Journal of Business Management

Journal of Business Management

Identifying the Factors Affecting the Organizational Structure of the Pricing Function in Franchises

Document Type : Research Paper

Authors
Mohammad Ali Seyf 1
Mohsen Nazari 2
1 Ph.D. Candidate, Department of Business Strategy and Policy, Faculty of Business Management, College of Management, University of Tehran, Tehran, Iran.
2 Prof., Department of Marketing and Market Development, Faculty of Business Management, College of Management, University of Tehran, Tehran, Iran.
10.22059/jibm.2025.386438.4884
Abstract
Objective
The expansion of franchise networks has emerged as a prominent business development model, receiving growing attention from organizations and companies. This expansion is primarily achieved through the integration of organizational structures and the standardization of business models, enabling firms to maintain brand identity while expanding their presence across diverse markets. Within such a structure, the use of various pricing strategies—such as value-based pricing, competition-based pricing, and cost-based pricing—plays a critical role in the success and sustainability of franchise networks. Each of these approaches, depending on market conditions, the type of product or service, and customer characteristics, can enhance economic efficiency and improve the financial performance of franchise units. Among the elements of the marketing mix, price is considered one of the most flexible yet influential components. Appropriate pricing can directly affect demand levels, market share, and both short-term and long-term profitability. However, pricing decisions in franchise networks are more complex due to the multiplicity of outlets and differences in environmental conditions and local markets. Consequently, the method of price determination and the degree of centralization or decentralization in pricing decisions have become key managerial issues in franchise systems. Currently, many franchises are rapidly expanding across various regions and markets. One common challenge in these networks is that pricing processes are often centrally managed by the parent company or franchisor. In some cases, this approach fails to adequately consider differences in economic conditions, customers’ purchasing power, competitive intensity, and cultural characteristics of local markets. As a result, centrally determined prices may not align with local market realities, potentially negatively affecting franchise unit performance and customer satisfaction. Accordingly, this study aims to identify and examine the factors influencing the pricing process in franchise networks and to propose an appropriate framework for distributing pricing responsibilities between franchisors and franchisees. Such a framework can help create a balance between network-wide standardization and local flexibility, ultimately improving the overall performance of the franchise system.

Methodology
This research is applied in terms of purpose, inductive in approach, qualitative in strategy, and cross-sectional in time horizon. Data were collected through interviews. Participants included managers of retail stores, restaurants, cafés, and chain confectioneries from both franchisor and franchisee sides in Tehran, as well as experts and university professors in commercial policy. Using theoretical saturation, the sample size was determined to be 25 participants. Data were analyzed using Strauss and Corbin’s grounded theory approach.

Findings
The results initially identified 92 open codes. After removing duplicate and overlapping codes, 37 axial codes were extracted. These were subsequently classified into five selective categories: causal conditions, contextual conditions, intervening conditions, strategies, and consequences. The causal conditions included price elasticity, price variation, characteristics of the geographic market, operating costs, inventories, demand fluctuations, and competitive intensity. The contextual conditions consisted of brand strength, stable product pricing, laws and regulations, employment of marketing experts, market supply and demand, monitoring and review systems, production, distribution and sales costs, and customer knowledge. The intervening conditions comprised pricing flexibility, market share, differentiated pricing, perceived customer value, product life cycle stage, strategic positioning, and target customers. The strategies included promotional policies, reference pricing, customer bargaining power, customer characteristics, product characteristics, price differences relative to competitors, price fairness, expected customer value, complementary and substitute goods available in the market, product uniqueness, and customer awareness of prices. Finally, the consequences involved the likelihood of new competitor entry, producer risk in launching new products, degree of product adaptation, and quantity discounts.

Conclusion
All identified causal, contextual, and intervening factors play a significant role in shaping the pricing structure. The application of the identified pricing strategies leads to various corresponding outcomes. Considering these factors, it can be concluded that interactive pricing represents the most appropriate organizational structure for the pricing function, as the identified elements highlight the importance of cooperation and coordination between franchisors and franchisees.
Keywords
Franchise networks
Pricing strategies
Interactive pricing
Grounded theory
Franchise management
Subjects
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Journal of Business Management
Volume 18, Issue 2
2026
Pages 829-859