Chapter 3 Franchises And Co Operatives Flashcards
What is a franchise
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
Advantages for the franchiser
- 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
Disadvantages for the franchiser
- 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
Evaluate the factors affecting the use of franchises to a business
- Market demand
Consumer preference- a strong demand for a product or service can drive businesses to franchise which allows for rapid expansion
Demographic trends- changes in demographics create opportunities for franchising in specific markets - Cost and investment
Initial franchise fees- the cost of entering a franchise agreement can be a significant factor
Ongoing royalties- businesses need to consider the impact of ongoing royalty payments on profitability - Control and autonomy
Business control- franchising often means relinquishing some control to franchisees which can affect brand consistency.
Operational guidelines- the extent to which a franchisor dictates operational procedure can impact franchisee satisfaction and success - Support and training
Franchisee training- the levels of training and support provided to franchisees can significantly impact their success
Ongoing support- continuos operational support from the franchisor can help franchisees navigate challenges
Should a business franchise its brand
-It depends on their attitudes
- there is an initial cost of setting up the whole network and there is a risk it may fail if the wrong location or franchisees are chosen.
Advantages for the franchisee
- it is already using a tried and tested brand name so there is a greater chance of success
- there is specialist advice and training available from the franchiser
- the franchiser carries out market research and provides marketing support
- may be easier to obtain a loan from a bank due to the factors mentioned above
Disadvantages for the franchisee
- suppliers have to be bought from the franchiser which may charge high prices than those for similar products on the open market, this lowers profit margins
- there will be continuing royalty payments to the franchiser (percentage of turnover or profit)
- they have less control over what is selling, how it sells compared to a person running their own business
- the business can’t be sold without the franchisers permission
Evaluate the impact and importance of franchising to the stakeholders of a business
Customers
Consistency- customers enjoy a consistent experience across franchise locations which builds trust and brand loyalty
Access- franchising can increase the availability of products and services in various locations, enhancing customer convenience
Employees
Job creation- franchise growth contributes to job creation within local economies, offering employment opportunities
Career development- employees can benefit from structured training and career advancement opportunities within a larger franchise network
Investors
Attractive returns- investors in franchising often see attractive returns due to the relatively low risk associated with established business models
Market growth potential- franchising can indicate a company’s growth potential making it an appealing investment
Local communities
Economic development- franchises can stimulate local economies by creating jobs and supporting local suppliers.
Community engagement- many franchises engage in local marketing and community initiatives enhancing their local presence and good will .
What is the cooperative movement
Business that is owned and run by it’s members (employees and customer) and the profits are shared between members rather than being distributed to shareholders.
- This began in rochdale in 1844 when a group of workers who were fed up with poor quality products and high prices set up their own grocery business
-It was a great success and it went over to employ over 60000 people and operates in many different business areas e.g. retailing, whole sailing, travel, funerals, insurance.
- it has around 6 million members who each receive a share of the profits they helped to create based on how much they spend with any of its businesses in a particular year
- in 2013 it became clear the co op was in serious trouble following hte merger with Britannia building society, it had to be bailed out by hedge fund companies (companies who had a aim of making a short term profit)
Advantages of a co operative
- establishing it is legally straightforward and inexpensive
- all involved are working towards a common goal, employees are motivated, customers and loyal and supportive.
- liability for members is limitted
- the stakeholders in a cooperative should benefit due to the approach it adopts
Disadvantages of a cooperative
- capital can be limitted
- there is weak management
- employees may want more as they begin to feel that instead of profits being reinvested to further the cooperatives aim
- there is slower decision making
Evaluate the impact and importance of a cooperative structure to the stakeholders of a business
Employees
-job security- cooperatives often prioritize job stability over profit maximization which can lead to a more secure employment
- participation and satisfaction- employees may have a voice in their cooperatives operations leading to higher job satisfaction and morale
- career development- training and development opportunities are often prioritized benefiting both employees and the cooperatives overall success
Customers
Competitive pricing- cooperatives can offer products and services at lower prices as profits are returned to members rather than shareholders
Quality and service- customer interests often drive cooperative decisions resulting in higher quality products and better service
Suppliers
Stable relationships- cooperatives can foster long term relationships with suppliers benefiting from collective bargaining power
Local sourcing- many cooperatives prioritize local suppliers which can enhance community ties and economic sustainability
Local communities
Economic development- cooperatives often invest in their local economies creating jobs and supporting local businesses
Social impact- many cooperatives focus on social goals contributing to community welfare and addressing local needs
