Determinant factors of city and provincial students academic performance the case of HCM city university of economics

UNIVERSITY OF ECONOMICS
HO CHI MINH CITY - VIETNAM

INSTITUTE OF SOCIAL STUDIES
THE HAGUE - THE NETHERLANDS

· VIETNAM - THE NETHERLANDS PROJECT
FOR M.A. IN DEVELOPMENT ECONOMICS

***********

DETERMINANTS OF FRANCHISEE SATISFACTION
~

IN BEVERAGE AND FOODSTUFF
IN HO CHI MINH CITY

BY

CAOPHUONGLAN

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, OCTOBER 2007

ao GIAo ovc vA DA~r~o

TRU
TJ:!!l VI~N

INSTITUTE OF SOCIAL STUDIES
THE HAGUE - THE NETHERLANDS

UNIVERSITY OF ECONOMICS
HO CHI MINH CITY - VIETNAM

VIETNAM - THE NETHERLANDS PROJECT
FOR M.A.IN DEVELOPMENT ECONOMICS

***********

DETERMINANTS OF FRANCHISEE SATISFACTION
IN BEVERAGE AND FOODSTUFF
IN HO CHI MINH CITY

THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT
FOR THE DEGREE OF MASTER OF ARTS IN DEVELOPMENT ECONOMICS

BY

CAOPHUONGLAN

Supervisor: Dr. NGUYEN NGOC HOA

HO CHI MINH CITY, October 2007


CERTIFICATION

"I certify that the substance of this dissertation has not already been submitted for any
degree and is not currently submitted for any other degree.
I certify that to the best of my knowledge and help received in preparing this dissertation
and all sources used, have been acknowledged in this dissertation."

Signature

Cao Phuong Lan
Date: 27th Oct, 2007

1


ACKNOWLEDGEMENTS

Few years ago, franchising is still a new and strange concept with many Vietnamese
people in general and businessmen in particular although its significant and popular
affects in many countries. However, after WTO event, especially Trade Law 2005,
franchising is known to be an effective and safe business for Vietnamese firms in order to
face with fierce competition of international companies and corporations. There are a lot
of meetings and conferences discussing about what franchising is and how to apply it into
Vietnam. In short time, Vietnam has been proven to be a good place with wonderful
conditions for franchising development. Some overseas famous brand names are initial
successful in their penetrated strategy into Vietnamese market, such as KFC, Jolibee,
Lotteria... Besides that, franchising development in Vietnam is still remarked by several
domestic firms, such as Trung Nguyen, Pho 24, Kinh Do, Foci ... However, there are few
official studies about franchising in Vietnam until now. It will have negative affects to its
expansiOn.
I, myself have been working in Trung Nguyen Coffee Company, the initial domestic
franchisor in Vietnam. Thus, I have conditions to know much about this kind of business

as well as difficulties of local franchisors have to deal with without much information,
knowledge and experience. That is the reason why I chose this topic to do the thesis. I
hope it may be useful for both Vietnamese and foreign franchisors have a practical
understanding about what Vietnamese franchisees want and know how quality of their
supported programs.
I would like to give my respectfully thanks to my supervisor (Dr. Nguyen Ngoc Hoa), my
university (VNP Office, Dr. Nguyen Trong Hoai, Ms. Chi - Librarian), who guided and
assisted me to complete the thesis successfully. In addition, I have also received many
kind supports and encourages from my family and friends. So, I truly want to give many
thanks to all of them.

2


TABLE OF CONTAINS
Certification ..................................................................................................................... I
Acknowledgements ......................................................................................................... 2
Tables of contains ........................................................................................................... 3
List of tables .................................................................................................................... 6
List of figures ................................................................................................................... 7
Abbreviations .................................................................................................................. 8
CHAPTER I: INTRODUCTION .................................................................................. 9
1.1 Problem statements ................................................................................................... 9
1.1.1 Significant contribution of franchising to service industry and economic
growth .............................................................................................................. 9
1.1.2 Fierce competition after joining to WT0 ......................................................... 9
1.1.3 Weaknesses of domestic franchisors ............................................................... 10
1.1.4 Vietnamese franchisees and importance of studying on franchisee

satisfaction ....................................................................................................... 11

1.2 Thesis objectives ........................................................................................................ 12
1.3 Research questions .................................................................................................... 12
1.4 Research methodology .............................................................................................. 13
1.5 Thesis structure ......................................................................................................... 13
CHAPTER II: LITERATURE REVIEW .................................................................... 15
2.1 Definitions .................................................................................................................. 15
2.2 Theoretical framework............................................................................................. 17
2.2.1 Theory of consumer behaviour .......................................................................... 17
2.2.2 Channel relationship ........................................................................................... 19
2.2.3 Job satisfaction ................................................................................................... 21
2.2.4 Theory of franchising ......................................................................................... 22
2. 2. 4.1 Types offranchising ................................................................................22
2.2.4.2 Rights and obligations offranchisors and franchisees .......................... 22
2. 2.4. 3 Advantages and disadvantages of buying a franchise ............................ 24
2.3 Empirical studies ...................................................................................................... 25
2.3 .1 Maximizing franchisee satisfaction in restaurant sector .................................... 25
2.3.2 Franchisee satisfaction report in 2007 ............................................................... 27
3


2.3.3 A comparison of Finish & U.S. franchisee satisfaction ..................................... 27
2.3.4 An encouraging factors of entrepreneur in franchising: Malaysia experience .. 27
2.3.5 Measuring the franchisee relationship ............................................................... 28
2.4 Model of franchisee satisfaction .............................................................................. 28
2.5 Hypothesis ................................................................................................................. 29

CHAPTER III: AN OVERVIEW OF BEVERAGE AND FOODSTUFF INDUSTRY
AND SOME FRANCHISE INFORMATION IN HO CHI MINH CITY ................. 30
3.1 An overview of Vietnamese economy ...................................................................... 30

3.1.1 Vietnamese economy in general ....................................................................... .30
3.1.2 Retail sales for goods and services ................................................................... .30
3.2 An overview of the economy of HCMC ·····································~····························31
3.2.1 An overview ofthe economy ofHCMC ........................................................... .31

3.2.2 Beverage and foodstuff industry in HCMC ...................................................... .32

3.3 General information of franchising in Vietnam ....................................................33
3.3.1 General franchise information ........................................................................... 33
3.3.2 Legal aspects of franchising in V34ietnam ....................................................... .33
3.3 .3 Vietnamese franchisors ...................................................................................... 34

CHAPTER IV: RESEARCH METHODOLOGY AND DATA PROCESSING
RESULTS ........................................................................................................................ 37
4.1 Measurement ............................................................................................................. 37

4.1.1 Overall satisfaction ............................................................................................. 37
4.1.2 Independent variables ........................................................................................ 37
4.1.3 Demo characteristics .......................................................................................... 3 8
4.2 Sample and data ........................................................................................................ 39

4.2.1 Sampling ............................................................................................................ 39
4.2.2 Data collection ................................................................................................... 40
4.2.3 Scope of data ...................................................................................................... 40
4.3 Data processing results ............................................................................................. 41

4.3.1 Factor analysis .................................................................................................... 41
4.3.2 Model specification ............................................................................................ 43
4.3.3 Descriptive analysis ........................................................................................... 43
4.3.4 One way ANOVA .............................................................................................. 46

4.3.5 Regression .......................................................................................................... 46
4


CHAPTER V: FINDINGS AND DISCUSSIONS ...................................................... .48
5.1 Adjustments of variables .......................................................................................... 48
5.2 Independent variables .............................................................................................. 48
5.3 Overall satisfaction ................................................................................................... 50

CHAPTER VI CONCLUSIONS AND POLICY IMPLICATIONS ......................... 51
6.1 Conclusions ................................................................................................................ 51
6.2 Policy implications .................................................................................................... 52

6.2.1 Vietnamese franchisors ...................................................................................... 52
6.2.2 Vietnamese franchisees ...................................................................................... 53
6.2.3 Vietnamese govemment ..................................................................................... 54
6.3 Limitations and further development ..................................................................... 55
Appendices ....................................................................................................................... 56
References ........................................................................................................................ 69

5


LIST OF TABLES
Table 1: Retails sales value of goods and services by economic activities ...................... .32
Table 4.2: Rotated component matrix .............................................................................. .41
Table 4.3: Reliability test. .................................................................................................. 42
Table 4.4: Descriptive statistics of franchisee satisfaction ............................................... .44
Table 4.5: Descriptive statistics of willingness to purchase again offranchisees ............ .45
Table 4.6: Descriptive statistics of independent variables ................................................ 63

Table 4.6a: Descriptive statistics of SUGGESTION ........................................................ 63
Table 4.6b: Descriptive statistics of REASON ................................................................. 63
Table 4.6c: Descriptive statistics of QUANTITY ............................................................. 64
Table 4.6d: Descriptive statistics of OWNER ................................................................... 64
Table 4.6e: Descriptive statistics ofMAINJOB ................................................................ 64
Table 4.7a: AGE (One-way ANOVA) .............................................................................. 65
Table 4.7b: SEX (One-way ANOVA) ............................................................................... 65
Table 4.7c: EDUCATION (One-way ANOVA) ............................................................... 66
Table 4.7d: FOMER_JOB (One-way ANOVA) ............................................................... 66
Table 4.7e: EXP1 (One-way ANOVA) ............................................................................. 67
Table 4.7f: EXP2 (One-way ANOVA) ............................................................................. 68
Table4.7g: EXP3 (One-way ANOVA) .............................................................................. 68
Table 4.8a: Model Summary ............................................................................................. 46
Table 4.8b: ANOVA .......................................................................................................... 46
Table4.8c: Coefficients ...................................................................................................... 47

6


LIST OF FIGURES

Figure 1: Supported theories of franchisee satisfaction .................................................... 17
Figure 2: Consumer decision process ................................................................................ 19
Figure 3: Morrison's model of franchisee job satisfaction ................................................ 21
Figure 4: Empirical supported model of franchisee buying behaviour ............................. 26
Figure 5: A suggested model of franchisee satisfaction .................................................... 29
Figure 6: GDP structure ofHCMC 2006 .......................................................................... .31
Figure 7: Structure of total retail sales and services in HCMC ......................................... 32
Figure 8: Comparison of franchisee satisfaction ofTrung Nguyen and Pho 24 .............. .44

7


ABBREVIATIONS
IFA

: Interational Franchising Association

FBR

: Franchising Business Review

u.s.

: United States

VND

:Vietnam Dong (Vietnamese currency)

USD

:United States Dollar (American currency)

HCMC

: Ho Chi Minh City

KFC

: Kentucky Fried Chicken

V.N.A.

:Vietnam News Agency

WTO

: World Trade Organization

AMA

: American Marketing Association

ANOVA

: Analysis of Variance

£

:Pound

ITPC

: Investment & Trade Promotion Center of Ho Chi Minh City

U.F.O.C

: Uniform Franchise Offering Circular

8


CHAPTER I: INTRODUCTION
1.1 Problem statements
1.1.1 Significant contribution of franchising to service industry and economic
growth

First appearance as early as 16th century, franchising became a confidential business of
firms and traders in the world. Nowadays, it plays an important role in the economies of
many countries, especially in U.S. and U.K. In 2000, most analysts estimated that
franchising companies and their franchisees accounted for $1 trillion in annual U.S. retail
sales from 320,000 franchise small businesses in 75 industries. Moreover, franchising is
said to be accounted for more than 40% of all U.S. retail sales. Industrial analysts
estimated that franchising employs more than 8 million people, one new franchise outlet
opens somewhere in U.S. every 8 minutes, and approximately one of every 12 retail
business establishments is a franchised business (IFA, 2001 ). In United Kingdom,
franchising has a highest economic growth rate with 32,000 franchisors and turnover £8.9
billion per year. Franchise area is attracting more than 319,000 employees and holds 29%
retail sales (VietNamNet, 16th Dec, 2004).
Vietnam which has 12 characteristics of "a marketing heaven" is considered to be a
potential market of franchising (VietNamNet, 16th Dec, 2004). The Asian developing
economy with a rapid economic growth about 7 to 8% per year is getting a significant
contribution from this special business. In the two years 1996 - 1998, its turnover
increased from around $1.5 to $4 million USD (Vietnam Economy Times, 2006). Up to
now, it is growing 18- 20% per year and forecasted to be 25- 30% in the next 3 years
and to make a breakthrough in franchise development in Vietnam (Marketing Vietnam,
2007).
1.1.2 Fierce competition after joining to WTO

As franchising in Vietnam is a relatively new phenomenon (Dan Tri, 18th Dec, 2005), but
that offers significant commercial opportunities for oversea firms. In 2006, Vietnam
joined to World Trade Organization and leads to "a transparent, open economy" (U.S
Commercial Service, 2006). This even also paves a way for foreign investors widely
9


"jumping" into the extreme potential market with more than 80 million populations. So,
what kind of business will they choose to penetrate into Vietnamese market? Franchising
is their best choice, especially in retail sales. In fact, before the WTO event, the foreign
firms "kept their eyes" to Vietnam like one of their strategic objectives. In early of2000s,
many famous international brand names have already appeared in Vietnam such as:
Swatch, Clinique, Baskin-Robbins, KFC, Texas Chicken, Jollibee (of the Philippines),
and Lotteria (of Japan). Major international film companies have established extensive
networks of photo labs in franchise-like agreements with Vietnamese entrepreneurs (U.S
Commercial Service, 2006). Thus, Vietnamese firms will have to face a big hazard that
is "an invasion of invaders" - foreign franchisors. If they can not "win", they will be
controlled by foreign corporations, even lose their market to the oversea invaders (Dan
Tri, 18th Dec, 2005).
Consequently, how will Vietnamese brand names have to "fight" to gain their market
share? Franchising is the best way to increase the competitive ability of Vietnamese
brand names, to advertise and to create their powerful internal force. This will also gather
their strength in order to face with the fierce competition after joining to WTO (Dan Tri,
18th Dec, 2005).

1.1.3 Weaknesses of domestic franchisors

According to Ms. Vu Kim Hanh (Director of ITPC, Dan Tri, Dec 2005), "the risk of
losing market share to foreign corporations is very high due to the weaknesses of
Vietnamese firms". There are four conditions for success in franchising, including

loyalty, market knowledgeable, management and financial ability (Ly Qui Trung, 2006).
However, Vietnamese firms do not meet these conditions.
In the first stage of development, franchising remarks the failures of some brand names,
such as Pho 2000 and Bon Bread that caused from lacking of market knowledgeable or
weak financial ability. In addition, the famous Vietnamese franchisor like Trung Nguyen
also said that they have to deal with many difficulties of lack of experience and
knowledge in business development because they are the initial franchising firms in
Vietnam (Nguyen Tran Quang, Former Marketing Director of Trung Nguyen Coffee).
10


Actually, franchising is "a fresh concept" of many Vietnamese firms. In spite of
successfully building their brand names, they almost wonder whether franchising is
appropriated for their business expansions or worry about the franchising application will
be unsuccessful if they are not master of franchising skills (VnExpress, 15th Dec, 2005).
Moreover, in earlier of development, franchising environment lacks of an effective of law
for franchising. In 1998, a degree (ND 45 CP) stipulated rules on technology transfer but
not mention the franchise sector. This affected not only to domestic firms but also to
oversea ones. Until 2005, an amended commercial law completed a legal and regulatory
for this sector. The new formulated laws and regulations may relax restrictions on
franchising activities in Vietnam (U.S Commercial Services, 2006).

1.1.4. Vietnamese franchisee and importance of studying on franchisee satisfaction
Actually, after more than 15 years appearing in Vietnam, franchise is still a fresh concept
with franchisors and franchisees. It is a short time for Vietnamese franchisees to
understand deeply about this complex business. Therefore, they often make a franchise
decision mainly basing on brand famousness of franchisors. However, a famous brand is
an important but not determined factor of franchise success. In one popular franchise full business format franchise, franchisors license four major products to franchisees,
including: (1) System: strategy, model, operating process, management policy, operation
handbook, training, opening advisory, marketing and advertising support; (2) production

and business know-how; (3) brand identity; (4) Products and services (Marketing
Vietnam, 2007). Most of Vietnamese franchisees are only interesting in use of
franchisor's brand but not supported programs ignored by franchisor and easily sign a
franchise contracts without clear understanding. Thus, there have been several disputes
during the franchise cooperation, mainly about brand copyright, business know-how and
turnover. Hence, this negatively affects to the success of franchisors. For example, the
franchisees would not follow the basic franchise standard leading to the quality decline of
brand or not have incentive to renew the signed contract...
The "boom" development of franchising in Vietnam have not only affected to
Vietnamese businessmen, especially franchisors but also changed awareness of majority
11


of Vietnamese franchisees. After the WTO event and great successes of many overseas
and domestic franchisors, Vietnamese businessmen, especially franchisees, recognize
what real franchising is and this is a profitable business. Therefore, they seem to be more
open with these opportunities and willing to cooperate with potential franchisors to get
safer business.
After more than 15 years of development, there are few official studies about franchising
until now. This leads to negative affects to its expansions. In particular, it is very
important to know what franchisees think about their franchisors. Moreover, studying
their appreciations will partly declare quality of franchisors' supported programs.
Obviously, one satisfied franchisee is willing to extend franchise cooperation. Contrarily,
one unsatisfied one will not really want to renew the contract anymore.
Thus, with an importance of studying on franchisee satisfaction and a purpose to measure
the quality of franchising programs of local franchisors, I choose the topic -

"Determinant of franchisee satisfaction in beverage and foodstuff in Ho Chi Minh
City", to do the thesis and hope to practically approach the reasonable responses of these
above questions.

1.2 Thesis Objectives
The thesis aims to identify the level of franchisee satisfaction which contributes to
franchisee/ franchisor relationship ... Besides that, its specific objectives also focus on:
- To evaluate the factors mostly affecting to franchisee satisfaction;
- To measure level of franchise valuation about overall supported programs of their
franchisor;

1.3 Research questions
With above objectives, the thesis investigates the following questions:
Main question: What are the factors affecting to franchisee satisfaction?
Sub-questions:

- What are the factors having the greatest influence on franchisee satisfaction?
12


-

What is the level of franchisee satisfy about franchise opportunity and overall
supported programs provided by franchisor

-

What is the level of franchisee evaluation about the relationship with their
franchisor?

-

What is the level of franchisee consideration about their financial situation?

1.4 Research methodology
This thesis carries out a survey to interview specific franchisees who are the owners of
franchising outlets in beverage and foodstuffs in Ho Chi Minh City, the most potential
field for franchising development. Exactly, it focused on franchisees of two Vietnamese
typical franchisors: Trung Nguyen Coffee and Pho 24, the most famous domestic
franchise brand names in Vietnam.
Using SPSS software, the factor analysis and reliability test methods are applied. Oneway ANOVA and multi-regression model are used to test the hypothesis and assist to do
the conclusion.

1.5 Thesis Structure
The thesis includes 6 chapters, as the followings:
(1) Introduction: includes problem statements, thesis objectives, research questions,
and methodology and thesis structure.
(2) Literature Review: This chapter contains some definitions related to the research
objectives. The theoretical framework will discuss some basic theories of supported
for franchisee satisfaction includes consumer behaviour, channel relationship, job
satisfaction and theory of franchising. The next part lists some empirical studies
related to the thesis topic. The thesis model of franchisee satisfaction and hypothesis
are suggested in final part.
(3) An Overview of Beverage and Foodstuffs; Some Franchise Information in Ho

Chi Minh City. This chapter lists some necessary data and information about
beverage and foodstuffs industry in Vietnam generally and Ho Chi Minh City
13


partially, especially supplies some main points m franchise policies of selected
franchisors.
( 4) Research methodology and data processing results. The variables measurement,

samples and data are mentioned in this chapter. Data will be analyzed by applying
econometric methods in the end of this chapter.
(5)

Findings and discussions. From the econometric results, franchisee satisfaction
will be discussed and given some main findings in chapter 5.

(6)

Conclusions and policy implications: The final chapter will g1ve overall

conclusions and imply some recommendations about franchisee satisfaction issues.

14


CHAPTER II:

LITERATURE REVIEW

This chapter presents theoretical frameworks basing on some theories and researches of
some economists. The definitions of franchising and satisfaction are deeply mentioned in
the initial part. The next contents theories of famous economics related to the thesis topic.
The model of franchisee satisfaction is studied by analyzing three main theories:
consumer behaviour, channel relationships and job satisfaction, basing on three different
views of franchisee and franchisor relationship. "A franchisee makes a long-term
investment or purchase decision when they elect to begin a relationship with a
franchisor" (Frank, Mika and Douglass, 2003). In this sense, the franchisee is a customer
of the franchisor and theory of consumer behaviour is applied. However, the relationship
between franchisee and franchisor is not just a sell-purchase relation, franchising is also

considered to be "a type of business" (IFA Educational Foundation, 2004) or "strategic
entrepreneurial alliance" relation (Dhawal Shah, 2007). Thus, theory of channel
relationship should be used to clarify this special business cooperation. From other point
of view, "the franchisor-franchisee relationship might be considered as an employeremployee relationship" (Frank, Mika and Douglass, 2003), so theory of job satisfaction is
added. Moreover, as franchising is a complex business operation, it should be completed
by the theory of franchising including types of franchising; rights and obligations of
franchisee and franchisor as well as advantages and disadvantages of franchising.
In the followings, empirical studies part lists some past researches or reports of some
famous economists or magazine studying about franchisee satisfaction in several
countries and industries. From learning these researches and basing on basic theories, the
model of franchisee satisfaction is designed and presented in part 4. The last contains
hypothesis of the model.
2.1 DEFINITIONS

Franchising:
''Franchising" can be defined as vanous definitions. Brad Sugars (2006) considered
franchising is authorization given to somebody to sell or distribute a company's goods or
services in a particular area. According to Dave Thomas and Michael Seid (2000),
15


franchising occurs when a businessman (franchisor) licenses a trademark (brand name)
and its business format to an individual or a group (franchisee) who is committed with
terms of contract (franchising agreement) and pays for franchisor fees, including initial
and ongoing fee for using brand name and business format.
According to IFA Educational Foundation (2004), the terms "franchising" and
"franchise" are often used interchangeably to mean a business, a type of business, or an
industry. The "franchise" is the agreement or license between two parties which gives a
person or group of people (the franchisee) the rights to market a product or service using
the trademark of another business (the franchisor). The franchisee has the rights to market

the product or service using the operating methods of the franchisor and the obligation to
pay the franchisor certain fees and royalties in exchange for these rights. The franchisor
has the obligation to provide these rights and generally support the franchisee.
In Vietnamese Trade Law 2006, franchising is a business way, in which franchisor grants
franchisee the right to trade goods and services with below conditions: (1) stimulated by
franchisor and associated with trademarks, brand names, technique know-how, slogan,
logo, advertising ... of franchisor. (2) The franchisor has the right to control and support
to the franchisee to carry out their business.

Franchisor: A person or company who decides to expand the business by giving to
selected franchisees the right to do business under their trade or service marks in
accordance with the franchise agreement (Franchise Training, 2007).

Franchisee: A person or company accepting the right, granted by the franchisor to retail
or provide services, using the franchisor's trade name or service marks, within the terms
set in the franchise agreement (Franchise Training, 2007).

Franchise fees: Franchisees pay common fees for franchisors including franchise fee,
royalty fee, renewal fee or other fees ...

Brand names: According to the AMA (American Marketing Association), a brand is a
''name, term, sign, symbol, or design, or a combination of them, intended to identify the
goods and services of one seller or group of sellers and to differentiate them from those
of competition." In order to compare a brand with a product, Kevin Lane (2002) asserted
16


that "a brand is therefore a product, but one that adds other dimensions that differentiate
it in some way from other products designed to satisfy the same need"

Satisfaction: The contentment you feel when you have done some right; state of being
gratified; great satisfaction, act of fulfilling a desire or need or appetite" (Wordnet, 2005)

Consumer satisfaction: Consumer satisfaction results when perceptions of product
performance match expectations that are at, or above, the minimum desired performance
level (Neal, Quester, Hawkins, 2004 ).

Franchisee satisfaction: How well the daily experiences of franchise owners compare
with their expectations. When expectations are met or exceeded, resulting satisfaction
will be high. When expectation fall short, satisfaction will follow (Eric Stities, 2006)

2.2 THEORETICAL FRAMEWORK:
According to the short description in an initial introduction of this chapter, three basic
theories supported for the model of franchisee satisfaction are consumer behaviour,
channel relationship and job satisfaction as well as general theory of franchising
additionally. These theories could be expressed by the below figure and thoroughly
discussed in the following parts.
Consumer
behaviour

Channel
relationship

Job
satisfaction

Theory of
franchising
Figure 1: Supported theories of franchisee satisfaction
(Developed by the author)

2.2.1 THEORY OF CONSUMER BEHAVIOR
The theory of consumer behavior explains how consumers expense their incomes to
maximize the satisfaction that they can obtain by purchasing a particular combination of
17

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TRUONG DH KINH TE TP.HCM

THUVIEN

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goods and services. According to Robert S Pindyck and Daniel L. Rubinfeld (1992),
consumer behavior is "the description of how consumers allocate incomes among
different goods and services to maximize their well-being" and best understood in three
distinct steps:
(1) Consumer preferences: consumers always make their decisions by choosing

different commodities in market baskets or bundles which lies on indifferent curves.
(2) Budget constraints: Consumers maximize satisfaction subject to budget constraints.

Meanwhile, when a consumer maximized satisfaction by consuming some of each of two
goods, the marginal rate of substitution is equal to the ratio of the prices of the two goods.
(3) Consumer choice proved that consumers choose to buy combinations of goods that
maximize their satisfaction. These combinations will depend on the prices of various
goods. The maximizing market basket must satisfy two conditions: to be located on the

budget line and to give the consumer the most preferred combination of goods and
services
Also mentioning about consumer behaviour but with marketing view, the groups of
authors (Pascale, Robyn, E. Jerome, William; 2001) listed some main influences. The
economic influences are firstly presented by assuming "consumers are rational economic
people who know the facts and compare choices logically in terms of cost and value in
order to obtain the greatest satisfaction from the time and money they spend". However,
buyer behaviour is believed not to be as simple as suggested by this model of the rational
economic person. "A product that one person perceives as representing good value and is
eager to buy may be of no interest to someone else". Therefore, economists should
concern about demographic influences including some information of buyer behaviour
such as population, income, literacy and segmentation. This can help the economists
predict or forecast basic trends in consumer spending patterns. However, it is not enough
to understand about consumer behaviour. Some variables should be studied; they are
psychological influences, social and cultural influences and situation influences. The
psychological influences include motivation, perception, learning, attitudes and lifestyle.

18


The consumer decision process is divided into 5 steps by Neal, Quester, Hawkins (2004)
presented by Figure 2 as bellow:
Situation

Figure 2: Consumer decision process
(Source: Neal, Quester, Hawkins, 2004)

Firstly, the consumers begin their decision process by recognizing the problem (the items
that they want to purchase). Then, information is undertaken to isolate an effective
solution of the problem. In the third step, they will evaluate the gathered information to

determine and compare the relevant and feasible alternatives. At the end of this step, the
decision can be made. After that, the actual purchase of products of services will be
carried out in the next step - store choice and purchase. Post-purchase process is in the
last step which expresses the consumer post purchase behaviour: use, evaluation, disposal
and repurchase. Consumer satisfaction is influenced by product performance, the
purchasing process and consumer expectations.
2.2.2 CHANNEL RELATIONSHIP:
Although price, support, and services are on the top of customers' priority lists, many
resellers say maintaining a strong customer relationship is key (Jerry Rosa, 2006). So,
franchisee satisfaction can be understood by studying theories of channel relationships
and channel satisfaction.
In order to learn about channel relationships, it should be understand about logistics
definition. According to Novak, Rinehart and Wells (1992), logistics involves the
19


creation of time, place, quantity, form and possession utilities within and among firms
and individuals through strategic management, infrastructure management and resource
management with the goal of creating products/services that satisfy the customer through
the attainment of value. From this definition, channel relationships can be determined as
the series of exchanges (both discrete and relational) between organizations and
individuals through which the strategic logistics goals of satisfying the customers' time,
place, quantity, form, and possession utilities are achieved ( John T. Mentzer, 1993).
Customer satisfaction tends to be the overriding mission of coordinated and successful
channels and customer monitoring can determine aspects of channel delivery system that
are important to the satisfaction of each customer and designing channel relationships and
delivery systems (John T. Menzter, 1993).
Examinations of channel member satisfaction usually focus on the satisfaction of the
downstream channel member (Frank, Mika, Douglas, 2003). Channel member
satisfaction is defined as a channel member's appraisal of all outcomes of its working

relationship with another firm, including economic as well as social outcomes (lnge, Jan,
2000). Channel member's activities may produce economic satisfaction with its
counterpart, while undermining the counterpart's social satisfaction, or vice versa (Inge,
Jan, 2000). This means that economic and social aspects of the channel relationships are
the two dimensions of satisfaction.
According to Geyskens, Steenkamp and Kumar (1999), "an economically satisfied
channel member considers the relationship to be a success with respect to goal
attainment". It is satisfied with the general effectiveness and productivity of the
relationship with its partner, as well as resulting financial outcomes". Therefore,
economic satisfaction is suggested to relate with satisfaction of products, financial
considerations, profits, new product opportunities and growth potential (Frank, Mika,
Douglas, 2003). Social satisfaction is determined as a channel member's evaluation of the
psychological aspects of its relation, in that interactions with the exchange partner are
fulfilling, gratifying and facile (Inge, Jan, 2000). So, it is suggested to include social
interaction and cooperation, franchise administration, service support, policies and
reward system (Frank, Mika, Douglas, 2003).
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2.2.3. JOB SATISFACTION
The franchisee-franchisor relationship can be considered as an employee-employer
relationship so that job satisfaction theory is applied to studies about this relation. Job
satisfaction is typically defined as "a pleasurable or positive emotional state resulting
from the appraisal of one's job or job experiences" (Locke, 1976).
From studying about many researches of satisfied and unsatisfied franchisees
characteristics, Morrision K.A. developed a model of franchisee job satisfaction
including six personality dimensions and three job characteristic factors. This model is
illustrated in Figure 3 as below.
Personality Factors
r------------------------,

Extraversion
Agreeableness

Job characteristic factors
~------------------------~

I
I

I

I

1

I
I
I
I

:

Fai~es.s of franchisor
restrictions

I
I
I
I

I

I
I

I

:

Conscientiousness

Franchisor Support

-'

Emotional Stability
Expected characteristic of
franchise system

Openness to Experience
Subjective Well-being

Figure 3: Morrison's Model of Franchisee Job Satisfaction
Source: Morison K.A. (1996)

Five of six personality factors of franchisee job satisfaction are used basing on the "BigFive" model of Barrick and Mount (1993); Costa and McCrae (1992), including
Extraversion (the degree to which an individual is gregarious, sociable and assertive),
Agreeableness (the degree, to which an individual is cooperative, warm, agreeable and
trusting), Conscientiousness (the degree, to which an individual is hard working,
organized, dependable and preserving), Emotional Stability (the extent to which an

individual is anxious, depressed and insecure) and Openness to Experience (the degree, to
wliiClr an individual is creative, intellectual, curious and artistically sensitive). The sixth
factor is Subjective Well-Being which leads individuals to evaluate their lives in positive
21


terms also commonly referred to as life satisfaction, depends on the standards the
individual uses to define what constitutes the good life (Morrison, 1996).
The Morrison's model of franchisee job satisfaction also consists of three job
characteristic factors. They are: (1) Perceived fairness of franchisor restrictions (namely,
restrictions on supplier sources and methods of operation, termination/renewal terms and
interpretation of franchise agreement; (2) met expectations regarding franchisor support
(namely, promotion and advertising, training, technical and day-to-day support and work
hours expected); and (3)met expectations regarding operational characteristics (namely,
income, territory protection, royalties/advertising fees and ability to use initiative).
2.2.4 THEORY OF FRANCHISING:
2.2.4.1 Types of franchising

According to Dave Thomas and Michael Seid (2000), there are two major types of
franchising:
(1) Product distribution franchising: In product distribution franchising, the franchisor

allows the franchisee to use their brand, logo and sell products produced by franchisor
but not supply
(2) Business format franchising: In business format franchising, the franchisor

prescribes for the franchisee a complete plan, or format, for managing and operating the
establishment. The plan provides step by step procedures for major aspects of the
business and anticipating most management problems, provides a complete matrix for
management decisions confronted by the franchisees (Dave Thomas and Michael Seid,

2000).
The second type - business format franchising is considered to be a typical format of
franchising and would be chosen to study for the thesis.
2.2.4.2 Rights and obligations of franchisors and franchisees

Studying about franchisee satisfaction is also learning about the relationship between
franchisor and franchisee which is fully expressed in a franchise agreement. In common,
a-franchise.contractoften contains the obligations and responsibilities of both partners.
Thus, during the time of contract, they have to execute following all terms in the signed
contract. As mentioned in the definition part above, the rights and obligations of both

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franchisee and franchisor are briefly determined. However, in order to have further
understanding about this, the role of franchisor and franchisor could be classified as
below.
Franchisor's role:
(1) Provide clear, positive leadership: In franchising good leadership has five
components, including vision and goals; competence; integrity; consistency; enthusiasm.
(2) Help franchisees achieve their financial and personal goals: The franchise system,
marketing programs and field support must be guarantee from franchisors that they can
add value to the franchisees business. Moreover, franchisees also want their franchisors
to accept their ideas to the franchise system.
(3) Protecting the strategic position of the brand: The franchisor must clearly define
what the brand stands for and also know who the target market is and ensure that the
positioning and promotion of the brand is in a way that fits the expectations and needs of
the target market (Kurt, 2004). The franchise brand needs constant monitoring and care.
Franchisees also have three different roles:

(1) Running a profitable business
(2) Growing a base of happy customers: The franchisees have responsibility keep
customers happy and satisfied in order not to return and recommend the business to
others.
(3) Supporting the franchisor's brand values: The brand value is very important with
franchise business. Almost marketing programs of franchisor are increasing the value of
their brand. Thus, franchisee must have a promise for instance relate to quality and
service ... If not, the brand will be undermined.
For more details, obligations of franchisee and franchisor could be arranged as the
followings:
Franchisor

Franchisee

Site selection

Probably oversees, may choose;

Chooses with approval;

De_sign

Provides prototype design;

Implements design; pays;

Employees

Generalized recommendations;

Actually hires, supervises
and fires;

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