MODULE 2 FRANCHISING

• Franchising


  A well-known business concept which has evolved over centuries
• Albert Singer


  • Often quoted as being the first commercial franchisor with his Singer Sewing Machine Company, launching a product franchise model giving independent travelling sales persons the right to sell his sewing machines to customers
• Franchising is embedded into our daily lives, but there are many pre-conceived ideas, not all of which are correct, surrounding the business model that may influence an individual's decision to enter (nor not) the world of franchising
• Common myths and misconceptions about franchising

  • Franchises are expensive
  • Franchising is a corporate world
  • Franchising is just for fast-food and retail businesses
  • Franchising is an easy way to start a business
  • Buying a franchise is a guarantee of success
  • Franchise owners aren't really business owners
  • The franchisor will run the business for you
  • You can't be creative if you own a franchise
  • You need a lot of experience to run a franchise
  • Anyone can buy a franchise if they have the money to invest
• Product or Distribution Franchise

  A product manufactured by the franchisor (or on his behalf by another) is sold to a franchisee who in turn sells it to the consumer under the trademark of the franchisor
• Manufacturing, Production or Processing Franchise


  The franchisor sells to the franchisee an essential ingredient or provides some specific know-how, which along with ongoing quality controls by the franchisor, enabling the franchisee to manufacture/product/process the final product and sell to the consumer
• Business format franchising/ Pure Franchising


  A type of franchise that involves a complete business format, a license and a trade name, the products or services to be sold, the store layout, the methods of operation, a marketing plan, a quality control process, a two-way communications system, and the necessary business support services

  
• Four essential elements of business format franchising

  • The franchisor allows the franchisee to use under license its proprietary IP, principally its trademarks but also its designs, patents, copyright and its confidential business information
  • The franchisor controls the way the business is run and managed by the franchisee
  • The franchisor provides training, mentoring and assistance to the franchisee
  • The franchisee makes both initial and periodic payments to the franchisor
• Hybrid franchising


  Conversion franchising is the only hybrid, where a franchise enters into a relationship with an existing company and converts it into a franchise unit
• Trade name


  An established trade name, marks, logo and style that a franchise has the right to use
• Product/service in a franchise


  Will have public acceptance
• Product/service in a non-franchise business

  Needs to establish a product/service that meets the needs of its target customer base and build up public acceptance
• Training in a franchise

  • Essential, provides ability to use new technology, handle financial and staff management
• Training in a non-franchise business

  • Business results will depend entirely on the capabilities and dedication of the owner
• Proven business in a franchise


  • Offers irrefutable evidence that the business has worked well elsewhere
• Business in a non-franchise

  • New and unproven
• Investing in a franchise


  • Investing in a complete business franchise format that has been proven elsewhere and possibly even has an established following in the target area
• Starting a non-franchise business

  • Likely to start small and will require time to develop
• Advertising in a franchise


  • National advertising is the responsibility of the franchisor, local advertising will be undertaken by the franchisee
• Advertising in a non-franchise business

  • The business owner will devise and produce own material and be responsible for media selection
• Sourcing in a franchise

  • Franchisors will specify the range of products and/or services the franchisee will carry
• Sourcing in a non-franchise business

  • Free to determine the range of products and/or services that the business will offer
• Help and support in a franchise

  • Access to an operations and procedures manual
• Help and support in a non-franchise business

  • Likely to hire an outside consultant
• Location selection in a franchise


  • The franchisor should assist with the selection of the optimal location for the business
• Location selection in a non-franchise business

  • Free to make good or bad choices in site selection
• Ownership in a franchise


  • Operation is subject to the clauses contained in the franchise agreement, right to sell the business is likely to be limited
• Ownership in a non-franchise business

  • Free to sell or dispose the business at any time to anyone
• Selling a franchise business

  • The franchisor may be prepared to purchase it, or may have a buyer lined up
• Selling a non-franchise business

  • Need to find own buyer