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
• Franchising is so embedded into our daily lives, 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
• Franchising can open up exciting possibilities for a would-be business owner looking to invest
• Types of franchises or franchise formats

  • Product or Distribution Franchise
  • Manufacturing, Production or Processing Franchise
  • Business format franchising/ Pure Franchising
  • Hybrid franchising
• 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
  • Franchisee pays fees referred to as royalties to the franchisor for the right to do business under his trademark
• 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


  • 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
  • The franchisee purchases the right to use all of the elements of a fully integrated business operation
• 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
• Trade name


  The official name under which a company does business, also known as a "doing business as" name, assumed name, or fictitious name
• Trademark


  Used to protect your brand name and can also be associated with your trade name, can also protect symbols, logos and slogans
• Registering a trade name is an important step for some - but not all - businesses
• 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 name, marks, logo and style that a franchisee has the right to use
• Non-franchise business


  • Need to establish own business name
• Franchise business


  • Right to use an established trade name, marks, logo and style
• Product/service


  For a franchise, the product/service will have public acceptance. For a non-franchise, the business needs to establish a product/service that meets the needs of its target customer base and build up public acceptance.
• Franchise business


  • Training is essential, provides ability to use new technology, handle financial and staff management
• Non-franchise business


  • Business results will depend entirely on the capabilities and dedication of the owner
• Franchise business


  • Offers irrefutable evidence that the business has worked well elsewhere
• Non-franchise business


  • Business will be new and unproven
• Franchise business


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


  • Business is likely to start small and will require time to develop
• Franchise business


  • National advertising is the responsibility of the franchisor, local advertising undertaken by the franchisee
• Non-franchise business


  • The business owner will devise and produce own advertising material and be responsible for media selection
• Franchise business


  • Franchisor will specify the range of products and/or services the franchisee will carry
• Non-franchise business


  • Free to determine the range of products and/or services that the business will offer
• Franchise business


  • Access to an operations and procedures manual
• Non-franchise business


  • Likely to hire an outside consultant
• Franchise business


  • The franchisor should assist with the selection of the optimal location for the business
• Non-franchise business


  • Free to make good or bad choices in site selection
• Franchise business


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


  • Free to sell or dispose the business at any time to anyone
• Franchise business


  • The franchisor may be prepared to purchase the business, or may have a buyer lined up
• Non-franchise business


  • Need to find own buyer