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Topic 6 : Franchising and the Entrepreneur - Coggle Diagram
Topic 6 : Franchising and
the Entrepreneur
1.Types of Franchising
:
Trade-Name
: - A franchisee purchases the right to use the franchisor’s trade name without distributing particular products exclusively under the franchisor’s name.
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.
2.a) Explain the benefit of buying a franchise
:
A business system
Management training and support
Start-up
Ongoing
Brand name appeal
“Cloning”
Standardized quality of goods and services
Proven products and business formats
Centralized buying power
Site selection and territorial protection
Important issue: Territorial encroachment
Greater chance for success
3. Understand the laws covering franchise purchases
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.
4. Discuss 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.
2.b) Explain the drawbacks of buying a franchise
:
Strict adherence to standardized operations
Restrictions on purchasing : - Approved suppliers only
Limited product line : - Cannot simply add up on the menu
Contract terms and renewal
Average term = 10.3 years
Franchise fees and ongoing royalties
Unsatisfactory training programs
Market saturation : Market saturation arises when the volume of a product or services in marketplace has been maximized.
Less freedom : “No independence” , “Happy prisoners”
5. Describe the major trends shaping franchise
Changing face of franchisees
Minorities own 20.5% of all franchises compared to 14.2% of independent businesses.
Small business join franchise will get a rapid growth
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
Smaller, nontraditional locations
-
Intercept Marketing:
putting a franchise’s products or services directly in the paths of potential consumers, wherever they may be.
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.
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.
Co-Branding
Aka piggyback or combination franchising:
Two or more franchises team up to sell complementary products or services under one roof