23 - How the franchised business model works

Question 1

What is the central figure in a franchise system known as?

Answer 1

Franchisor

The franchisor owns the rights to the concept and brand.

Question 2

What defines the terms under which franchisees can access the franchisor’s rights?

Answer 2

Franchisor

The franchisor defines the business model available to franchisees.

Question 3

What is the typical royalty rate that franchisors charge franchisees?

Answer 3

4 to 8 percent

This rate is usually set and rarely changed once established.

Question 4

What is a key responsibility of the franchisor regarding franchisees?

Answer 4

Training and equipping franchisees

This includes a multi-week training program on operations and business skills.

Question 5

What is the role of a master franchisor?

Answer 5

Acting on behalf of the franchisor

This is often necessary in markets with local ownership laws.

Question 6

What is a major risk for franchisors concerning franchisee performance?

Answer 6

Allowing poorly run operations

It can jeopardize the brand and signal to other franchisees that standards can slip.

Question 7

What is the franchisee’s primary role within the franchise system?

Answer 7

Operate the franchisor’s concept and promote the brand

Franchisees agree to follow the operations manual and localize as permitted.

Question 8

Fill in the blank: Franchisees pay a revenue-based fee into an _______ fund to support brand advertising.

Answer 8

advertising

This fee usually ranges from 2.5 to 5 percent.

Question 9

What is the purpose of the advertising fund cooperative?

Answer 9

Fund brand advertising and marketing

It pools franchisee resources for regional and national campaigns.

Question 10

What is a significant challenge faced by franchisee associations?

Answer 10

Gaining a voice in strategic decision making

They may be viewed as either valuable assets or potential blocks to progress.

Question 11

True or False: Franchisees are typically involved in the decision-making process for advertising budgets.

Answer 11

True

Franchisees are represented on boards that oversee advertising fund expenditures.

Question 12

What does the purchasing cooperative do?

Answer 12

Handles purchasing and supply chain aspects

It negotiates deals on behalf of franchisees for various supplies.

Question 13

Fill in the blank: The franchisor often retains responsibility for signing _______ on franchisee locations.

Answer 13

leases

This helps maintain control over locations in case of franchisee replacement.

Question 14

What is one of the core competencies of a successful franchise system?

Answer 14

Finding and securing good locations

This may involve sophisticated traffic mapping and demographic profiling.

Question 15

What can happen if a franchisor does not engage with its franchisees regarding advertising?

Answer 15

Legal disputes may arise

For example, KFC faced legal challenges from franchisees over marketing decisions.

Question 16

What is the role of professional marketing teams within the advertising fund?

Answer 16

Make marketing decisions and oversee media creation

They work closely with the franchisor’s marketing team.

Question 17

What is the significance of the advertising fund being franchisee-owned?

Answer 17

Ensures representation of franchisees’ interests

It is governed by boards made up of elected franchisees.

Question 18

What is the primary goal when franchise elements work together effectively?

Answer 18

Achieve tremendous results

Successful franchises like McDonald’s and Subway exemplify this.

Question 19

What role does the franchisee association play in a franchised business?

Answer 19

It can be regarded as a valuable asset for improving the business and providing an essential communication channel or viewed warily like a union.

Question 20

Name three successful global franchises mentioned.

Answer 20

• McDonald’s
• Subway
• Starbucks

Question 21

What is crucial for the growth of a franchised business after establishing the brand concept?

Answer 21

Finding and securing the right sites for expansion.

Question 22

How does Subway manage store development?

Answer 22

Through Development Agents (DAs) who build locations under long-term contracts.

Question 23

What are the two types of franchisees?

Answer 23

• Single-unit owner (SUO)
• Multi-unit owner (MUO)

Question 24

Fill in the blank: SUOs represent new blood in the system, bringing in fresh talent and energy and helping to keep the system _______.

Answer 24

balanced

Question 25

What is a potential negative outcome of having too many powerful MUOs in a franchise system?

Answer 25

They can exercise their power to distort the business or make unacceptable demands.

Question 26

What does store density refer to in franchising?

Answer 26

The number of stores opened within a short distance from each other.

Question 27

True or False: New store openings can sometimes lead to increased sales for existing stores.

Answer 27

True

Question 28

What can happen if store sales start to index down?

Answer 28

It can lead to store closures and reverse the entire system's growth.

Question 29

What is one major challenge in introducing new products in a franchise system?

Answer 29

It may increase operating costs for franchisees.

Question 30

Why is advertising for new offerings a challenge for franchisors?

Answer 30

It requires significant marketing spend that may detract from supporting the core offerings.

Question 31

What is a common issue with rolling upgrades in a franchise system?

Answer 31

It takes time to recoup costs, leading to disparities between stores.

Question 32

Fill in the blank: The challenge for a franchisor is to ensure that it can pick up franchisee ideas, assess them, and prioritize those that could lift _______ for the whole system.

Answer 32

sales

Question 33

What are some challenges of international expansion for franchise systems?

Answer 33

* Diverse legal frameworks * Low brand awareness * Brand adaptation * Sourcing and supply chain issues * Recruitment and operations difficulties

Question 34

How does low brand awareness affect international franchising?

Answer 34

It affects consumer demand and franchisee recruitment.

Question 35

What is one of the key operational challenges in international franchising?

Answer 35

Translating recruitment and operational documentation into local languages.

Question 36

What can happen if a franchisor struggles with international development?

Answer 36

It can distract from focusing on the core business at home.

Question 37

What is essential for maintaining operational standards in a franchise system?

Answer 37

Defining and communicating standards through an operations manual.

Question 38

What role do motivation and recognition schemes play in franchising?

Answer 38

They encourage performance recognition among franchisees and their staff.

Question 39

How does compliance monitoring help a franchise system?

Answer 39

It ensures that operational standards are being followed.

Question 40

Fill in the blank: Franchise systems typically conduct compliance visits to observe standards ranging from _______ to monthly.

Answer 40

half-yearly

Question 41

What is one method used to provide recognition for franchisee service?

Answer 41

Stars on a name badge ## Footnote Recognition methods include awards, badges, bonuses, and nominations for regional and national awards.

Question 42

How often are compliance visits typically conducted in franchise systems?

Answer 42

Ranges from half-yearly to monthly ## Footnote Compliance monitoring is essential to maintain standards across the franchise system.

Question 43

What do compliance inspectors use to evaluate franchise standards?

Answer 43

A checklist ## Footnote Inspectors are experts in the standards and best practices.

Question 44

What are the two different scoring philosophies in compliance monitoring?

Answer 44

Checkbox approach and consultative advisory approach ## Footnote The checkbox approach marks compliance as in or out, while the advisory approach only registers serious breaches.

Question 45

What happens to franchises that are marked out of compliance?

Answer 45

Given a fixed period to rectify issues and then remarked ## Footnote Compliance affects eligibility for additional franchises.

Question 46

What is the best guide to assess customer experience in franchise systems?

Answer 46

Customer feedback ## Footnote Gathering feedback can be challenging as it often reflects extreme views.

Question 47

What technology do franchise systems use to encourage customer feedback?

Answer 47

Websites and incentives ## Footnote Customers may enter a code from a receipt to receive rewards for their feedback.

Question 48

What is the purpose of turn-around teams in franchise systems?

Answer 48

To advise and support struggling franchisees ## Footnote This approach signals that the franchisor wants franchisees to succeed.

Question 49

What happens if a franchisee does not engage with the turn-around team?

Answer 49

The franchise may be removed and the franchisee exited from the system ## Footnote Some systems focus on the bottom 10 percent of franchisees for special measures.

Question 50

What additional responsibilities do franchisees have beyond serving customers?

Answer 50

Building up the local customer base and marketing ## Footnote Traditional marketing techniques include directory listings and local advertising.

Question 51

Name three emerging technologies that assist in franchise marketing.

Answer 51

* Smart phones * Apps like Voucher Cloud * Trip Advisor ## Footnote These technologies help communicate with customers based on their location.

Question 52

What type of support do franchisees receive for marketing?

Answer 52

Local, regional, and national marketing support ## Footnote This includes materials for wider campaigns such as World Cups and product rollouts.

Question 53

Why is it usually in the franchisees' interest to align with marketing materials and price points?

Answer 53

To offer a consistent array of products at consistent price points ## Footnote Alignment helps maintain brand integrity and customer expectations.

Question 54

What is the essence of all franchise systems?

Answer 54

Brands making and delivering a promise to customers ## Footnote Franchised businesses represent effectively distributed brands worldwide.

Question 55

What governance structures do franchised systems rely on?

Answer 55

Effective governance structures ## Footnote These structures allow for cohesive and consistent operation despite independent franchisee behavior.

Question 56

What can franchised systems teach other distribution models?

Answer 56

Lessons on effective governance and disaggregated business models ## Footnote Franchising may not be feasible for all businesses but offers valuable insights.