Franching

Describe your understanding of franching its characteristics. What advantages do you see
in buying a franchise rather than starting a business from scratch? What disadvantages do
you see?

A franchise is a business arrangement in which a person or entity (known as the franchisor)

grants the right to another individual or group (known as the franchisee) to operate a business
using its established brand name, products, and business model. In this arrangement, the
franchisee essentially licenses the rights to use the franchisor's trademarks, logos, and business
methods to replicate a proven business concept.

Franchising is a popular and effective way for businesses to expand their reach without taking on
all the risks and costs associated with opening and operating new locations themselves. The
franchisee benefits from the recognition and reputation of an established brand, access to a
successful business model, training and ongoing support from the franchisor, and the ability to
tap into the franchisor's marketing and advertising efforts.

In return, the franchisee typically pays the franchisor certain fees, which may include an initial
franchise fee, ongoing royalty payments based on a percentage of their sales, and sometimes
additional fees for marketing or other services provided by the franchisor.

Franchises can be found in various industries, including fast-food restaurants, retail stores,
hotels, automotive services, education, and more. The terms and conditions of each franchise
agreement can vary significantly, so it's crucial for both parties to thoroughly review and
understand the terms before entering into a franchise relationship.

Characteristics of franchising include:

❖ Established Brand and Business Model: Franchises typically have a recognized brand
name and a proven business model with established processes, products, or services. This
can provide a head start and reduce the risks associated with starting a business from
scratch.
 ❖ Training and Support: Franchisors often offer comprehensive training programs to ensure
that franchisees understand the business operations and can replicate the success of the
original franchise. Ongoing support is also provided, including marketing, advertising,
and operational guidance.

❖ Marketing and Advertising Power: Franchises benefit from collective marketing efforts
and brand recognition of the larger franchise network. This can result in increased
visibility and customer trust, which might be challenging to achieve as an independent
business owner.

❖ Economies of Scale: Franchises can leverage the purchasing power of the entire network,
allowing franchisees to access bulk discounts on supplies, inventory, and equipment. This
can lead to cost savings and improved profitability.

Advantages of buying a franchise rather than starting a business from scratch:

❖ Reduced Risk: Franchises have a higher likelihood of success compared to independent

startups due to their established brand, proven business model, and ongoing support from
the franchisor.

❖ Brand Recognition: Joining a well-known franchise provides immediate brand

recognition and consumer trust, which can help attract customers and generate revenue
faster than building a brand from scratch.

❖ Training and Support: Franchisors typically offer initial training programs and ongoing
support, equipping franchisees with the knowledge and tools needed to run the business
successfully.

❖ Established Systems and Processes: Franchises come with established operational

systems, processes, and best practices, saving time and effort in developing these
elements independently.

Disadvantages of buying a franchise:

❖ Initial Costs and Ongoing Fees: Franchise opportunities often require significant upfront
investments, such as franchise fees, royalties, and ongoing advertising contributions.
These costs can vary widely among different franchises.

❖ Lack of Independence: Franchisees must operate within the guidelines and restrictions set
by the franchisor. This limits the ability to make independent business decisions and
might lead to less flexibility in implementing innovative ideas.

❖ Limited Territory and Market Control: Franchise agreements typically restrict

franchisees from operating in certain territories or from making changes that deviate from
the standard franchise model. This can limit market opportunities and hinder
customization based on local needs.

❖ Dependence on Franchisor's Success: The success of a franchise can be influenced by

the overall performance of the franchisor and other franchisees within the network. If the
franchisor faces financial difficulties or the franchise network's reputation suffers, it can
impact individual franchisee operations.

References

Dant,Rajir P., and Patrick J. Kaufmann.(2003) Structural and Strategies Dynamics in

franchising, “Journal of Retailing 79,63-75.

Dickey,Micheal (2003).”The effect of electronic Communication among franchisees on

Franchisee Compliance, “Journal of marketing Channels 10(3/4),111-132.

Peterson ,Aldn,and Rajiv P. Dant(1990).”Perceived Advantages of the franchise Option

from the Franchisee Perspective: Empirical Insights from the Franchise, “Journal
of Small Business Management 28(July) 46-61.

Grunhagen,Marko and Micheal J. Dorsch(2003).Does the Franchisor Provide Value to

Franchisees?Past,Current,and future value assessments’ of two franchisee types,
“Journal of small Business Management 41(4),366-384