Brand and Price: Key Signals when Opening a Franchise Outlet

Abstract

This article focuses on the choice of franchise by a potential fran-chisee, opening an outlet for the first time. The aim is to analyze therelationship between two signals—brand equity and price—sentby the franchisor, and the choice of franchise. Signaling theoryprovides the method to analyze this relationship. Using data panelmethodology, we conclude that brand equity, up-front franchisefees, and initial investment are the signals taken into account bySpanish franchisees when starting up franchise stores between 2002and 2008.