Too Many Franchises Spoil The Brand?

Blue MauMau:

As the dust settled, the Obama Administration last summer issued a harsh report that was critical of the aggressive termination of franchises by General Motors and Chrysler during their bankruptcy proceedings. The government report declared that they felt hoodwinked by the franchisors’ unexplored management myths: namely, the carmakers’ claim that they were hurt by having many franchisees.

In the last few years a growing thought has been building up among American car manufacturers (franchisors) about their large car dealership (franchise) networks — they should copy the Japanese and go smaller. Where American carmakers have built up over 20,000 car dealerships from over a century of franchise development efforts, the newer Japanese car brands have gained tremendous market share with only a few hundred dealers (franchisees). The foreign distribution model has forced Detroit to consider the law of diminishing marginal utilities in franchising, that is to say, is there a point in which the marginal benefits of franchising is less than the marginal costs? Where is the point at which the benefits of more franchises just aren’t worth the cost to not only the franchisees, but also to the franchisor?

Carry on reading.

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