Content area
Full Text
An executive summary for managers and executive readers can be found at the end of this issue.
Introduction
In a franchise relationship, each party is essential to sustain profitability. The success of a chain is usually related to whether or not there is a good relationship between the franchisor and to whether there is chain growth. The franchisor sells the rights to use the brand name and the franchisee benefits from the franchise's reputation and know-how in return for an initial franchising fee and ongoing royalties. The franchisee manages day-to-day business decisions within the local environment to deliver the performance and operational standards expected by the franchisor. Franchisors, like many firms, offer goods, service activities, information, experience, and other resources to franchisees to help them manage their business units. Ideally, both parties should gain value and develop a long-term relationship ([27] Grace and Weaven, 2011).
Value in franchising has seldom been analyzed ([34] Grünhagen and Dorsch, 2003; [33] Grünhagen et al. , 2008; [36] Harmon and Griffiths, 2008; [27] Grace and Weaven, 2011). Franchisee satisfaction and system growth are closely related. Therefore, while striving to create value for incumbent franchisees, franchisors should also attract new partners (i.e. franchisees), thus creating value for the entire network ([52] Michael and Combs, 2008). Consequently, those networks that offer more value potential will attract more franchisees. For proof, this paper examines the relationship between signaling system value from the perspective of the current franchisees and system growth. If current and prospective franchisees agree on the value in franchising, then all elements constituting value will contribute to the growth of the system. Previous research has analyzed from the perspective of the incumbent franchisees how to invest the franchisors' resources to create value ([27] Grace and Weaven, 2011). However, do prospective franchisees perceive value in the same way as incumbent franchisees? What are the most important value-creating signals that attract franchisees and increase the size of the chain?
Based on the service dominant logic (S-D logic) perspective and signaling theory, this article analyzes what quality value cues influence chain growth. We analyze a range of franchisor services and contractual arrangements that, according to the franchising literature, are valuable from the perspective of the franchisee. These include initial and ongoing support, disclosure...