Adding new stores close to incumbent franchisees, or franchise encroachment, has been a contentious issue in the marketplace. Prior studies on the encroachment effect focus mainly on the store-level cannibalization, lacking the understanding of customer-level post-encroachment outcomes. The authors investigate individual-level transaction data from a cluster of bakery franchise stores to quantify the franchise encroachment effect at store- and individual-levels with store and customer heterogeneity. Our results show that incumbents experience a decrease in sales, and the extent of the lost sales is attenuated by the distance between incumbent and new stores and the size of incumbents’ product assortment. The individual-level analysis reveals that three customer segments exhibit different post-encroachment shopping behaviors: (1) patronizing incumbents only, (2) patronizing both incumbent and new stores, and (3) completely switching to new stores. While the second segment increases the post-encroachment overall spending, the third segment contributes to both cannibalization to incumbents and higher sales to the franchisor. Our findings offer managerial implications of how to manage franchise encroachment with context-dependency and customer segmentation in terms of maximizing overall franchise performance.

People face various situations that they have to decide whether to buy or not, before uncertainty is resolved. Under the uncertain conditions, it is most crucial part for consumers that they should consider the expected valuation derived from purchasing tickets or services. Thus, it is important to contemplate buyer uncertainty about future valuation. Xie and Shugan presented the relationship between spot price and advance price in a situation that involves uncertainty. Their findings provide the explicit advance pricing strategies that can create profit improvements (Xie & Shugan, 2001). Their findings lay a foundation of this problem, because buyers are almost always not sure about their future valuations for most services (Xie & Shugan, 2001). In addition to these findings, the researchers found that profits under option pricing strategy outperform those from advance pricing strategy (Preethika Sainam, 2010). They introduce the concept of consumer options and analytically prove that consumer options can make more profits and also can protect consumers from the pitfall derived from unwanted outcomes (Preethika Sainam, 2010). In this paper, we want to consider this problem under more complex and real circumstances. We include one more pricing strategy, discounted advance pricing, which is often called early bird pricing. Furthermore, we divide consumers in two types, risk-neutral consumers and risk-averse consumers. We present a simple analytical model in what conditions each pricing strategies can out-perform others based on consumer types and capacity types.