Introduction to business - franchises and franchisees

Question 1

what is a franchise?

Answer 1

• when an established brand name (Franchiser) lets a person or group (Franchisees) set up another shop using that brand name e.g. McDonald’s
• no legal structure in itself and liability depends on how business was established

Question 2

what are the advantages to the franchiser?

Answer 2

• firm may not have to spend large amounts of money in order to expand
• quicker to grow inorganically (externally)
• products necessary for franchise to operate are under franchiser control
• applicants can be carefully selected for suitability

Question 3

what are the disadvantages to the franchiser?

Answer 3

• reputation may be affected if franchisee does bad job e.g. bad service, dirty store, etc
• loss of control of that particular shop (possibility of conflict)
• training costs to support the franchisee

Question 4

what are the advantages to the franchisee?

Answer 4

• support from franchiser (advertising, training, etc)
• reduces risk (brand is already well established)
• marketing is already completed
• profit may come quickly

Question 5

what are the disadvantages to the franchisee?

Answer 5

• not as much control/independence
• need to pay franchisee fee and royalty payment
• profit is shared

Question 6

what are some examples of franchises in the UK?

Answer 6

• KFC
• McDonald’s
• Domino’s
• Starbucks
• Pizza Hut
• Subway

Question 7

What is a cooperative?

Answer 7

• a business that is owned and run by its members (employees and customers)
• Profits are shared between members rather than being distributed to shareholders

Question 8

advantages of cooperatives?

Answer 8

• limited liability
• legally straightforward to establish
• a higher quality of service is likely to be provided (as customers are likely to be members)
• customers are likely to be loyal and supportive

Question 9

disadvantages of cooperatives?

Answer 9

• capital is limited to what members invest
• weak management (those chosen may not have good principles)
• slower decision making (too much involvement of members)
• employees may want more (instead of profit being reinvested to reach coop aims)

Question 10

define franchise (short definition)

Answer 10

the right to use an established brand