2: Franchises Flashcards
Franchise
A form of business contract in which the franchisor already has a successful product or service, and agrees to sell to the franchisee the right to use the name, logo and trading methods of the business.
Franchisor
The business selling the franchise agreement to the franchisee.
Franchisee
The entrepreneur who buys the franchise agreement from the franchisor business.
Benefits to franchisor:
- Franchisor can expand quickly
- Often, franchisor earns revenue from the franchisees’ turnover rather than profit - so revenue is reasonable certain.
- Risk is shared - much of the cost is met by the franchisee.
- Franchisee may have very good entrepreneurial skills, which will earn the franchisor revenue.
Disadvantages to franchisor:
Potential loss of control over how the product/service is presented to customers.
- May be difficult to control quality as franchise network expands.
- Coordination and communication problems may increase as franchise network grows.
- Some franchisees become powerful as they acquire a number of franchises.
Benefits to franchisee:
- Able to sell already recognised brand with good reputation - less risk then setting up new business.
- Take advantage of central services such as marketing, purchasing, stock control provided by franchisor.
- Franchisor may have experience in the market that the franchisee can benefit from.
Disadvantage to franchisee:
- Proportion of revenue is paid to the franchisor - this can be a substantial burden on a new business.
- Franchisee may not feel that business is his/her own, and may not benefit from person rewards of entrepreneurship.
- Right to operate the franchise could be withdrawn if franchise ‘rules’ are broken.
Copyright
The protection given to books, plays, films and music.
Patent
An exclusive right to use a process or produce a product, usually for a fixed period of time, up to 20 years.
Trademark
A word, image, sound or smell that enables a business to differentiate itself from its competitors.
