The Joint Effects of Ex Ante Contractual Completeness and Ex Post Governance on Compliance in Franchised Marketing Channels

Vishal Kashyap & Brian R. Murtha
Article Snapshot
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Key Takeaways

What? Franchises continue to be a sustained and growing sector with complex contractual relationships.

So What? With franchises, there is significant frustration with the “one size fits all” nature of contracts that fail to consider location and market idiosyncrasies.

Now What? Franchisors may want to make the process of adaptation to restore a sense of autonomy and, in turn, mitigate the negative relationship between perfunctory compliance and customer satisfaction.

Full Article

Article Snapshot: Executive Summaries from the Journal of Marketing

A franchisee's compliance depends on the joint impact of its franchisor's efforts to manage it and its franchise contract.


…by examining their joint effects, our research contributes to the literature by demonstrating that ex ante contractual completeness can impact the ability of ex post governance to drive important channel member behaviors.

Adopting an expanded view of compliance is important because, as we show in a franchise setting, perfunctory and consummate compliance impact franchisees’ customer satisfaction scores negatively and positively, respectively.


Research Question

This research was motivated by the largely unexamined idea that the impact of the joint effects of types of ex ante contractual completeness (e.g., monitoring completeness and enforcement completeness) and ex post governance is important because the effects of ex post governance on important marketing variables may not be invariant to ex ante governance considerations. It also answers the question of how do the joint effects of ex ante monitoring and enforcement completeness and ex post monitoring and enforcement impact important outcomes, such as contractual compliance.

Methods

The authors interviewed franchise practitioners and experts across a wide array of industries and experience levels in the United States to develop our hypotheses. In the branded U.S. hotel franchising industry, we surveyed 193 hotel franchisees and owner principals. They also obtained archival data in the form of the respondents' franchise contracts and their customer satisfaction scores. This intensive data collection effort allowed us to create a unique database compiled from three data sources to test our hypotheses.

Findings

The authors demonstrate novel joint effects of different ex ante (monitoring completeness and enforcement completeness) and ex post (monitoring and enforcement) governance mechanisms on channel member compliance. Specifically they employ a contingency perspective to theorize and find that the ex ante completeness of contracts provides the context for how franchisees interpret ex post monitoring and enforcement efforts. The research also advances two types of compliance – perfunctory and consummate –which are negatively and positively related to customer satisfaction respectively.

Implications

The findings have implications for the franchising sector. Franchisors should consider the joint effects of the clauses in their contracts and their field-based management efforts as these clauses can create a context within which franchisees interpret the franchisor's field-based efforts rather than evaluating these efforts in isolation. Franchise managers should weigh the benefits of consummate compliance against the potential downsides of perfunctory compliance.Going the extra mile makes good business sense for existing franchisees as opposed to strict adherence to mandated requirements.

Questions for the Classroom

  • How can contracts be utilized in conjunction with field-based management efforts to manage channel relationships? 

  • In which forms can compliance manifest itself in inter-organizational relationships? 

  • What are the implications of compliance in channel relationships?


Article Citation: Vishal Kashyap and Brian R. Murtha (2017) The Joint Effects of Ex Ante Contractual Completeness and Ex Post Governance on Compliance in Franchised Marketing Channels. Journal of Marketing: May 2017, Vol. 81, No. 3, pp. 130-153.

doi: http://dx.doi.org/10.1509/jm.14.0089



Author Bio:

 
Vishal Kashyap & Brian R. Murtha
Vishal Kashyap is Professor of Marketing, University of Graz (e-mail: vishal.kashyap@uni-graz.at). Brian R. Murtha is Associate Professor of Marketing and E. Vernon & William Smith Endowed Fellow, Gatton College of Business & Economics, University of Kentucky (e-mail: brian.murtha@uky.edu).
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