Dr. Scott Shane, in his book, From Ice Cream to the Internet, describes one of the conflicts between the franchisor and franchisee. “A common way to increase sales is by offering a customer a coupon to generate interest in the system's products. Franchisors, almost always see the provision of coupons as a good idea because it increases sales, and hence, franchisor royalties. However, the use of coupons often increases costs along with sales because the company must provide the additional discounted or free items. The increase in sales and costs that comes from the use of the coupons frequently means that the higher level of sales occurs at a lower profit per unit, leaving the franchisee's profit to suffer. As a result, franchisees frequently oppose the use of coupons to increase sales that the franchisors try to get them to adopt”
It is unsurprising that both the franchisor and franchisee immediately see what is in their short term self-interest. What is that after fifty years of franchising, Dr. Shane's observation still holds true.
Remember the Harrah experiment with data mining and loyalty gift cards. Harrah's Total Gold Card was designed to provide incentives for Harrah's customers to return. It was a bit of bust in terms of providing those incentives. Harrah's re-engineered the program in order to be able to identify the expected long term worth of its customers, using the data that the Total Gold program provided to Harrahs.
But Harrah's was not merely passively collecting data; Loveman describes performing incentive experiments based upon what they thought the data was showing them. Instead of guessing or dictating the customer's preferences, Harrah's spent the time actually learning about its clients preferences and finding new ways to satisfy those preferences.
In the language of bargaining theory, coupons frame the relationship between the franchisor and franchisee as primarily zero sum, distributive, or that of claiming value. That is only part of the franchisor and franchisee relations; the other part can be described as coordinated, integrative, or creating value.
There is another difference between a discount coupon like the one I picked up recently from my local hot-dog street vendor and the Starbucks Gift Card,
provides a nice contract, in more ways than one. The hot dog street vendor is essentially selling me discounted dogs, to be paid in the future. With Starbucks, I am giving them both data and money, money they earn interest on until I either make a purchase or lose the card. We have seen how data is valuable, but let's not forget that that gift cards are a form of cash.
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