A Multiobjective Approach to Design Franchise Outlet Networks

Abstract

The economic goals and the resulting locational objectives of a franchisor and its individual franchisees are frequently in conflict. For example, one goal of the franchisor is to maximize system-wide market coverage, while the corresponding goal of the franchisee is to maximize his or her individual market share. Consequently, the optimal facility siting scheme from one perspective may be suboptimal from the other. That is, the facility siting scheme which maximizes system-wide coverage will not necessarily maximize the market shares of the individual franchises which make up the system. In this paper we introduce a multiobjective integer programming model to design franchise networks. The model selects franchise locations and identifies individual franchise market areas. Constraints in the formulation guarantee that all franchise locations are assigned at least a minimal threshold market area with sufficient demand to ensure economic survival. An underlying assumption of the model is that a rationing mechanism exists to assign demand to various franchise locations. Consequently, the model is most appropriate for service delivery franchises in which the franchisor can define and enforce exclusive franchise territories for the various franchise outlets. The purpose of this model is to generate alternative siting configurations which demonstrate the inherent trade-offs between the objectives of the franchisor and the individual franchisees. Given these various location alternatives, it is expected that the franchisor will then evaluate them in terms of other criteria such as the likelihood of the individual franchisee's success, pricing strategies for the various sites, total costs, total profit, and the effects of the response of competitors. Consequently, the proposed model should be viewed as an aid for one aspect of the decision process, i.e. the generation of alternative courses of action.

Keywords:

• Franchise Network Design
• Multiobjective Programming