related diversification in a franchised service business

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that the barriers to entry are almost negligible for this industry. Any high school boy in a pickup
truck can provide junk removal services for people in his neighborhood. CHHJ has decided
not to compete on price, so local substitute services are almost always a lower-priced substitute
than CHHJ.
The right column is where Nick and Omar (the founders of CHHJ) are now working. They
believe that only providing junk removal service has nearly reached its full potential. They do
not want to discontinue it, but believe that they should develop some additional services to
bolster the revenue and the image of the franchisees.
2. What new services should CHHJ develop?
This question deserves a lot of analysis and thinking. If students have not prepared in advance to
answer this question, then the discussion probably will be wide-ranging and full of dead end
ideas such as lawn mowing, pool cleaning, dog-walking, and car washing. Consequently, we
think this question should be explicitly assigned to the students before the day of the class
discussion. It can also be the main question for a take home exam or a graded homework
assignment.
The first step in this process must be to determine how to make this decision. Specifically, the
decision maker must develop criteria to which all solutions must be compared. NOTE: The
instructor should decide whether to give the class this hint about developing a list of criteria.
Advanced students will already know that this is an important step but beginner students will
need to be told to develop their list of criteria. The last sentence of the case vaguely describes
the criteria that student should consider when devising a plan of new services. The table below
shows a list of criteria for guiding the decision on what services could be developed for the
franchisees of College Hunks Hauling Junk. Of course this list is not exhaustive – professors are
encouraged to devise their own list using their understanding of the case and of the concept of
related diversification.
Table 1: Suggested Criteria for Evaluating Options for New Services
Criterion for New Service Rationale
Financially feasible for franchisees.
Goal of new investment < $10k per
franchisee.
Feasible for existing skill sets of
employees.
Franchisees have already invested $100k -
$150k to buy into the business. Most of them
have not been very successful so far, and
probably don’t have the willingness or
resources to invest heavily again.
The franchisor will provide some training for
the new service. But the new service must be
within the realm of skills similar to the ones
already in use. Currently, the “Hunks” are
clean-cut, punctual, and courteous. Their first
job is to verify that the cost estimate (given
over the phone) is accurate. They either
confirm the price estimate, or adjust it
according to the size of the job. Then they load
junk into the truck and haul it away.