franchising Flashcards
prodcut franchise business opportunity
manufacturers use product franchise to govern how relatilers distrubute their products. Manufacturers grant store owners the right to distrubiute products by the manufacturer and allows the store owner to use the name and trademark owned by the mannufctuerer. the store owner must pay a fee or purchase minimum inventory of stock in return for these rights. some tire stores r an example of product franchsie
manufacturing franchise opportunity
these franchises grant the right to organisations to manufacture a product and sell it to the public under the name and trademark of the franchisor. most commonly found in food and beverage industry. Some soft drink botttlers get franchises from companies and use their given ingredients to produce bottle and distrubute soft drinks
how franchising helps startups
ADVANATAGES OF FRANCHISING TO THE FRANCHISEE
PRODUCT ACCEPTANCE
CAPITAL REQUIREMENTS
MANAGEMENT EXPERTISE
OPERATING AND STRUCTURAL CONTROLS
KNOWLEDGE OF THE MARKET
EXPLAIN PRODUCT ACCEPTANCE
A franchisee enters into a business with an accepeted name product or service.
for example- subway. a person purchasing a franchise of subway will be using the name subway which is well known and established throughout the us.
The franchisee will not have to spend resources on establishing the credibility of the business. THat credibiluty already exists based on the years the franchise has existed.
Subway has also spent millions of dollars in adevrsiting thereby creating a favourable image of the products and services they offer. An entreprenuer trying to start a sandwich shop wil l be unkown to potential customers and will have to spend a significant amount of resources and effort trying to build a credibility and reputation in the market
OPERATING AND STRUCTURAL CONTROLS
TWO PROBLEMS FACED BY ENTREPRENEUERS IN STARTING A NEW BUSINESS ARE MAINTAINING QUALITY STANDARDS OF PRODUCTS AND SERVICES AND ESTABLISHING EFFECTIVE MANAGERIAL CONTROLS. THe franchisors particularly in the food business identify purveyors and suppliers that meet the quality standards established. In some instances the supplies are provided by the franchisors. Standardization of products and services ensure the entreprenerurs maintain the quality standards that are so important.
Administrative controls unsually involve financial decisions related to costs, inventory and cashflow and personell issues including the critereon related to hiring/firing, scheduling and training to ensure consistent service is provided to customers
ADVANTAGES OF FRANCHSING TO THE FRANCHISOR
QUICK expla
quick expansion
One of the most obvious advantages of franchising to the franchisor is that it allows a new ventrue to expand quickly using little capital. This advantage becomes important when we reflect on the problems and issues faced by entrepreneurs in managing and growing a new venture. An entrepreneur can expand his business nationally and even internationally by authorizing and selling franchises in selected locations. The capital required for this expansion is much lower than it would be without franchising.SUBWAYS low franchise fee has enhanced expansion opportunities as more people can afford it, The value of a franchise depends upon the track record of the franchise and the services provided by the franchisor to the entrepreneur or franchisee. A FRANCHISED BUSINESS required lesser employees than a non franchised business. The headquarters and regional offices can be lightly staffed primarily to support the needs of the franchisees this allows the franchisors to maintain a low payroll and minimize personell issues and problems.
cost advantages
The mere size of the franchised company provides many advanatages to the franchisees. The franchisors get to purchase supplies in large quantities thereby achieveing economies of scale wchich would not have been possible without franchissing.Most franchised businesses produce accessories, packaging, raw materials in large quanities and in turn sell them to the franchisees. The franchisess are required to pruchase these items as part of the franchise agreement and benefit from the lower prices. The most important cost advantage of franchising is the ability to commit a large sum of money to advertising. The franchisees are required to contribute a percentage of their sales (1-2%) To and advertising pool. This pooling of resources allows franchisros to advertise their company on a major media in a wide georphaical area. If the company had not been franchised the company would have to provide funds for the entire advertising budget.
disadvantages of franchising to the franchisee
right and only way of doing things
inability to provide services
risk of franchisor getting bought
continuing cost implication
right and only way of doing things~
entering into a franchise contract limits the degree of freedom of the franchise. AS a resilt one gets an over guided overinflunced degree of control exterted by the franchisor. This limits the freedom to innovate to a certain extent
continuing cost implication
Over and above the original franchise fee and royalities, a percentage of the revenue generated is perpetually shared with the franchisor. The franchisor may also charge additonal amounts towards sharing the cost of services provided such as training and advertising. Thus entering into a franchise contract with a well known franchisor may serve to be an expensive proposition due to the tendency on part of the franchisor to exploit the franchisee
risk of the franchisor getting bought
The franchisee faces serious problems and rdifficulties if the franchisro either fails or gets bought out by another company
Inability to provide services
The disadvantages to the franchisee usually centres around the inability if the franchisor to provide services adevertising and location,. When the promises made in a franchise agreement are not kept, the franchisees are left with no support in the important areas. FOr eg; curtis bean purchase a dozen franchises of the checkers of america inc; a firm that provides auto inspection services. After losing 200000 dollars, he and other franchisees filed a lawsuit claming that the franchisor had misrepresented the advertising costs and made false claims such as no previous experience is required to own a franchise
disadvantage to the franchisor
Difficulty in idenitifying quality franchisees:- above all the franchisors may find diffculty in identifying quality franchisees. Even after extending all support towards training and providing capital, poor management may lead to the failure of the franchisee thereby adversely affecting the entire franchise system as a whole.
