Resale pricing as part of franchisor know-how

Abstract

Purpose As franchisees are independent entrepreneurs, one important part of the business format that franchisors are not allowed to impose on their franchisees is resale prices. They are only allowed to indicate a recommended or a maximum price. This study aims to look further into the capabilities underlying the calculation of resale prices and suggests that price-setting is part of both the “business know-how” transferred to franchisees and the “organizational know-how,” that is, capabilities developed and kept at the franchisor level. Design/methodology/approach This study adopted a qualitative methodology with a total of 65 interviews, 19 with franchisors and 46 with franchisees, all operating in the French market. Findings The findings show that resale pricing is a process that involves know-how. The complexity of pricing leads to develop specialized and broad capabilities. The first type of know-how, i.e., business know-how transferred to franchisees, deals with operational implementation of recommended resale prices in the stores. The second type, i.e., organizational know-how, not transferred as a safeguard against opportunism, connects across other functions of the franchise chain such as R&D and communication. Originality/value This study confirms the existence and relevance of another kind of know-how apart from the business know-how that is transferred to the franchisees. Organizational know-how at the chain level, though often neglected, is a necessary determinant of sustaining a competitive advantage. This know-how is not transferred to the franchisees but contributes to the success and sustainability of the franchisor/franchisee relationship. Franchisors should thus work on improving their capabilities to better support their franchisees. Moreover, this study highlight the complexity and extreme importance of setting the right resale price.

Opening the black box of capabilities to renew the organizational and business know-how of franchises

“…Recent works have emphasized the differentiation between different types of know-how in franchise networks (López-Fernández et al , 2020). However, those studies do not differentiate between mechanisms to renew organizational and business know-how.…”

Franchising: a signaling perspective

“…Existing research on signaling in the franchise context has predominantly used secondary data and adopted a franchisor’s perspective (Perrigot et al , 2015, 2016; Lanchimba et al , 2021; Sadeh and Kacker, 2018, 2020). Signaling studies can be made robust by including inputs from both the franchisor and franchisees (Perrigot et al , 2020a, 2020b). Instead of assuming the signals that franchisees value, if franchisors could verify their evaluative criteria, they would make much effective signaling decisions.…”

“…Lanchimba et al (2021) find that franchisors in Brazil successfully use strategic signaling to attract high-quality franchisees and expand their network. While not directly related to signaling, research suggests that strategic initiatives such as corporate social disclosures (Perrigot et al, 2015), use of social media (Kacker and Perrigot, 2016;Perrigot et al, 2012), established training mechanisms (Perrigot et al, 2017(Perrigot et al, , 2020b by franchisors can attract the right kind of franchisees.…”

“…They rely on franchisees to bring in resources and efficiently operate the franchise outlets by following the operational standards (Castrogiovanni et al, 2006;Lucia-Palacios et al, 2014). Franchisees expect the franchisors to maintain high quality across the chain and extend timely support and training to operate their business units (Lucia-Palacios et al, 2014;Perrigot et al, 2017Perrigot et al, , 2020b. The rationale here is to combine the resources of both parties to gain a competitive advantage (Boulay et al, 2020;Rese, 2006;Sadeh and Kacker, 2018).…”

Estructura para la valoración de franquicias: aproximación mediante opciones reales

“…Tal como se evidenció anteriormente, el incremento exponencial en el número de franquicias en el mundo parte, en esencia, de que los interesados en un contrato de franquicia cimientan su relación en la confianza mutua con un objetivo común: crecer juntos con un equilibrio de ganancia. De hecho, las colaboraciones entre el franquiciante y el franquiciado pueden robustecer las fortalezas y corregir las debilidades (Simonin, como se citó en Perrigot et al, 2020).…”