Franchising
What is it?
A business bringing together two parties that create wealth by exploiting an opportunity Large scale growth based on partnership rather than individual effort An entrepreneurial alliance dedicated to building and maintaining a brand
Job creation versus wealth creation
A wide variety of opportunities to create jobs or to create significant wealth Franchisor plans well and gives expansion opportunities to successful franchisees
Win/win Win/lose
Franchisor decides to limit geography of the opportunity.
Franchisor doesn’t build franchise properly and doesn’t or can’t support the operation nationally.
Lose/lose
The size of the opportunity
4500 franchise businesses with 600,000 outlets, making up 33% of retail sales Number of multiple-outlet franchisees is increasing Number of franchisees that operate multiple outlets in different franchise systems is also increasing.
The value of a franchise is that it creates and grows an opportunity and provides a viable way to share risk and reward
Make it happen
Assembling the opportunity
Components of a franchise
Primary Target Audience Service Delivery System Training and Operational Support Field Support Marketing, Advertising and Promotion Product Purchasing
Components of a franchise
Primary Target Audience Service Delivery System Training and Operational Support Field Support Marketing, Advertising and Promotion Product Purchasing
Primary Target Audience
Who is going to buy your product and how many are there. Determines how many outlets can exist in a given area Also determines how many outlets can exist nation wide. Revenue projections made from definition and the market penetration expected. Franchisor should be able to give you information on PTA
What is Primary Target Audience based on??
Demographic Profile
How
many users vs. non users Age, gender, income, home address, marital status, family status, occupation, race, ethnicity, religion and nationality. Relevant statistics vary with the product or service planned.
What is Primary Target Audience based on??
Psychographics
Social
Class Lifestyle
Health consciousness, fashion oreitnation, bicycle riders, car freaks, How do the users behave?
Behavior
What is Primary Target Audience based on??
Geographic Profiles
Local,
regional, national, international Big cities, small cities, rural
Components of a franchise
Primary Target Audience Service Delivery System Training and Operational Support Field Support Marketing, Advertising and Promotion Product Purchasing
Service Delivery System
The opportunity dictates that we perform certain tasks to meet the customer demand. SDS is the process by which we perform the required tasks Its what you pay for when you buy a franchise and It is the franchise company’s sustainable competitive advantage Sometimes called the business format
Every franchise has a welldefined SDS, whether it is highly visible or transparent
Components of a franchise
Primary Target Audience Service Delivery System Training and Operational Support Field Support Marketing, Advertising and Promotion Product Purchasing
Training and Support
Transfer knowledge about the service delivery system to managers and line workers On the job training for new franchisees and their employees Supplemented by videos, manuals, certification procedures Sometimes includes off site training
Protect the brand by insuring that the SDS is properly used to deliver exceptionally high quality products and services
Components of a franchise
Primary Target Audience Service Delivery System Training and Operational Support Field Support Marketing, Advertising and Promotion Product Purchasing
Field Support
Franchisor’s representative
Performance Training Facilities
review
inspection Marketing review Operations audit
In house staff experts
Support
the franchisee in specialty area, e.g marketing, operations, regulatory compliance.
Components of a franchise
Primary Target Audience Service Delivery System Training and Operational Support Field Support Marketing, Advertising and Promotion Product Purchasing
Marketing, Advertising and Promotion
Three tiered program paid for out of a special fund based on % of sales National
Television, radio and newspaper ads Direct mail pieces Point of sale materials Based on areas of dominant influence (ADI) All franchisees in an ADI contribute to a regional fund. which is used to buy cooperative advertising and promotion within the areas, using material supplied by the franchisor
Regional
Local
Contractually required to spend a given amount on local advertising
Components of a franchise
Primary Target Audience Service Delivery System Training and Operational Support Field Support Marketing, Advertising and Promotion Product Purchasing
Product Purchasing
Advantage of central buying is bulk purchasing and inventory control Central buying frequently lowers price to the franchisee, but not always.
Product Purchasing – Tying Agreements
Materials are branded Approved supplier list Specifications of materials Does the tying agreement benefit or harm the franchisee?
Assignment
Check out the web site or google Find a franchise that might interest you. Contact the franchisor and get information kit, Set up an appointment Perform initial due diligence – p.225 Compare with personal goals in your personal entrepreneurial strategy What do you think?
Initial Due Diligence – Is this an opportunity for me?
Multiple markets—the broader the better Outlet pro forma – how many outlets are profitable Market share – the bigger the better National Marketing Program – How good at building the brand National Purchasing – Advantage over local purchasing Margin – the higher the margin, the lower the risk. Business format – Sustainable competitive advantage Terms of license agreement – length and quality Site development – do they know what they are doing or do they put it anywhere? Capital Required – What are you paying for? Is it realistic? Franchise fees – What are you paying for and is it worth it?