Franchising

FRANCHISING By: Shahzad Arain [email protected] http://pakdata.net

OUTLINES • Franchising Terms • Types Of Franchises • The Advantages Of Franchising • The Limitations Of Franchising

Franchising Terms •Franchising A marketing system revolving around a two-party legal agreement, whereby the franchisee conducts business according to the terms specified by the franchisor

• Franchise Contract

The legal agreement between franchisor and franchisee

• Franchise The privileges conveyed in the franchise contract

Franchising Terms •Franchisee An entrepreneur whose power is limited by a contractual agreement with a franchisor

•Franchisor The party in the franchise contract that specifies the methods to be followed and the terms to be met by the other party

Types of Franchises •Product and Trade Name Franchise Grants the right to use a widely recognized product or name

•Business Format Franchise Provides an entire marketing system and ongoing guidance from the franchisor

•Piggyback Franchising The operation of a retail franchise within the physical facilities of a host store

Types of Franchises •Master Licensee An independent firm or individual acting as a sales agent with the responsibility for finding new franchises within a specified territory

•Multiple-Unit Ownership Holding by a single franchisee of more than one franchise from the same company

•Area Developers Individuals or firms that obtain the legal right to open several franchised outlets in a given area

The Advantages & Disadvantages of Franchising Pluses

Minuses

Formalized training

Franchise fees

Financial assistance

Royalties

Proven marketing methods

Restrictions on growth

Managerial assistance Quicker startup time Overall lower failure rates

Less independence in operations Franchisor may be sole supplier of some supplies Termination/renewal clauses

The Advantages of Franchising (Cont’) •Proven marketing concept and customer base •Training •Financial assistance •Operating assistance

Financial Assistance •Start-up business costs are normally high and thus

by teaming up with a franchise organization, the individual can increase her/his chance of receiving financial help. •The franchisor might chose to use liberal payment schemes to the franchisee in order to get over the initial financial hurdle.

Operating Assistance •The franchisor provides a range of operating services including site selection, bulk purchasing of equipment, and inventory. •Other areas of assistance include the use of an established, nation-wide brand

Limitations Of Franchising • Franchise costs -Initial franchise fee -Royalty payments -Advertising costs • Loss of independence • Restrictions on Business Operations

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