Bordonaba (2003) examines the reasons why a franchisor would not renew the contract with some of his or her franchisees. From a sample of 107 franchisors 12.8% of them would not renew a contract because of the poor suitability of the franchisee profile (Table 1). This sheds light on the importance of defining and finding a suitable franchisee profile.

Table 1 Renewal of franchise contracts
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Table 2 shows the main scientific studies that exist on the characteristics of the franchisee profile.

Table 2 Main investigations on franchisee profiles
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Two aspects that analyse the existing literature on the characteristics that franchisees must have can be highlighted (Ramirez 2007):

  1. a.

    Although franchising is a system that has undergone important worldwide growth in recent years, academic studies that analyse the franchisee profile are scarce. Therefore, the advance of research on franchisee profiles has not paralleled real-world franchising trends.

  2. b.

    The majority of the existing studies of the franchisee profile are descriptive, which does not allow for its generalisation. In this sense, the existing literature has followed the positive scientific approach (what it is). Usually, past studies have not used the normative scientific approach (what it should be), which in this case would be identifying the characteristics that franchisees should have.

Elango and Fried (1997) suggest that studies should be more prescriptive. Empirical research has demonstrated a clear bias towards descriptive research over prescriptive research. These studies leave a glaring gap in determining how franchisors should select franchisees. Analysis of the studies shows that there is apparently little consensus among franchisors about the ideal franchisee (DeCeglie 1993). Many franchisors prefer candidates experienced in businesses or management, whereas others do not place much importance on this aspect. Many franchisors will select franchisees that have no previous experience in the industry (McCosker and Frazer 1998; Mendelsohn 1993), and some even actively recruit inexperienced franchisees because they feel that it will be easier to indoctrinate these franchisees into the system (Frazer 2001).

Therefore, the study of the personal and business characteristics of a franchisee is of vital importance for the success of the franchisor–franchisee relationship and, consequently, for the development of the franchise system.

The franchisee profile characteristics that have been analysed can be obtained from a review of the studies mentioned above. The main characteristics are shown in Table 3.

Table 3 Franchisee profile characteristics analysed, according to the literature review
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An exploratory study on franchise networks, carried out by Clarkin and Swavely (2006), revealed that some franchisors openly reveal their franchisee selection criteria. These authors conclude that criteria other than financial capacity are important in the franchisee selection process. Similarly, some franchisors require experience in a specific sector. Others insist that individuals accept the formulas and rules of the franchisor. In short, there does not appear to be a consensus regarding the ideal franchisee. We thus attempt to contrast the following hypotheses in this study:

H

In the service industry, the lack of consensus on franchisee profiles in the literature indicates that there is a specific franchisee profile preferred by franchisors in this industry with regard to the whole system of franchising.

Previous studies have analysed the personal and business characteristics that franchisors look for in franchisees on an individual basis. However, the profile of a franchisee has multiple attributes. A franchisee’s profile is not one in which only a few attributes arouse interest or lend significance to the exclusion of all other attributes, but is rather one that is formed by a large number of attributes that must all be taken into account. Hence, answers may become biased if focus is placed on only a few attributes of the interviewee. In this paper, we propose a study of the characteristics that franchisors seek in a franchisee using a decompositional character technique, as is found in conjoint analysis. All this justifies the use of conjoint analysis in this study. Conjoint analysis improves the validity of the findings because interviewers do not only focus on a few attributes and interviewers carry out comprehensive evaluations of profiles.

4 Methodology for the study of the franchisee profile

In this study, preferences of franchisors concerning profile franchisee are analysed by mean of the use of conjoint analysis. Conjoint analysis is a method in which the researcher describes products or services through a set of attributes with the goal of measuring the preferences of the respondents (Green and Rao 1971; Luce and Tukey 1964).

The basic measurement in conjoint analysis gives the global utility, that is, the total satisfaction that an individual reports regarding a commodity. The global utility is obtained from a set of partial values or utilities (part-worths) that relate the levels of different attributes to consumer preferences, assuming some rule of composition (Azpiazu 1996; Green and Krieger 1993). Normally, this method supposes that the preference of an alternative is an additive function of the partial values or utility assigned to the levels of the attributes that make up that alternative (Gil 1990).

4.1 Sample and data collection

In order to apply the conjoint analysis, it was necessary to identify the attributes that would form a part of the study. This was done by conducting a survey of Spanish experts group in the franchise system. This group of experts was selected by directed non-random sampling conducted among members of franchise associations, university professors researching franchises, directors of consultancies specialising in franchises, directors of magazines on franchising, directors of Internet portals on franchising, and representatives of the franchising departments of financial organizations that specialize in franchises. In this selection of experts, actual franchisors and franchisees were not considered in order to avoid bias caused by personal experiences. A questionnaire was sent to each of the selected experts, asking them to select the seven characteristics or attributes (from those listed in Table 3) that they considered most important for a franchisee.Footnote 2 The sample included 73 experts. The research was carried out between December 2007 and January 2008 by means of questionnaires sent via e-mail to addresses obtained from Internet searches. Some e-mails were rejected, and 39 questionnaires were returned (a response rate of 53.4%). The obtained lists of attributes are shown in Table 4.

Table 4 Identification of attributes and establishment of levels
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Once the attributes were identified, the next process was the establishment of levels. These were defined by looking for similarity with reality in order to increase the validity of those preferences. The levels that were established appear in Table 4, next to their corresponding attributes. It should be noted that conjoint analysis is a multivariate technique in which the number of theoretical assumptions required is smaller than in other techniques; nevertheless, the practical assumptions are more numerous in this case (Hair et al. 2005).

Once the attributes and levels were identified, a questionnaire was designed from an orthogonal fractional factorial design using the ORTHOPLAN procedure of SPSS v15.0. Our orthogonal design consisted of 18 cards, 16 of which were used to evaluate the parameters of the model and 2 of which were used to validate the results.Footnote 3 We endeavoured to make the profiles as realistic as possible, despite the diversity of opinions and interpretations of each interviewee’s stated attributes.

Once the orthogonal designFootnote 4 was defined, the 18 cards or combinations were set in a complete profile design (Table 5) and were sent to the respondents, who were asked to evaluate each profile on a scale of 1 (least favourite) to 7 (most favourite). A metric scale was used, which provides the most trustworthy results among the different scale possibilities for the dependent variable (Ramirez and Rondan 2004).

Table 5 Card to be evaluated
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The questionnaire was sent via e-mail and post during April, May and June 2008 to 313 franchisors operating in the Spanish service industry. A stratified sampling was used with post-stratification weighting. 88 valid responses were obtained, representing a response rate of 28.12%.

4.2 Data analysis

Data analysis was carried out using SPSS v15.0. From the results obtained by conjoint analysis, some simulations of franchisees were made. The simulation of franchisees with conjoint analysis is a powerful tool for correct selection by the franchisors. It consists of simulating new combinations of franchisee profiles with the purpose of determining which would have greater acceptance. These probabilistic models determine which profile will be chosen among several. The justification for the use of the simulation in this investigation is rooted in the fact that there may sometimes be several candidates with different characteristics that make up profiles that are not ideal, and a franchisor must decide which and how many of these candidates to select.

There are three classic simulation models in conjoint analysisFootnote 5 (Pedret et al. 2000; Levy and Varela 2003): the Maximum Utility model, the BTL model and the Logit model.

  1. a.

    The Maximum Utility model holds that an individual chooses the combination that gives them greater utility. Therefore, it assigns a maximum probability of 1 to the combination that provides the greatest utility and a probability of 0 to the remaining combinations. For example, if a simulation is made with three combinations, it is possible to determine the percentage of individuals preferring the first, second and third combinations.

    $$ p_{i} = \left\{ {\begin{array}{ll} 1 & {{\text{if}}\;\hat{r}_{i} = \max \left( {\hat{r}_{i} } \right)} \\ 0 & {{\text{in}}\;{\text{other}}\;{\text{case}}} \\ \end{array} } \right. $$

    The main disadvantage of this model is that the respondent tends to overestimate the proportions of their favourite combination. The results will be more extreme than the true values. Although the two combinations have very similar utility, the application of this model will cause the respondent to always choose the one that provides greater utility (Pedret et al. 2000).

  2. b.

    The BTL Model holds that the probability of choosing a combination is given by the quotient of the utility given to this combination and the sum of the utilities given to all combinations of the simulation:

    $$ p_{i} = {\frac{{\hat{r}_{i} }}{{\sum\nolimits_{j = 1}^{T} {\hat{r}_{j} } }}} $$

    where T is the total number of simulated stimuli.

    The greater the utility given for a combination with respect to other simulated combinations, the greater its probability of being chosen with respect to other combinations. However, the more similar the utilities given by the simulated combinations, the more similar their probabilities of being chosen will be. Therefore, this model is considered more realistic than the Maximum Utility model (Pedret et al. 2000).

  3. c.

    The Logit model supposes that an individual has a non-linear probability of choice. Therefore, this model calculates the probability of choice by means of a logit transformation:

    $$ p_{i} = {\frac{{e^{{\hat{r }_{i} }} }}{{\sum\nolimits_{j = 1}^{T} {e^{{\hat{r }_{j} }} } }}} $$

    The disadvantage of this model is that it overvalues preferences in the case of combinations with similar utilities.

Finally, it is necessary to comment that no rule exists that indicates which of the three simulation models is better. Everything depends on the intuition and knowledge that the investigator possesses on the considered problem.

In this study, a simulation was made using four illustrative but not real profiles:

  1. (1)

    Profile A → levels: 1, 1, 2, 1, 1, 1, 2, 1, 2.

  2. (2)

    Profile B → levels: 3, 1, 1, 3, 1, 1, 1, 1, 1.

  3. (3)

    Profile C → levels: 1, 1, 1, 2, 1, 1, 2, 1, 1.

  4. (4)

    Profile D → levels: 3, 1, 1, 2, 1, 1, 1, 1, 1.

The profile A corresponds to a potential franchisee with the following attributes: managerial capacity at the professional level, entrepreneurial character, an introverted personality, full-time dedication to the franchised unit, faithful adherence to the franchisor’s indications, desire for success, no previous experience operating a related business, perseverance and financial capacity limited to the required initial investment. This profile might correspond to a young person who has studied management, has the desire to prevail and sees franchising as an opportunity for self-employment. Profile B differs basically from A in that profile B represents an individual with a higher economic status, with experience in businesses, and who sees franchising as more of an investment than a self-employment strategy; which is why they will delegate all the work of the franchised unit to others. Profile C also corresponds to an individual who is investing, has financial capacity greater than those required for the initial investment and has less experience than that of an individual represented by profile B but possesses managerial capacity at the professional level. Profile D is very similar to profile C, with the exception that individuals represented by profile D have previous experience operating a related business but no managerial capacity.

5 Results and discussion

Once the conjoint analysis was applied, the relative importance of each attribute and the partial utility of the levels were obtained (Table 6).

Table 6 Relative importance of attributes and part-worth
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The attribute most valued by franchisors in the service sector was loyalty to the franchisor, with a relative importance of 17.10%, followed by managerial capacity (17.04%) and a willingness to work hard (13.96%). Conversely, the three attributes that were least valued were previous experience operating a related business (5.91%), financial capacity (8.42%) and an entrepreneurial character (8.60%). The importance of the remaining attributes falls between the importance of the two previously indicated groups.

Loyalty to the franchisor is understood as the fulfilment of agreements established between the parties. Loyalty to the franchisor is linked to commitment to business, trust in the franchisor, cooperation and communication. In order to avoid the problem of multi-collinearity in the conjoint analysis, a “super-attribute” was created, denoted as loyalty to the franchisor. Franchising is a system in which the capacity of the franchisee to make decisions regarding their own business is greatly limited, which is why any innovation, modification or peculiarity that they might consider applying is rejected in this commercial system. Faced with this reality, a potential franchisee must consider whether their personality is suited to such limitations of their autonomy. This does not mean that the franchisee is a person devoid of initiative and personality, but rather that any initiatives must be raised according to channels established by the franchisor instead of being implemented independently (Diez et al. 2005). Commitment to the business in the franchising system is similar to commitment to a relationship (Jambulingam and Nevin 1999). Personal commitment to a business, which is akin to loyalty to the franchisor, leads to improved performance (Withane 1991). This finding corroborates the view of Morgan and Hunt (1994), who consider that a successful relationship depends on commitment and trust. Furthermore, this result is consistent with other studies that have found that commitment, trust, cooperation and communication are very important for the success of franchisor–franchisee relationships (Edens et al. 1976; Allen 1994; Falbe and Welsh 1998; Schultz 1999; Chiou et al. 2004; Clarkin and Swavely 2006; Doherty and Alexander 2006). Previous research has demonstrated that loyalty to the franchisor is seen as an important attribute, but this study yields a ranking of all attributes, thereby showing that fidelity to the franchisor is the attribute with the greatest relative importance.

Managerial capacity refers to the knowledge and command of the management tools necessary for the development of the business. This is a highly valued capacity in the service industry, especially since it is often necessary to manage complex businesses in this sector. Earlier literature shows that management capacity is an important attribute of franchisees sought by franchisors, as shown in the studies by Knight (1986), Olm et al. (1988), Tatham et al. (1972) and Tormo & Associates (2004). However, as with the first attribute, none of the previous research showed that management capacity was the second most important attribute sought by franchisors within the service industry. On the contrary, Chow and Frazer (2003) reported that management experience is not considered an important selection criterion for most franchisors because the training renders such experience unnecessary.

Willingness to work hard is also highly valued in the service industry; in other words, the franchisee must have a strong spirit and the desire to work and to assume the responsibilities necessary to confront daily business tasks pertaining to the organization and management of the franchise. The study by Knight (1986) showed that the willingness to work hard is the most important attribute that franchisors look for in franchisees. In our study, we have found that this attribute ranks third in order of importance. This difference may be due to the different methodology used. We performed comprehensive evaluations of profiles. Furthermore, we focused on the service sector, while the work of Knight (1986) used data from several sectors.

The least valued attributes are previous experience operating a related business and financial capacity. Some studies have concluded that previous experience is seen as an important characteristic (Chow and Frazer 2003; Kaufmann and Stanworth 1995), whereas in other studies, it is not (Edens et al. 1976; Knight 1986; Forward and Fulop 1993; Hing 1995; Fenwick and Strombom 1998). In some cases, experience is a good characteristic for undertaking the work of a franchisee; conversely, in other cases, previous experience is seen as an obstacle, as the franchisees must change or modify habits acquired during many years of professional activity (Diez et al. 2005). The literature shows that financial capacity is one of the qualities that franchisors look for in franchisees (Tatham et al. 1972; Edens et al. 1976; Knight 1986; DeCeglie 1993; Hing 1995; Bordonaba 2003; Tormo & Associates 2004). However, this study did not find that financial capacity is an important attribute. This may be because it is assumed that the franchisee meets the minimum financial capabilities after potential incorporation into the franchise system, either because they have their own economic resources or because they have economic resources through bank loans.

The results also showed the partworths or partial utilities. Partial utility is interpreted as the level of satisfaction that the analysed commodity provides to the respondent. In this case, it can be said that the franchisee profile preferred by franchisors in the service industry is formed by those levels of each attribute with a higher partial utility. Therefore, the preferred franchisee profile would be a person with managerial capacity at professional level, an entrepreneurial character and an extroverted personality who will be dedicated full-time to the franchised unit and who faithfully follows all of the indications of the franchisor. The franchisee will also have a very marked desire for success, previous experience operating a related business, perseverance and a financial capacity greater than the required initial investment. The total utility of this profile is given by the sum of the partial utilities of each level plus the constant estimated by the program. In this case, the total utility would be as follows:

$$ u_{1} = 0.5208 + 0.2486 + 0.3338 + 0.3087 + 0.5795 + 0.2884 + 0.1364 + 0.3665 + 0.2429 + 2.9261 = 5.9517 $$

The total utility of any other profile is calculated by adding the partial utilities of the corresponding levels to the constant. The total utility of any other profile will have a value of less than 5.9517, which is the total utility corresponding to the preferred profile.

All these results and comments allow us to accept the research hypotheses of this study because there is a specific franchisee profile preferred by franchisors in the service industry with regard to the whole system of franchising, shown in previous literature.

The results also showed a simulation of franchisees. Simulation is a tool that allows the determination of how many and which franchisees should be selected in the recruitment process. The results of a simulation done with three of the profiles (A, B and C) defined in the previous section appear in Table 7.

Table 7 Probabilities obtained from the simulation
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The total utility of each attribute appears in parentheses, but it must be noted that total utility is an absolute value that does not permit comparisons between profiles. In order to conduct a comparative study, it is necessary to use some of the simulation models. The values obtained, shown in Table 7, refer to the probability that an individual with a particular profile is selected based on the simulation model used. If a franchisor were to use the maximum utility model, they would have to select the individual with profile C, since the probability of choosing profile C is 66.3%. Using this model, if a franchisor has to select more than one franchisee, the most suitable action would be to look for other potential franchisees and execute the simulation again, since the probability of choosing one of the remaining candidates is very low compared to 66.3%. If a franchisor uses the BTL model, they would have to select the individual with profile C first and then select the individual with either profile A or profile D second. However, if a franchisor uses the Logit model, they would have to select the individual with profile C; then they would consider whether to select the individual with profile A, as the probability of choosing C is nearly double that of A. As discussed, no rule exists that indicates which of the three simulation models is better. Everything depends on the intuition and knowledge possessed by the investigator regarding a considered problem. What is certain is that simulation offers a probabilistic measure in the selection of a potential franchisee.

6 Conclusions

This study examines franchisee selection criteria in the service industry. These criteria have been criticised in previous literature for being outdated, unreliable and narrowly focused (Axerald and Rudnick 1987). In particular, the role of individual dispositional characteristics has been largely ignored, despite being described as important determinants of relationship quality in asymmetric exchange relationships (Peterson and Dant 1990).

Our work has used the domestic franchising perspective instead of the international perspective, since the bulk of franchising chains in most countries are national, and therefore we have avoided the variability that the results can yield if an international perspective is incorporated.

Data from the service industry have been used in this study. Most of the previous studies have focused on the analysis of data from various sectors without taking into account the potential variability that may arise from doing so. Franchising occurs in different sectors, where the structure varies greatly across sectors in the type of business, investment, size of premises, training and length of contract. To avoid variability of responses, we focused our study on the service sector, unlike previous studies.

Another important aspect of this paper is that the data were obtained from a market (the Spanish market) that is fully developed in the franchise area. In this sense, experienced franchisors are better suited to identify qualified franchisees (Castrogiovanni et al. 1993). In fact, many franchisors, when selecting franchisees, change the characteristics required of potential franchisees owing to the experience that they have gained over time (Forward and Fulop 1993). Therefore, using data from franchisors who operate in a consolidated market yield greater reliability and accuracy of results.

From the previous comments and considering that domestic franchising research has focused primarily on the manufacturing sector, paying little attention to the special characteristics of service franchising (Altinay 2006), an important contribution of this study is the use of the following combination for the study of franchisor preferences with respect to franchisee profile: domestic franchise + service industry + developed market context.

In contrast to previous studies, another important contribution is the use of conjoint analysis, a methodology that has not been used previously in this context. The franchisee profile has a multi-attribute character. This is not a profile in which only one or two attributes arouse interest or lend significance to the franchisee, but rather a profile determined by a large number of attributes. In this way, the problem of evaluating an attribute without accounting for other attributes is avoided.

The results showed that franchisors operating in the service industry look for a candidate with the following characteristics: managerial capability at a professional level, an extroverted personality, an entrepreneurial character, a very accentuated desire for success, full-time dedication at the franchisee unit, prior experience in any business, faithful adherence to the franchisor’s requirements, financial capacity exceeding the required initial investment and perseverance. In addition, the ranking of criteria by importance is as follows: (1) loyalty to franchisor; (2) managerial capability; (3) willingness to work hard; (4) perseverance; (5) capacity for human relations; (6) desire for success; (7) entrepreneurship; (8) financial capacity and (9) previous experience operating a related business.

Loyalty to the franchisor is the most important attribute all franchisees must have. This result leads us to believe that a potentially large number of franchisees are not loyal to their franchises; that is, they do not follow the necessary guidelines for the relationship to succeed. The absence of loyalty is a sign of a franchisee’s lack of commitment and trust towards the franchisor, which translates into a weakening of the relationship that may ultimately cause the closure of the establishment. Thus, when selecting a franchisee, the franchisor must find a person with a high level of loyalty. However, prior to the commencement of the activity of the franchisee, it is very difficult to accurately determine the degree of loyalty. In our opinion, the selection process should include a psychological test in order to determine the degree of loyalty of the candidates.

This study has provided a ranking of those characteristics that franchisors look for in potential franchisees when making a selection. In practice, it is essential to measure the degree to which each characteristic is present in any candidate. This study tells us about the required characteristics, but not how to measure the degree to which these characteristics are present in a candidate.

This methodology has also generated various simulations based on hypothetical candidates. If the profiles of potential franchisees matched the ideal profile identified in the results, selection would not be a problem as all of the candidates would be ideal. The problem lies in the fact that, when franchisors come to make a franchisee selection, they often encounter very different profiles, thus hindering the selection process. Simulation solves the previous problem, as it can determine how many and which candidates should be selected in a franchisee selection process. In practice, it would be difficult for a franchisor to conduct a simulation himself/herself in a selection process. To use the simulation, the franchisor would need data from this study, as well as suitable software. In our opinion, it is necessary for large franchise chains to improve the franchisee selection process by incorporating these simulation techniques. Similarly, we believe that consultants involved in franchising should specialize in franchisee selection in order to improve their selection processes with the incorporation of all these aspects.

In relation to the practical and theoretical contributions, this paper contributes to franchisee selection criteria that appears in franchise literature. It supplements the franchise partner selection from the point of view of the franchisor, giving a ranking of criteria that franchisors must seek on potential franchisees. Practitioners and academics could benefit from this research as they can identify the franchisee profile franchisors prefer in the service industry. In particular, these criteria can help practitioners to make the right selection of franchisees.

An important limitation of the work is that the franchisee profile is obtained from the opinions of only the franchisors in this particular sector. It might be appropriate to study the franchisee profile from the point of view of other agents (such as the franchisees) to see whether differences exist between the profiles. In addition to the above, application of conjoint analysis also poses an important limitation to simulation, as it is necessary to determine the ideal franchisee profile by creating and administering a survey, which has temporal and economic costs. Another important limitation is that respondent preferences can change over time, so it is necessary to repeat the conjoint analysis to obtain relevant simulation values.

In this paper, franchisee profiles were analysed from the perspective of domestic franchisees. Further research would be required in order to incorporate an international perspective. In this work, data were obtained from the Spanish market, which has a fully developed series of franchises. A study of franchisor preferences in emerging markets would be of great value, as would a study on whether differences exist between these types of markets.