Subjective Knowledge, Perceived Risk, and Information Search when Purchasing a Franchise: A Comparative Exploration from Australia

Abstract

Franchising has long been a method by which organizations seek to expand and facilitate local market development. However, franchising as a growth strategy can often be hampered by lack of suitable franchisees. To mitigate this shortage, some franchisors have engaged in recruiting franchisees internally from the ranks of their employees in addition to the traditional approach of recruiting franchisees externally. Predominantly franchisees are individuals rather than corporations and thus purchasing a franchise should most commonly be characterized as a consumer acquisition. To explore the relationship between subjective knowledge, perceived risk, and information search behaviors when purchasing a franchise qualitative interviews were conducted with franchisees from the restaurant industry. Half of these respondents were externally recruited having never worked for the franchisor and half were internally recruited having previously been employees of the franchisor. The external recruits expressed a strong desire to own their own business and engaged in extensive decision-making processes with significant information search when purchasing their franchises. Contrastingly, the internal recruits expressed a strong desire to be their own boss and engaged in limited, bordering on habitual decision-making processes with negligible information search when acquiring their franchises. The results reveal that differences in subjective knowledge and perceived risk appear to significantly impact the extent of information search between these two groups. A model of the relationship between subjective knowledge, perceived risk and information search in the purchasing of a franchise is developed that reconciles these findings. The findings also have practical implications for franchisors’ franchisee recruiting efforts which are integral to their capacity to develop local markets.