Marco is a franchisee with Daggies, a chain of sandwich shops. His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops. Soon afterward, Marco's business deteriorated and he too was forced to close. This is an example of:
A) an economic shakeout at work.
B) the coattail effect.
C) the law of diminishing returns.
D) management by exception.

Question

Quizplus · Accepted Answer

The coattail effect refers to the negative impact that the failure of one franchisee can have on other franchisees within the same chain. In this case, Marco's business decline was likely due to consumers associating his Daggies shop with the failed ones and avoiding the brand altogether.

Marco Is a Franchisee with Daggies, a Chain of Sandwich