Franchising has become one of the dominant forms of entrepreneurship in all parts of the world. Companies expand and conquer larger shares of markets by making legal agreements with smaller organizations, which agree to follow the rules of the larger corporation and pay back the amount of compensation for using their brand names. There is an emerging consensus that franchising is likely to become the key driver of business growth in the coming years.
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Franchising is easy and fast. It is extremely cost-effective. Baskin Robbins is fairly regarded as one of the leading franchises in the U.S. – with more than 6,000 outlets worldwide, Baskin Robbins remains an unchangeable leader of the global ice-cream market (Entrepreneur, 2011). It comes as no surprise that Baskin Robbins exemplifies a unique and interesting object of microeconomic analysis. However, at first, the three main questions of economics and their relevance for Baskin Robbins have to be considered.
Baskin Robbins is ranked among the top 500 franchises in the U.S. (Entrepreneur, 2011). Founded in 1945, Baskin Robbins currently runs 2,957 outlets in the U.S. and more than 3,600 franchises in foreign countries (Entrepreneur, 2011). I picked up Baskin Robbins for several reasons. First, Baskin Robbins remains an unchangeable leader of the American and international market of ice-cream, and I would like to understand how the company was able to achieve and retain its competitive position.
Second, franchises exemplify a unique form of small-scale entrepreneurship, which benefits large companies and customers worldwide. In this situation, the main factors of the microeconomic environment affecting the company have to be understood. Finally, I would like to see how Baskin Robbins uses innovative products to attract and retain its customers, and I seek to evaluate the place and roles of innovations in micro-business settings.
It should be noted, that franchise operations are frequent objects of microeconomic analysis. Franchise “is a legal agreement between an independent enterprise and a larger corporation in which the enterprise agrees to abide by standards set by the larger corporation and to compensate it for use of its brand name and other services” (Goodwin, Nelson, Ackerman & Weisskopf, 2008, p.420).
The benefits of franchising are obvious: franchises represent a unique combination of brand name recognition and small-scale ownership (Goodwin et al, 2008). Franchisees use recognized brand names as the source of competitive advantage.
At times, customers may react negatively to uniformity and standardization imposed on franchised products (Goodwin et al, 2008). This is how the first big idea of economics works with franchisees: choices always involve tradeoffs, and companies choosing franchising must realize that product standardization may leave certain customers dissatisfied. Here, a reasonable balance of standardization and product differentiation will help franchisees to meet unique customer demands.
The three questions of economics are extremely relevant for Baskin Robbins. First, the company must decide what to produce; this requires a detailed assessment of consumer needs (Tucker, 2008).
Customers seek quality products and what to have a wide range of product choices: Baskin Robbins meets consumer demand for old-fashioned ice-cream that comes with a variety of flavors and in a variety of forms (Baskin Robbins, 2011). Second, the company must decide how to produce its products and services (Tucker, 2008). This is where franchising becomes the dominant form of delivering quality products for Baskin Robbins.
For whom to produce is the third main question of economics (Tucker, 2008). In a free economy, what to produce and how to meet consumer demand are determined by supply and demand. Baskin Robbins does not merely sell ice-cream, but seeks to make consumer experiences enjoyable (Baskin Robbins, 2011). Baskin Robins has a broad customer base, from children to retirees, and its products are affordable and available to consumers with various incomes.
Baskin Robbins. (2011). Our history. Baskin Robbins. Web.
Entrepreneur. (2011). Baskin-Robbins USA Co. Entrepreneur.com. Retrieved from https://www.entrepreneur.com/franchises/baskinrobbinsusaco/282121
Goodwin, N., Nelson, J.A., Ackerman, F. & Weisskopf, T. (2008). Microeconomics in context. London: M.E. Sharpe.
Tucker, I.B. (2008). Macroeconomics for today. Boston: Cengage Learning.