1. Qi Zhang owned two franchised stores of Carpenter Tan Handicrafts Co., Ltd.

(Carpenter
Tan) in Panjin City, Liaoning Province, China.
2. It was November 5, 2016, and he had concluded a lengthy discussion with Hongbing Liu, general
manager of Carpenter Tan, about whether he should set up a third franchise store in Panjin to continue
improving sales of wooden crafts
3. When her first franchise store was established in 2012, she was excited and satisfied with Carpenter
Tan's franchise model.
4. However, she had later felt that this franchise model was restricting her development,
especially after her second franchised store was set up in 2014. Despite her concerns,
Carpenter Tan suggested that she open a third franchised store in Panjin, where the wooden
crafts market was close
5. Zhang majored in petroleum engineering at a famous university in China and graduated in
2010. She then joined the Liaohe oilfield of CNPC (China National Petroleum Corporation), a
large, state-owned oil enterprise, in Panjin City
6. however, its monotony and inflexible work environment were insufferable for Zhang
7. However, its monotony and inflexible work environment were insufferable for Zhang.
Moreover, she did not feel it would help her career. Hence, after a consultation with her
husband, she decided to resign from the job and start her own business at the end of 2011.
8. Through this decision, she expected to gain a sense of independence and achievement in her
business life and, more importantly, raise her income.
9. starting her own business was full of risks and challenges for Zhang.
a. as a young woman, she did not have many savings, so she could not put too much
money into the business.
b. she had majored in petroleum engineering at university and had no experience in
business operations.
c. she was recently married and did not want to risk her family life.

it was important for Zhang to find a business that suited her situation and personal interests.

WOODEN CRAFTS RETAIL AND MARKET IN PANJIN

On the one hand, most of the wooden crafts in Panjin were handmade by experienced handicraft
designers and were finely crafted.
Hence, these wooden crafts can be used as interior decorations or medium or high end gifts.
On the other hand, these wooden crafts were used in daily life.
For example, a wooden comb can be used to reduce work pressure, in addition to hair care in traditional
Chinese medicine, it was said that combing the hair with a wooden comb can help prevent blood flow to
the brain. Can promote fluency and reduce work fatigue.
Overall, these artistic and practical wooden crafts were popular with middle and high-end customers in
China.

With the increase in household income in China, there was an increasing demand for wooden crafts.
In particular, the inhabitants of Panjin had a high consumption capacity and a strong demand for
wooden crafts.
Panjin was located in the central-south of Liaoning Province, and had a total population of 1.4 million.
Its per capita gross domestic product (GDP) since 2010 was the second highest in Liaoning province,
and in 2015, its GDP per capita reached $14,156.4.
At the same time, Panjin was a famous Chinese tourist city with a beautiful natural landscape and lots
of scenic tourist spots. Thus, tourists visiting Panjin in large numbers can be the target customers of the
craftsmen.
In short, wooden crafts offered good market potential in Panjin.

CARPENTER TAN AND ITS FRANCHISE MODEL

In 2016, Carpenter Tan possessed a modern production factory covering an area of 54,000
square metres in Chongqing City, and developed into a professional company undertaking
the production and sales of wooden combs, mirrors, hairpins, and other wooden crafts.
During its development, it won many prizes.

Carpenter Tan’s success was highly related to the establishment of its franchise model
franchising had been Carpenter Tan’s dominant strategy for expanding in the market

By December 31, 2016, Carpenter Tan owned 1,281 franchised stores in China and three
franchised stores overseas.

promoted the development of its franchise model in various ways.

introduced a visual identity system
Standard Manual promote the standard operations of franchised stores.
annual meeting to enhance exchanges and communication with franchisees.
Handbook of Carpenter Tan Culture was established
Carpenter Tan constructed logistics channels to accelerate the circulation of products and
reduce the operating costs of both itself and its franchisees.

formed its standard franchise model to provide branding, products, standardized training,
and so on to franchisees
With the help of Carpenter Tan’s franchise model, many franchisees could set up their own
franchised stores. Zhang was one of them.

ZHANG’S FIRST FRANCHISED STORE

Based on the good market prospects in Panjin and her trust in Carpenter Tan, Zhang decided
to set up her first franchised store. Based on the good market prospects in Panjin and her
trust in Carpenter Tan, Zhang decided to set up her first franchised store.
She found that Carpenter Tan’s franchise model fit her requirements well.

The annual rent of the store was 60,000–¥100,000, and its decoration fee was around 35,000–¥40,000.
In addition, the franchise fee was 10,000, and the first purchase should not have been less than 35,000.
Overall, the total investment was around 140,000–¥185,000, which was quite acceptable to Zhang.
According to the average level of total profits of Carpenter Tan’s franchised stores, Zhang’s store profit
would be twice her salary at the Liaohe oilfield.

a reliable brand to customers—especially high-

end customers.
As a leader in the wooden crafts industry in China, Carpenter Tan provided exquisite, reliable

quality products such as combs, mirrors, and hairpins.

Carpenter Tan, which guaranteed the products’ quality and distribution efficiency.

Carpenter Tan provided guidance services to its franchisees during the process of identifying
store locations and decorating stores

identifying her first store’s location provided Zhang with three basic principles It should be on
the street of a business center, close to a place where people gather, with convenient public
transportation. Carpenter Tan sent his professional staff to Panjin to help Zhang choose a suitable
location for his first store.

Zhang lacked product knowledge and professional business experience. Therefore,

Carpenter Tan provided professional training on product stocks, sales, and advertising using
the Franchised Store Manual;

There is no risk because arpenter Tan allowed the franchisee to replace unsold products

Zhang worked hard on everything related to the store.

product purchasing, displaying, promoting, and advertising, she gradually became familiar
with product materials, characteristics, and functions.
With great effort, he earned back his entire investment after half a year

In January 2013, Zhang found that her franchised store suffered a growth bottleneck
Although she promoted products through the local newspaper and on television during the
Spring Festival. the revenue nonetheless stopped growing.

To increase his personal income, Zhang began to consider setting up a second franchise store in Panjin.
Carpenter Tan policy franchise fee would be halved if a franchisee opened a second
franchised store in the same city. Zhang’s second franchised store opened. Ten months later,
she earned back the entire investment of the new store.
second store met a bottleneck, Zhang tried to find new ways to
promote the revenue for her two stores. Although she considered several methods, none of
them could
succeed because of the restrictions imposed by Carpenter Tan’s franchise model.
Product discounts to attract more customers. Carpenter Tan insisted on national uniform
prices, and discounts were not permitted under its franchise model.
 Reducing operating costs. Because Zhang did not have much money, maintaining control of
operating costs was always the key to her franchised stores. Yet she could not further
reduce operating costs, because Carpenter Tan transferred its own operating costs to
franchisees.

adding product categories and establishing a product portfolio Carpenter Tan strictly prohibited the
sale of other brands' products in its franchise stores.
However, Carpenter Tan's product ranges were limited to combs, mirrors and hairpins, making it difficult
to meet the diverse needs of customers. That’s why Zhang felt that the franchise model had greatly
restricted the further development of her business.

ZHANG’S THIRD FRANCHISED STORE—TOUGH CHOICE

Zhang had felt that the franchise model greatly limited the improvement of her business and
the revenue growth of her two franchised stores
In addition, the two franchise stores were close to saturating the market in Panjin, China's second-tier
city with a population of only 1.4 million
If a third franchise store was set up, there was a high probability that it would result in loss of money or,
worse, encroachment on the market share of the existing stores.
However, if it refuses to open a third store, Carpenter will introduce new franchises at Tan Panjin
However, if it refuses to open a third store, Carpenter will introduce new franchises at Tan Panjin

10. Zhang—who had become very dissatisfied with Carpenter Tan’s franchise model—faced a
tough choice about whether she should set up a third franchised store.

Zhang wondered, “Should I set up the third store?” This was a tough choice. Another idea came to mind:
“Now that the franchise model has already restricted my business, it might be a good choice to quit this
franchise model and try another business.”??????????????????????????????????

CARPENTER TAN FRANCHISE PROCESS