A Decision-Making Model of Social Shopping in Franchising: Assessing Collaboration Strategies

Abstract

Our paper develops a decision-making model of social shopping in franchising to understand impacts of various collaboration strategies on profits of a social intermediary, a franchisor, and a franchisee. Three decision variables are considered to make a daily deal promotion in a manner that results in optimal profits: the social intermediary's advertising expense, the franchisee's service quality expense, and the franchisor's financial assistance to the franchisee. The analysis shows that while system-wide collaboration generates more total profit for all three parties than the profits obtained when they seek to optimize their individual profit functions, the advantage of system-wide collaboration may depend on the parameter values of the profit function and collaboration cost. Since social shopping is just in the early stage of the business model development, most franchises and social intermediaries have not formed concrete collaboration strategies. Our model provides a methodology for different collaborative needs of the franchises and social intermediaries.