Chapter 3 Franchises And Co Operatives

Question 1

What is a franchise

Answer 1

This is where a business with a well known brand name (franchiser) lets a person (franchisee) or a group of people set up their own business using that brand.

This is in exchange for a initial fee and continuing loyalty repayments

The franchisees have unlimited liability if they set it up as a sole trader or a partnership but they have limited liability if they set it up as a company

Question 2

Advantages for the franchiser

Answer 2

• the firm doesn’t have to pay large amounts of money in order to expand
• the products necessary for the franchise to pirate are under the franchisers direct control

Question 3

Disadvantages for the franchiser

Answer 3

• there will be control issues over the products so if there is bad publicity of it it could affect the brand image
• the cost of supporting franchisees
• possibility of conflict

Question 4

Evaluate the factors affecting the use of franchises to a business

Answer 4

1. Brand recognition
   . Impact- established brands attract franchisees more readily leading to quick market penetration and customer trust
   . Consideration- businesses with a well known brand may benefit from lower marketing costs and higher initial franchisee interest