Brand and Price: Key Signals when Opening a Franchise Outlet

Abstract

This article focuses on the choice of franchise by a potential franchisee, opening an outlet for the first time. The aim is to analyze the relationship between two signals—brand equity and price—sent by the franchisor, and the choice of franchise. Signaling theory provides the method to analyze this relationship. Using data panel methodology, we conclude that brand equity, up-front franchise fees, and initial investment are the signals taken into account by Spanish franchisees when starting up franchise stores between 2002 and 2008.

KEYWORDS:

• brand
• entrepreneurship
• franchisee
• GMM
• signaling theory