The Korean Journal of Franchise Management (한국프랜차이즈경영연구)

Korea Society of Franchise Management (한국프랜차이즈경영학회)
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How does the Operational Value Affect the Determination of Initial Fees in Franchise Restaurant Businesses? Based on a Value-Based Pricing Strategy

프랜차이즈 외식기업의 운영적 가치가 초기가맹비용결정에 미치는 영향: 가치기반 가격결정전략을 기반으로

  • Seung Hyun KIM (Graduate Department of Tourism Management, Gachon University) ;
  • Kyung A SUN (Department of Tourism Management, Gachon University)
  • Received : 2023.11.13
  • Accepted : 2023.12.18
  • Published : 2023.12.30
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Abstract

Purpose: This study aims to uncover the mechanism of how initial fees are determined in the restaurant franchise business. Since the initial fees can be considered as a price of utilizing business models and operational knowledge of a certain franchise brand, it is critical to understand the fee decision-making process based on the strategic pricing theories. Therefore, this study investigates the influence of operational value on the determination of initial franchise fees grounded on a value-based pricing strategy. The Operational value is specifically categorized into profitability, growth, and stability of the franchise system. Research design, data, and methodology: The data used were collected through franchise disclosure documents and brand equity index provided by Korea Management Association Consulting. Data from 44 franchise restaurants during 2018 to 2021 are included in the sample. The panel dataset was analyzed by using generalized least squares estimation with R-Studio. Results: Profitability and stability positively influence initial franchise fees. However, growth did not influence initial franchise fees. Conclusions: The results of the study demonstrate that the operational value plays a critical role in determining the franchise fees. Specifically, franchisees recognize how much revenue a franchise system generates for them (i.e., profitability) and how stable the entire system is for operating business (i.e., stability) when they make purchasing decisions for franchise. The findings extend the pricing literature by applying pricing theories in the franchise fee context. Also, the study contributes to franchising and restaurant management literature by providing knowledge of how franchise fees are determined.

Keywords

Acknowledgement

This Article is financially supported by Gachon University (GCU-2023-04770001).

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