Richard S' Brown

1
Franchising as a Strategic Marketing Plan for
Small Entrepreneurs A Test Case of the Real
Estate Brokerage Industry

• Richard S. Brown
• Temple University
• Allied Academies Conference
• Academy of Entrepreneurship
• October 16, 2009

2
Itinerary

• Background and Problem Statement
• The Study
• The Industry
• Franchising Literature
• Methodology
• Data
• Hypotheses
• Results
• Future Research and Limitations

3
Background

• Franchising is a common theme in many literatures
  including Entrepreneurship, Strategy, Marketing
  and Economics and each perceives it in a
  different light
• Most papers look at the Franchisor-Franchisee
  dyad to discern some information about the
  relationship
• This work takes the position from the
  entrepreneurs viewpoint in that I ask All
  else being equal, does it make economic sense to
  become a franchisee in a highly fragmented
  industry where this may or may not be an
  advantage?

4
The Study

• Taking the research question in Slide 3, I test
  the performance of real estate brokerage firms in
  the marketplace against several performance
  measures.
• These performance measures, however, are not
  measures of profit or revenue as in other papers
• I measure variables that matter to both the
  firms consumer as well as directly to the firm
  in order to test if there is a difference between
  firms that stay independent versus firms that
  franchise These measures include 1) Days on the
  Market, 2) Ratio of Sold Price to Original Price,
  3) Original Price and 4) Commission Rate

5
The Industry

• Real Estate Brokerage is highly fragmented with
  thousands of small firms occupying the space
• In my view, Franchising is a mechanism to
  consolidate and get instant brand recognition for
  small firms in a fragmented industry
• Franchising, however, is costly and one may
  intuitively expect that small firms that choose
  to franchise perform better

6
Literature Review

• Although there are many works from Strategy,
  Entrepreneurship, Marketing and Economics that
  address the Franchising phenomenon (See Full
  Paper), there are several works that address it
  in the context of real estate brokerage including
• 1. Anderson et. al. (1998)study efficiency of
  franchised firms versus non-franchised firms
• 2. Anderson, Chinloy and Winkler (2007)study
  the economic rents of the franchisor-franchisee
  relationship
• 3. Benjamin et. al. (2007)study the
  profitability of franchised versus non-franchised
  firms

7
Methodology and Data

• Data was retrieved from the Multiple Listing
  Service (MLS) of the greater Philadelphia region.
• Data included a full listing printout for
  properties that sold in Philadelphia county
  between June 1, 2009 and June 7, 2009.
• The data of interest from the print outs were 1)
  Listing Agent Type (1 Franchised 0
  Independent), 2) Commission Rate, 3) Days on
  Market, 4) Original Price, and 5) Sold Price
• N 158 Transactions

8
Methodology and Data

• The data were tested three ways with the purpose
  of the tests to surmise if there were differences
  in performance measures between the two groups
  (Franchised vs. Independent)
• 1. T-Test
• 2. General Linear Model (GLM)
• a. Y BX E
• 3. Probit Regression
• a. ?-1P(Y1 Xx) B0 B1X1 B2X2
  B3X3BpXp

9
Hypotheses

• H1 Real estate brokerage firms that are
  franchised are significantly different from real
  estate brokerage firms that are non-franchised
  (i.e. independent) in terms of the amount of Days
  on Market (DOM) of the properties that they list
  for sale.
• H2 Real estate brokerage firms that are
  franchised are significantly different from real
  estate brokerage firms that are non-franchised
  (i.e. independent) in terms of the commission
  rate charged to their customers.
• H3 Real estate brokerage firms that are
  franchised are significantly different from real
  estate brokerage firms that are non-franchised
  (i.e. independent) in terms of the original price
  of homes that they list for sale.
• H4 Real estate brokerage firms that are
  franchised are significantly different from real
  estate brokerage firms that are non-franchised
  (i.e. independent) in terms of the ratio of sale
  price to original price of homes that they list
  for sale.

10
Results

• T-Test Results concluded that there were no
  significant differences between the two groups

11
Results

• The General Linear Model also came up with the
  same results. Here, B4 represents that dummy
  variable 1Franchised, 0Independent

12
Results

• The Probit Regression, which is modeling the
  dependent variable as 1Franchised and
  0Independent based on the other variables also
  corroborated the fact that there were no
  differences between groups

13
GLM Results Interpretation

• In the GLM, remember that we are modeling a
  regression equation with 5 variables. In each,
  Listing Agent Type is B4 but each of the other 4
  variables are Dependent in iterations of the
  model
• The fact that B4 is not significant means that
  there is no difference between franchised firms
  and independent firms

14
Probit Regression Results Interpretation

• In the probit model, the Dependent Variable is a
  binary with 1Franchised and 0 Independent
• The 4 Independent Variables are measuring the
  propensity or probability that the variable
  increases the model toward reaching 1 or
  Franchised
• However, since the entire model is insignificant
  (p0.18), there are no differences between the
  two groups

15
Conclusion

• This work has empirically tested the performance
  of real estate brokerage firms and concluded that
  there are no performance differences between them
• Practically, the cost-benefit analysis that small
  firms perform when making the decision to
  transform from XYZ Realty to Coldwell Banker XYZ
  Realty must be scrutinized
• The implications of this work is that when one
  looks at the performance measures that matter to
  the consumer and to the firm, the cost of
  becoming a franchisee may not make economic sense

16
Thank You

• You can always contact me at rsb306_at_temple.edu
  and I welcome comments, questions, suggestions
  and criticism.