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Chapter 08


Franchising
Bruce R. Barringer
R. Duane Ireland

What is Franchising?

  • Franchising
    • Franchising is a form of business organization in which a firm that already has a successful product or service (franchisor) licenses its trademark and method of doing business to another business or individual (franchisee) in exchange for a franchise fee and an ongoing royalty payment.
    • Some franchisors are established firms (like McDonald’s),KFC etc.

Franchisor

Franchisor

an individual or company that sells or grants a franchise for the sale of goods or the operation of a service.

Franchisee

an individual or company that holds a franchise for the sale of goods or the operation of a service.

Advantages and Disadvantages of Franchising as a Method of Business Expansion


Advantages Disadvantages
  • Profit sharing
  • Loss of control
  • Managing growth
  • Legal expenses/Increased potential for legal disputes

When to Franchise? 2 of 2

  • When Is Franchising Most Appropriate?
    • Franchising is most appropriate when a firm has a strong or potentially strong trademark, a well-designed business method, and a desire to grow.
    • A franchise system will ultimately fail if the franchisee’s brand doesn’t add value for customers and its business method is flawed or poorly developed.

Nine Steps in Setting Up a Franchise System


What are the Franchisor's Responsibilities?
A franchisor has numerous responsibilities to its franchisee:
  • Developing a business concept, brand, plan and processes. Continues to reconsider and refine these processes over the life of the company.
  • Creating logos, trademarks, and other proprietary graphics and content.
  • Conducting initial and ongoing training programs for franchisees and their employees.
  • Providing marketing, advertising and public relations support. Coordinating cooperative advertising and promotional opportunities.
  • Researching and developing new products and services that can be sold through franchisees.

  • Developing relationships with vendors and suppliers.

What are the Franchisee's Responsibilities? 
  • The franchisee is expected to take responsibility for day-to-day business operations:
  • Hiring and firing staff.
  • Training new staff.
  • Managing finances and accounts, which includes meeting employees and paying bills.
  • Selling products and services.
  • Ensuring quality control.
  • Engaging in marketing and promotional activities.

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