What is Franchising

 Contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee.  The agreement is governed by a contract, the Franchise agreement, which runs for a defined period of time, generally renewable and ranging from five to 20 years. Franchising  Use of franchisor’s trade name, format, system and/or procedure under license  Means to raise capital and expand quickly  Assistance to franchisee Marketing, management, advertising, store design, standards specifications  Payment by franchisee by way of royalty, licensee fee or other means Franchising is more than distributorship  Extends to an entire operation or method of  Greater assistance, control and longer duration Distributor merely re-sells products to retailers or customers TYPES OF FRANCHISE 3 main types of franchise: 1. Product distribution franchise; 2. Business format franchise; and 3. Management franchise. Product distribution franchise:  A product distribution franchise model is very much like a supplier-dealer relationship.  Typically, the franchisee merely sells the franchisor’s products. However, this type of franchise will also include some form of integration of the business activities Example : Cocal Cola BUSINESS FORMAT FRANCHISING:  In a business format franchise, the integration of the business is more complete. business

KFC . UPS Store Advantages of Franchising  Buying a name/reputation        Established markets Technical/management assistance Standardized procedures Quality standards Selection of location Facility design Quicker cash flow Disadvantages of Franchising  Loss of independence        High initial fees High royalties and advertising allowances Contractual restrictions Inapplicable advertising Termination clauses Not receiving promised help Unsuitable products  Lack of competitive advantage of parent company . but also implements the franchisor’s format and procedure of conducting the business. Example : Indian Idol.  The franchisee provides the management expertise. The franchisee not only distributes the franchisor’s products and services under the franchisor’s trade mark. Subway MANAGEMENT FRANCHISE :  A form of service agreement. Hilton. Example : Mc Donald. format and/or procedure for conducting the business.

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