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Management > Chapter 4 Packet Notes > Flashcards

Chapter 4 Packet Notes Flashcards

1
Q

A marketing system involving a legal agreement whereby the franchisee conducts business according to the terms specified by the franchisor.

A

Franchising

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2
Q

Party in franchise contract that specifies methods to be followed and terms to be met by the other party.

A

Franchisor

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3
Q

An entrepreneur whose power is limited by a contractural agreement with a franchisor.

A

Franchisee

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4
Q

The legal agreement between franchisor and franchisee.

A

Franchise Contract

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5
Q

The privileges conveyed in the franchise contract.

A

Franchise

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6
Q
  • The economic significance of franscising is greater than indicated by the activity of franchised businesses alone.
  • Stimulates still more activity and supports the growth of many nonfrancised businesses
A

Economic Activity Because of Franchised Businesses

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7
Q
  • Probability of success
    • proven line of business
    • pre-qualified of franchisee
  • Training
    • Franchisor-provided
  • Financial Assistance
    • franchisor assistance
  • Operating Benefits
    • Franchisor-aided
A

Advantages of Francising

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8
Q
  • Franchise costs
    • initial franchise fee
    • inventment costs
    • royalty payments
    • Advertising costs
  • Restrictions on business operations
  • Loss of independence
  • Lack of francisor support
A

Limitations of Franchising

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9
Q
  • Reduced risk of failure
  • Going into business for yourself, but not by yourself
  • Use of valuable trade name and trademark
  • Access to a proven business system
  • Management provided by the franchisor
  • Immediate economies of scale
  • A way for an existing business to diversify
A

Advantages of the Franchise Model

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10
Q
  • Misleading or exaggerated earnings claims by franchisors
  • Opportunity behavior by which the franchisor becomes a competitive threat to franchisees
  • Restrictions on franchisees who desire to liquidate their holdings in favor of alternative investment opportunities.
  • Conflicts of interest, such as when a franchisor forces franchisees to be captive outlets for their other suppliers own by the franchisor.
  • Churning
  • Encroachment
  • Imposing noncomplete clauses on franchisees
  • One-sided contracts devised by franchisors
  • The imposition of new restrictions as a requirement of contract renewal
  • Franchisor intimidation of franchisees who attempt to form franchisee associations, seek alternative sources for products, or make other efforts to create a more level playing field.
A

Government Concerns About Franchising

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11
Q

Terminating a successful franchise operation in order to resell and gain additional franchise fees.

A

Churning

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12
Q

Locating a new outlet or point of distribution too close to an existing franchisee, causing a material loss of sales.

A

Encroachment

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13
Q
  • Restricting of sales territory
  • Requiring site approval and imposing requirements on the outlet’s appearance
  • Restricting the goods/services that can be sold.
  • Requiring specific operating hours.
  • Controlling advertising.
A

Franchisor Controls on Franchisees

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14
Q
  • Selecting a franchise
  • Investigating the potential franchise
A

Evaluating Franchise Opportunities

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15
Q
  • Personal Observation
  • Advertisements
A

Selecting a Franchise

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16
Q

Information sources:

  • Independent, third-party sources
  • Franchisors themselves
  • Existing and previous franchisees
A

Information Sources

17
Q
  • Federal Trade Commission
  • Internet
  • Franchise consultants
A

Independent, Third-Party Sources

18
Q

Disclosure documents

A

Franchisors Themselves

19
Q
  • Is the franchisor dedicated to a franchise system as its primary mechanism of product and service distribution?
  • Does the franchisor produce and market quality goods and services for which there is an established market demand?
  • Does the franchisor enjoy a favorable reputation and broad acceptance in the industry?
  • Will the franchisor offer an established, well-designed marketing and business plan and provide substantial and complete training to franchisees?
  • Does the franchisor have good relations with its franchisees, and doe the franchisees have a strong franchisee organization that has negotiating leverage with the franchisor?
  • Does the franchisor have a history of attractive earnings by its franchisees?
A

Evaluating Franchise Opportunities

20
Q
  • The busines Model
  • Financial Considerations
  • requird assistance
  • Operations manual development
  • Governmental regulations
  • Adding long-term value
A

Franchisor Considerations

21
Q

Is your business replicable?

A

The business model

22
Q

How will you finance the growth of the company?

A

Financial Considerations

23
Q

What expert assistance will you need to become a franchiser?

A

Required Assistance

24
Q

What will go into your operations manual?

A

Operations Manual Development

25
Q

Are you willing to satisfy the governments disclosure requirements?

A

Government Regulations

26
Q

Can you add value for your franchisees year after year?

A

Adding Long-Term Value

27
Q
  • Reduction of capital requirements
  • Increase in management motivation
  • Speed of expansion
A

Benefits- Becoming a franchisor

28
Q
  • Reduction in control
  • Sharing of profits
  • Increase in operational support costs
A

Drawbacks-Becoming a Franchisor

29
Q
  • The franchising contract
  • Rule 436 of the FTC
A

Legal Issues in Franchising

30
Q
  • Signed with legal counsel present
  • Contains a termination and transfer provision
  • Contains statement of rights to renew contract
  • Franchise disclosure requirements
A

The Franchising Contract

31
Q

A rule that prescribes that the franchisor must disclose certain information to prospective franchisees.

A

Rule 436 of the FTC

32
Q

A document accepted by the FTC as satisfying its franchise disclosure requirements.

  • Investment requirements
  • Conditions that would affect renewal, termination, or sale of the franchise.
A

Franchise Disclosure Document (FDD)

Management (33 decks)

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