Franchising by yurtgc548



The Selling Of A Proven System

                                 Noor Shawwa

   One of the most effective and efficient methods of market

   Definition of franchising: A system of marketing -- the leasing
    of a name & idea to investors in specified geographic regions

                                                              Noor Shawwa

Types of franchises:
 Spin-off: a manager (or others) within the company is offered a
  branch office -- often the branch is less profitable -- in order to
  acquire equity financing (the branch continues to operate under
  the parent company’s name)
 Distribution (traditional): a retailer enters into an agreement
  with a franchisor to sell products within a specified territory, using
  the franchisor’s name and/or trademark
 Identical operation (system - non-traditional): MMMuffins,
  McDonalds, the right to operate an identical outlet under the
  original’s name

                                                                  Noor Shawwa
What The Franchisor Sells

   The franchisor sells a package -- a way of participating in a business
    that has a track record of success
   The disclosure statement: designed to attract potential franchisees
    to consider the purchase -- includes:
     The franchise fee: can be set at any amount (one time expense)

     A statement of required investment: equipment, building costs,
        furniture, fixtures, supplies, advance rent, permits, working
     The royalty: 3-8% of sales

   What the franchisor offers the franchisees: training, technical
    information, operating manuals, trademarks, real estate, continued
    support, purchasing, territorial support, financial assistance (in some

                                                                     Noor Shawwa
Advantages & Disadvantages Of
Franchising - for the Franchisor

   Pros:
     Greatly reduced capital requirements for expansion

     Minimal staffing responsibility

     The ability to expand rapidly

     Control

   Cons:
     Risk of losing image and credibility - this is in the hands of the
     The larger the number of franchises - the more difficult it

      becomes to coordinate the operation

                                                                   Noor Shawwa
Advantages & Disadvantages Of
Franchising - for the Franchisee

   Pros:
     Greater chance for initial success (70%)

     The ability to enter an industry without previous experience

     Opportunity to open a business with limited capital

     Benefit from the franchisor’s experience

     Continuous market research and product/service support

     Standardization of prices, products etc.

                                                                Noor Shawwa
Advantages & Disadvantages Of
Franchising - for the Franchisee

   Cons.
     Not suited for individuals who are independent

     Services or products can sometimes be purchased elsewhere
     Franchisor could over-structure or over-saturate the market

     Corrupt franchisors

     Trademarks and symbols may not bring in as much business
      as anticipated (e.g. KFC in Peru)

                                                            Noor Shawwa
Starting A Franchise: Franchisor

The following must be assessed:
   Business concept: will it have a long life-cycle

   Transferability: can this business operate on a multiple
     scale or is it best suited to a single location
   Resources: are management and financial resources
     available to pursue a franchising strategy - in light of
     training needs, accounting, market research, and financial

                                                           Noor Shawwa
Selecting A Franchise: Franchisee

The following must be assessed;
   Success of the operation: is the track record sufficient to
     determine with relative certainty that the business will be
   Franchisor experience: does the franchisor offer
     adequate training and support
   Time span of the opportunity: is this a business that will
     be around for a long time
   Contract: do the fees and royalties allow for an adequate
     return on investment (e.g. are supplies sold to the
     franchisee at the market price?)

                                                            Noor Shawwa
Franchising Success

   Ownership, even with limited decision-making power,
    provides a strong motivation for franchisees
   Franchises penetrate the local market effectively - especially
    when they can employ local strategies (local franchisees
    know their market)
   Franchises have a simple organizational structure 
    streamlining the decision-making process
   The franchisor-franchisee relation is more conducive to
    communication than the traditional superior-subordinate
   Franchises in general have lower overhead than corporate

                                                              Noor Shawwa

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