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Franchising and the Entrepreneur - Coggle Diagram
Franchising and the Entrepreneur
Franchising:
A system in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchiser) in return for the right to become identified with its trademark, to sell its products or services, and often to use its business format and system.
Types of Franchising
Product Distribution
A franchisor licenses a franchisee to sell its products under the franchisor’s brand name and trademark through a selective, limited distribution network.
Pure
A franchisor sells a franchisee a complete business format and system.
Trade-Name
A franchisee purchases the right to use the franchisor’s trade name without distributing particular products exclusively under the franchisor’s name.
Benefits of Franchising
National advertising programs
Franchisees contribute 1% to 5% of sales
Financial assitance
About 20% of franchisors offer direct financial assistance to franchisees.
SBA – Franchise Registry
Standardized quality of goods and services
Proven products and business formats
Brand name appeal
"Cloning"
Centralized buying power
Management training and support
Start-up
Ongoing
Site selection and territorial protection
Important issue: Territorial encroachment
A business system
Greater chance for success
Drawbacks of Franchising
Contract terms and renewal
Average term = 10.3 yerars
Unsatisfactory training programs
Limited product line
Market saturation
Market saturation arises when the volume of a product or service in a marketplace has been maximized.
Restrictions on purchasing
Approved suppliers only
Less freedom
“No independence”
“Happy prisoners”
Strict adherence to standardized operations
Ten Myths of Franchising
Franchising is the safest way to go into business because franchises never fail.
I’ll be able to open my franchise for less money than the franchiser estimates.
The bigger the franchise organization, the more successful I’ll be.
I’ll use 80 percent of the franchiser’s business system, but I’ll improve upon by substituting my experience and know-how.
All franchises are the same.
I don’t have to be a hands-on manager. I can be an absentee owner and still be very successful.
Anyone can be a satisfied, successful franchise owner.
Franchising is the cheapest way to get into business for yourself.
The franchiser will solve my business problems for me; after all, that’s why I pay an ongoing royalty fee.
Once I open my franchise, I’ll be able to run things the way I want to.
Factors that make a franchise appealing
Unique concept or marketing approach
Profitability
Registered trademark
Business system that works
Solid training program
Affordability
Positive relationship with franchisees
The Right Way to buy a franchise
Evaluate yourself: What do you like and dislike?
Research your market.
Consider your franchise options.
Get a copy of the Franchisor’s FDD – and read it!
Talk to existing franchisees.
Ask the franchiser some tough questions.
Make your choice.
Trends Shaping Franchising
Conversion Franchising
Owners of independent businesses become franchisees to gain the advantage of name recognition.
72% of North American franchisors use it as a growth strategy.
Refranchising
Franchisors sell their company-owned outlets to franchisees.
Smaller, nontraditional locations
Intercept Marketing: putting a franchise’s products or services directly in the paths of potential consumers, wherever they may be.
Multi-unit franchising
IFA: 20% of franchise owners are multiple-unit owners
Typical multiple-unit franchises own five outlets.
Area development and master franchising
Area Development: the franchisee earns the exclusive right to open multiple units in a specific territory in a specific time.
Master Franchise: franchisee has the right to create a semi-independent organization in a particular territory to recruit, sell, and support other franchisees.
Changing face of franchisees
Minorities own 20.5% of all franchises compared to 14.2% of independent businesses.
International opportunities
Many franchises are focusing on international markets as a source of growth.
Yum! earns 75% of its revenues from international franchises.
McDonald’s earns 70% of its sales internationally.
Co-Branding
Aka piggyback or combination franchising
Two or more franchises team up to sell complementary products or services under one roof.