The Impact of Franchising on Hotel and Hospitality Management

This report delves into the impact of franchising on the hotel and hospitality industry, examining key assumptions, criticisms, and market dynamics. It explores how pre-entry experience, brand image, and market conditions influence the performance of both franchise and independent hotels. The report analyzes the complexities of hotel operations, including the significance of pricing strategies, the effects of brand affiliation, and the varying levels of complexity between full-service and limited-service hotels. It critically assesses the assumptions made by researchers and offers counterarguments, providing a comprehensive overview of the challenges and opportunities within the hotel industry. The report also considers the factors affecting hotel stability and the long-term implications of franchising on business performance. This analysis provides valuable insights into the strategies and considerations essential for success in the competitive hospitality sector.

Running head: Hotel and Hospitality Management 1
Hotel and Hospitality Management
Student’s Name
Institutional Affiliation

Hotel and Hospitality Management 2
Hotel and Hospitality Management
Introduction
The growth of franchising has significantly been on the rise particularly in the hospitality
industry (Brookes,& Altinay, 2011). Examples of companies that have adopted this method
include Mc Donald, Pizza Hut, and Hilton among others. However, other researchers have
criticized this approach by the mode of entry into the new market and sustainability, in
comparison with the independent hotels. The objective of this paper is to examine the
assumptions of the research article, objectively critique it and further explore its impact on
the hotel industry.
Assumptions
1. The pre-entry experience into the hotel industry affects the performance of the
entrants
The performance of both franchise and independent hotels vary in almost all the market
conditions. The research attributes this variation to the pre-entry experiences. The franchise
businesses are characteristic of rich experience, an established brand, and existing
infrastructure. The pre-entry advantages also include financial, supervisory, promotional
strategies and benefit of technology. The firms that are venturing into a new industry derive
their performance advantage from their opportunities in the accessibility to channels of
distribution and corresponding assets (Niu, Dong, & Chen, 2012). Prior experience is
significant in impacting the performance of new businesses in a new industry (Cassar, 2014).
The study by (Wang, Chen, & Chen, 2012) showed that the venture capitals were most likely
the contributor towards the initial entries. Additionally, in a similar set-up of the market with
relatively same conditions, the prior experience provides the hotels to adopt its tested and

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proven marketing strategies which in turn lowers the costs of operation hence contribution to
the early returns. The independent hotels that usually start from scratch are less likely to
realize returns within the initial years. This is because; the organization invests a lot in the
foreign market in trying to study it. Also, the market share is already dominated by the
already established franchise, and any returns are further invested in the market.
2. Prospective customers depend on the brand of a firm as a sign of quality
products
The brand image of a company is often assumed to be predictive of the quality of the product
(Johnson & Zinkhan, 2015). The researcher supports this finding by arguing that customers
have the natural fear of trying out products from new companies in the market and therefore
would like their confidants to make the first move. Organizations that have existed in the
market for long are most likely to be branded by the customers because of familiarity and
won confidence. This is an advantage to the franchise compared to the independent hotels.
The franchise with its long-standing market experience is likely to attract customers with less
effort because the brand name is already in the market domain and therefore would not fear to
try it out their products. As opposed to independent hotels, who for the first time are
introducing themselves and their new product to the market. Due to fear, customers would
not rush to buy their products.
3. Pre-entry experience is less significant in some market situations
On the contrary, the researcher argues that the market pre-experience is not always beneficial
to the franchise hotels but can, in turn, be advantageous to the independent hotels. This is
only possible because of the variations in the market of the hotel industry. Some innovative

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independent hotels have a strong internal structure as a result of the pre-determined
procedures, systems, and organizational cultures. In situations where there are no developed
systems, the independent hotels may thrive well mainly in environments that do not depend
on prior experiences because they do not augur well with the current market conditions
(Chen, Williams & Agarwal, 2012). Furthermore, the independent businesses may attain a
competitive advantage because of their flexibility to create external relationships with the
suppliers and partners (Thrikawala, 2011). The entrepreneur may also acquire, retain and
adventure information obtained from both internal and external sources (Lichtenthaler, 2011).
The researchers also reason that because the independent businesses are apparently known
not purchase any business model, it is likely that they will critically examine the new
technologies s or engage in the seminars where such knowledge is shared or even by the team
up with others through the social network (Philipson, 2012). The pre-experience may also be
insignificant in situations where the independents decide to preserve their options by
investing in bits on the external knowledge instead of engaging in a long-term obligation such
as a franchise to maintain a lot of flexibility in case of market shift (Cantarello et al., 2011).
4. Hotel operations can stabilize after two years to five years after initiation
The researchers postulate that the hotel industry can pick up after two years of its start. This
assumption is dependent on various factors such as market conditions and mode of entry.
With an established marketing plan and strategies, organization plan, and market analysis,
brand name the researcher's reason that a hotel can venture into the hotel industry and
stabilize within the first two to five years of business operations. The researcher argues that
two to five years are enough for a serious hotel to observe and analyze the market conditions
and determine an entry strategy (Gavetti et al., 2012)
5. Hotels are forever unstable

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According to O'Neill (2011), hotels can never stabilize forever because of the unique hotel
industry. The uncertainty of the market and the necessity for continuous investment in the
renovation of property contribute to this instability. The hotel industry is a tourism sector
whose hygienic level is to be observed highly. Such costs among others are re-invested into
the industry hence the reason for its continuous instability.
6. The investment in brand affiliation is directly related to the performance level of
the operating business.
This assumption is based on the premise that brand image is the primary determinant of
business performance hence the reason why most organization invest more in brand
affiliation. This is because most people associate the brand name with the quality of a product
(Johnson & Zinkhan, 2015). It takes a long time in the market for an organization to acquire a
brand name. The reason why organizations prefer to promote brand name is to win customer
confidence after which they will associate the brand name with every product bearing the
brand name.
7. Franchise hotels exhibit initial performance and later on drops with market
changes whereas independent hotels may or may not experience first
performance but improve performance.
The research compares the performance of the independent and franchise hotels. It first
describes the advantages that franchise has over the independent hotels in the new industry
(Enz & Canina, 2011). The franchise hotels have the initial wealth of experience in the
industry, financial resources, already established structures and brand name. On the contrary,

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the independent entrepreneurs are new to the market, with no experience, structures, in
adequate, marketing finances, etc. In such a scenario it is evident that the franchise will
outperform the independent. However, the research found out that the franchise indeed can
initially grow, but with time they do not survive in the market in the long run. The researcher
attributes such a trend to change in market conditions, the branding of the independent
business thus becoming fierce competitions which end up sharing the market share. As for
the independent entrepreneur, market changes can be of benefit to the firm because of its
nature of flexibility to adapt to changing market conditions. Additionally, the independent
business efficiently obtains knowledge from the partnerships and attended seminars to
understand the current events.
8. Full service and new limited service hotels have different level of complexity in
operation
The full-service hotel segment is more complicated to operate and is likely to depict a high
level of output when affiliated with the franchise. This is due to the effect of brand affiliation
which is to boost the performance of the full-service properties. On the other side, the
independent hotels with limited service may personally find ways of dealing with this
situation on a smaller scale(Enz & Canina, 2011)
9. The pricing strategy of the independent hotels was crucial to the increased
performance. The owners of the independent business who decide to acquire a business
model ended up with improved performance. The outcomes indicate that independent
enterprises had higher ADRs than those branded as early as from the start. This points that
the pricing strategy might have led to the higher performance.
10. Outcomes of the research show that brand affiliation enables the full-service hotels
to increase revenue within the initial six months attributable to occupancy. Conversely,

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the study outcomes show that the inherent knowledge and skill that is accompanied by
franchise system for full-service hotels are not associated with continuous performance.
Criticisms
When looking at the pre-entry experience as a factor affecting the performance of a
hotel, this assumption can be challenged (Mulotte, Dussauge & Mitchell, 2013). This is
because not all the experience gained in the past is only applicable today. New ideas could be
in the market that affects the effectiveness of a hotel such as advanced technology, latest
marketing strategies, and the current trends. If the entrepreneurs are flexible and competitive
in the market, to them pre-entry maybe be of little advantage to their industrial performance
because they can work in any dimension to produce quality services due to their flexibility.
On the other hand, starting a new industry with all the current trends and full knowledge of
the latest needs and requirements in finances, managerial skills, technological capabilities,
and marketing can make it very industrious and meeting the up to date standards without
necessarily having the pre-entry experience.
There is an assumption that prospective customers depend on the brand of a firm as a
sign of quality products. Looking at the issue of relying on the company’s brand name as a
signal of product quality, it is subjective in that it is not applicable everywhere (O’Neill &
Carlbäck, 2011). Different people have different cultures and norms. A Franchise Hotel may
be established in a small metropolitan place, with the same name and products and services,
yet an Independent Hotel starts at the same location and same time meeting all the cultures,
goods and services of the people. It is evidently sure that the Independent Hotel will pick
within a short time compared to the Franchise Hotel which is holding to their brand but again
failing to meet the requirement of the small metropolitan market.

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The idea that pre-entry experience is less significant in some market situations is not
that accurate (Chen, Williams & Agarwal, 2011). If the innovative independent hotels can
wisely use the pre-entry experience as well the franchise hotels, their services to their current
customers will be high value. The main idea is how well to get access to channels of
distribution and the corresponding assets.
There is the assumption that the hotel’s income may stabilize between two and five
years while others say that it will never stabilize. Looking at this, from the first perspective,
the hotel industry may fail to stabilize within the first two and five years of innovation
(Legrand, Sloan, & Chen, 2016). If the hotel does not run with the current technology and
services, it will force the management to use more of its income for continuous investment to
maintain the up to date facilities to meet the competing market. This will result in low
productivity since most profit will be used to improve facilities of the Hotel and thus to be
unstable.
On the other side, the hotel being unstable for good is not realistic either as some
analysts consider. By reviewing the market trend and required facility, the investor will
quickly identify the vagaries of the market, refine how they work and monitor the hotel’s
performance now and again (Jones et al., 2016). This will give a clear picture of its flow of
income and with flexibility and be aggressive; the hotel industry will be able to stabilize even
within the first two years. For a hotel to never stabilize is due not improving the hotel
facilities and not being aggressive to get and work with new trends in the market. This is for
both the Independent and Franchise Hotels.
It is not very obvious to conclude that investment in brand affiliation is directly
related to the performance level of the operating business. The brand image may not be the
primary determinant of business performance which results to theoretical assumption

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(Hankinson, 2012). There are always some mistakes made when too much is invested in
brand affiliation to market the name of the organization. At the end of it, more money is
channeled to the advertisement of the brand, and unfortunately, the services offered are
entirely different from the brand advertised. The main challenge here is that the organization
may attract the customers but at the end lose their confidence since what is being advised in
the brand is different from the services offered and this will at the end lower the level of
performance of the operating business.
Franchise hotels are said to exhibit initial performance and later on drops with the
market changes whereas independent hotels may or may not experience first performance but
improve performance. This comparison of the independent and franchise hotels is not that
obvious. Despite the fact that the franchise hotels have the initial wealth of experience in the
industry, enough financial resources, already established structures and brand name, they may
retain their performance high and if well managed and being flexible to arising adjustment
attain the high performance for its lifetime (Enz, Peiró-Signes, & Segarra-Oña, 2014). For
the independent hotels, if the management is not done well, the performance is not so
apparent to improve more so if their services are not to the customers’ standards.
The study only considered the UK in its research. The country is a cosmopolitan
comprising of numerous cultures. It is likely that the respondents may not represent other
populations that are of different culture and set-up which may not be driven by brands
(Sekaran & Bougie, 2016). Therefore, it may not be proper to generalize that mode of
business entry is related to performance. The data variables were not spread enough to
capture all the variability hence the conclusions are subjective.

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Interests of the Article
This article serves only the interest of the independent business people. This is
because; based on its assumptions it only serves to discredit franchising and all its proven
benefits. For example, the assumptions that the pre-entry experience into the hotel industry
doesn’t matter in some market conditions directly credits independent businesses in situations
where they are more vulnerable than franchising. Also, with all the known benefits of
franchising, the researcher asserts that franchising may succeed during the initial years of
business operations but not for a long time. Another researcher shows that brand image is
crucial to market dominance for a long time of which franchising achieves.
The assumption that the investment in brand affiliation is directly related to the
performance level of business operation indeed contradicts the fore mentioned statements. If
a brand association is directly associated with the degree of performance and franchising
considers the brand image in top priority. Then franchising is directly related to business
performance. Therefore, to conclude that franchising will not thrive in the market long after
the start of business operation serves to support the contrary.
The motive of the article is obvious that it was biased on the side of the independent
hotels. For instance, the assumption that pre-entry experience is not significant in an entry to
the new industries in some market situations is imbalanced. Expertise in any field is fast hand
knowledge towards the achievement of the objective. The wealthy experience of franchising
in regard to the market policies and operations are central to a successful entry in addition to
familiarity with the market. This is because former experience means the brand name which
translates to loyal customers. Therefore, a brand new business cannot be compared with an
already established enterprise regarding market entry advantages.

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The conclusion that the Prospective customers depend on the brand of a firm as a sign
of quality products is subjective depending on the culture of the respondent and the market
conditions at that time. It is true that most people associate a firm’s brand with the quality of
the product, but it is not always the same. There are products that can be introduced to the
market and attract customers without having been on the market for long. What determines
the immediate reception of a new product is more of advisement and quality.
Impacts of the results of the article on hotel industry
The report discredits franchising which historically has shaped the current hospitality
industry. Franchising is the fastest known way of owing enterprises by relieving the
entrepreneur from the trouble of serving an apprenticeship. Business people can borrow and
later on trade on the experience of the franchising organization (Boella & Goss-Turner,
2013). Franchising has a lot of benefits according to (Armstrong, Adam, Denize & Kotler,
2014). For example in the medium-sized restaurant chains, it aids the employer in the
retention of managers and permits the store to offer brand name items and acquire more
traffic in their distribution of products.
If the franchise is disregarded as the researchers suggest, then businesses will lose all
the benefits that are associated with it. For instance product design and marketing
specialization, the limited commitment of financial and quick entry to countries of the target
more so in negligible markets not worthy of major investments (Lee & Carter, 2012).
The researcher points out franchising as a risky affair when the market conditions are
unfavorable. However, such a conclusion is misleading because the change in market
conditions risks every other business venture and not franchising alone. For example, one
amongst the many options for hotels and entrepreneurs to optimise their commercial value of
their enterprises is franchising. Even amidst the varying and hostile market conditions, when

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it may appear favorable to for independent operators because of the accessibility to the
customer base, franchising still generates revenue from its established brand, without having
to first service upfront capital or the or any long-term commitment related to other running
structures. Disregard for franchising will negate international expansion. The advancement in
technology has made it manageable to regulate international franchising. It is through
franchising that entrepreneurs can gain quick access to international markets. For example,
USA has 70 percent room stock franchised against t 19 percent of the Europe’ room stock
(Dant & Grünhagen, 2014). This indeed calls for franchising in Europe market.
Disregard of franchising will lead to little business regulations internationally. The
growth and expansion of international franchising have resulted in the growth of the
franchising industry. This has prompted the establishment of rules which promote guides and
ensures the smooth running of businesses. The article assumes franchising will initially
survive in the new market but not for a long time. This notion discourages the new and
upcoming hotels thus shunning away franchising which offers a package alongside training,
aid in the business initiation and business strategies and analysis. Such a package is what is
fundamental to the success of a new hotel.