Impact Of Franchising On Franchisee Business Performance Business Essay

In this paper betrays put most facets of the privileges and signifier of the relationship between the franchisor and the franchisee concern and contractual relationships between the franchisor and the franchisee and how the public presentation of this concern, marketed and sold.

There is a important character in the field of research on little concern, and there are several grant agreements illustrate this phenomenon, and these agreements important degrees of cooperation between the franchisor and franchisees which enables the protection of privilege of market forces. Although the appraisal of the competitory advantage in little concerns is one of the of import issues, there has been no equal research in this country.

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This article is based on research that applies the construct of competitory advantage as a Determinant of little concerns that would be a good campaigner to give the grant. It was besides an chance for more complete apprehension of the causes of public presentation required to accomplish better concern public presentation.

There is an of import topic in research on concern scheme based on the apprehension of the foundations of sustainable competitory advantage for these concerns.

Chapter Four: Contractual Issues and Commitment in Franchising

committedness in franchising:

franchisee committedness:

Committedness represents a serious dependant variable in B to B and interpersonal exchange relationship research. Commitment define as “ a stabilizing or helpful force that gives way to behavior ” by forestalling freedom or adhering the individual to a manner of action ( Meyer & A ; Herscovitch, 2001 ) .

Persons and houses vary in specifying their grounds for perpetrating to an exchange relationship. Three Scopess of committedness affective, normative, and continuation were developed in regard of this construct. At first it focused on the person, these three Scopess have been extended to the solid degree of analysis. Each range develops in a different manner, ensuing in different motives and behaviours ( Gundlach, Achrol, & A ; Mentzer, 1995 ) .

Each range of committedness represents a variable ground why a franchisee might be pay attending to the franchisor. Affectional committedness represents an impacting portion to the relationship. Franchisees have strong affectional committedness have established some kind of emotional nexus to the franchise organisation and like being in the relationship. Normative committedness, is the 2nd construct, represents a mentality of duty to stay in the exchange relationship. Franchisees with high degrees of normative committedness experience a strong tend of duty to the relationship. Continuance committedness or calculating committedness in the selling channels and is the 3rd dimension and reflects recognition of exchanging costs associated with issue ( Meyer & A ; Herscovitch, 2001 ) .

Franchisees with high degrees of continuation committedness position relationship exchanging costs as expensive to go forth their franchisor. Social exchange theory suggests that franchisors who want to turn in add-on to keep their current bases of franchisees need to inspect each dimension of committedness to understand what holds their franchisees to the relationship ( Meek, Davis-Sramek, Baucus, & A ; Germain, 2011 ) .

inclination to go forth:

Inclination to go forth constitutes the supposed chance that a spouse will end the relationship in the close hereafter. The relationship between inclination to go forth and existent turnover is invariably strong and positive. Additionally, inclination to go forth represents a cardinal attitudinal consequence that can supply attack about the quality of the relationship between the franchisee and the franchisor ( Griffeth & A ; Hom, 1988 ) .

collaborative communicating:

Communication may be considered the most of import component in successful between the houses exchange relationships ( Bleeke & A ; Ernst, 1993 ) .

Communication from clients or concern spouses, even in the signifier of a grudge, supports organisations with intelligence, earlier warning, and a greater watchfulness of the company or competitory environment ( Rice, 2008 ) .

Communication considered a serious feedback mechanism in respects to public presentation and the way of future relationships, and it builds trust in the continuity of the relationship ( Anderson & A ; Weitz, 1989 ) .

Communication represents a cardinal component in developing and keeping good channel relationships in a semi integrated channels such as franchising Communication represents an overly broad fact ( Anderson & A ; Narus, 1990 ) .

Communication frequence, defined as the extent of contact between franchisees and franchisors, represents an of import portion in societal exchange because the most carefully designed relationship will fall down without good and perennial communicating ( Bleeke & A ; Ernst, 1993 ) .

Frequent communicating represents a stopping point, committed ties, and reduces runing costs, decreases organisational dissension, and increases steadiness among squads. Common feedback refers to communications where franchisees and franchisors talk with every bit opposed to speak past one another, guaranting the importance of two manner talk. Feedback reduces uncertainness and ambiguity and positively influences fiscal public presentation ( Joshi, 2009 ) .

Communication formality refers to the grade to which contacts between franchisors and franchisees are bureaucratic, planned, or structured as opposed to unplanned, ephemeral, or ad hoc. The formality of communicating frequently provides an rating of the basic bureaucratic and construction of communicating. In dissimilar, formal communicating is more direct and seeks to alter behaviours by including or bespeaking specific actions. It besides perfectly affects exchange relationships from both the purchaser ‘s and marketer ‘s point of positions ( Peters & A ; Fletcher, 2004 ) .

Communication reason is defined as a state of affairs where the franchisor shows grounds together with its supportive information for the franchisee to carry through with a petition. Information persuasion influence scheme, reason represents a no forced influence scheme that assures a complete difference construction dwelling of the three structural elements of a claim, informations and warrant. Therefore, communicating reason likely positively affects societal exchange relationships ( Payan & A ; McFarland, 2005 ) .

contractual design:

Franchise contracts in general include a set of restraints. These restraints can be defined as contractual commissariats enforced by a manufacturer to restrain the act of one or several retail merchants.

This is represented by many ways as they are processed in Europe and the US, and by doing the displacements of policy criterions towards these restraints over clip.

Investigate franchising relationships as a major subject of argument, comparing the extended native franchise position with the economic 1.

The construction of contracts is chiefly determined by franchisor influence ( Brickley, Misra, & A ; Van Horn, 2006 ) .

binding understandings in franchising:

In the last old ages, the franchise system of distribution has been submerged with statute law and judicial proceeding. Franchisee versus franchisor judicial proceeding has increased to the extent that some legal experts consider the legal jobs confronting the franchise industry to be of catastrophe extent.

Many of the celebrated franchising companies have found themselves taken to tribunal as a consequence of disillusioned franchisees. These companies include Shakey ‘s, Midas Muffler, Mister Donut of America, H & A ; R Block, , The Southland Corporation ( 7- leven Stores ) , Chicken Delight, Schwinn, Chick N’Joy, Full Q’Nuts, Chock, Mr. Steak, Electric Computer Programming Institute, A & A ; W, and Network Cinema Corporation ( Jerry Lewis ) . The current legal differences confronting franchising autumn into three chief countries: deceits by franchisors to franchisees about the operation of the franchise ( revelation job ) , restrictions by franchisors on the beginning of supplies or services bought by their franchisees ( binding understanding job ) , and heavy expiration commissariats agreed in the franchise understanding ( the unpredictable expiration job ) .

The above mentioned jobs are acquiring the attending of trade associations of the franchising industry, province legislative assemblies, the Congress and the Federal Trade Commission ( FTC ) , The two major franchising trade associations, ( The International Franchise Association and the National Association of Franchise Companies ) , are concerned entities about the legal jobs confronting their members and have tried to set up its ego ordinance through certain regulations and moralss.

Sing the instance of franchising, the binding merchandise is the franchise and the tied merchandises are the supplies the franchisee must buy to run his concern.

Tiing understandings may go on out of a franchisor ‘s attempt to set control over both the quality and the uniformity of his trademarked merchandises or services. And this sort of control can go on both lawfully and commercially. The federal jurisprudence, harmonizing to the Lanham Act, provides that “ a trade name proprietor must see that the merchandises or services identified by the trade name meet all the proprietor quality criterions or hazard cancellation or forsaking of his hallmark rights. ” The Lanham Act, on the other manus, peculiarly provides that an antimonopoly misdemeanor is non condoned by hallmark jurisprudence.

Tiing commissariats in franchise understandings have to day of the month expressed as both a trade ordinance job under Section 5 of the Federal Trade Commission Act and an antimonopoly job under Section 1 of the Sherman Act and Section 3 of the Clayton Act.

The Franchisors should be awake of the conditions under which binding understandings are considered illegal ( Hunt & A ; Nevin, 1975 ) .

Conditionss for effectual revelation in the ordinance of franchising:

measuring revelation as a chief regulative tool against conditions for effectual revelation:

Disclosure is a signifier of informational ordinance used to command the watercourse of information in a market ( Ogus, 1994 ) .

Disclosure is a popular regulative scheme in the USA from the clip when was its debut in securities ordinance in the 1930s ( Case, 2001 ) .

The intent of information regulations indicate the securities regulations have been used to unwrap hazards to investors. Informational ordinance is now used to protect investors, and consumers ; celebrated illustrations are for both insurance and place mortgage merchandises. It besides applied in environmental ordinance to supply the populace with the needed information about the recent activities of companies and their likely hazards to local communities ( Ripken, 2006 ) .

A benefit for revelation is to extinguish costs to the regulator in both monitoring and enforcement. And another benefit of utilizing of a ego regulative quality of revelation is lessening of appraisals and errors by the regulator.

In general, revelation plants when leting the receiving system of the disclosed information to negociate and/or to happen out other options in the market. Informational ordinance facilitates private bargaining due to better transparence and efficiency of markets. By cut downing excess information and with them the dealing costs which obstruct successful bargaining revelation increases justness and reduces market instability And by supplying market participants equal opportunities to entree to information, disclosed information helps receiver to take better picks among the different options in the market.

Disclosure can advance trust and increase confidence in the market information ( Ripken, 2006 ) .

inactive limitations and franchisee failure:

Fiddling is considered a important job in the direction of retail mercantile establishments. If the proprietors of the house can non easy distinguish the consequence of director behaviour on mercantile establishment public presentation from the consequence of external factors so mercantile establishment directors will hold an inducement to fiddle ( Rubin, 1978 ) .

The proviso of staying lenience on the net incomes of a retail mercantile establishment that consequences from franchising provides a strong motive for agents non to prosecute in fiddling and hence enhances the public presentation of the whole retail distribution systems ( Rubin, 1978 ) .

On the other manus, this statement of franchising provides a higher inducement to the fixed pay employment considers that the franchised mercantile establishments are run by proprietor operators. Consequently, if the franchised mercantile establishment is run by a inactive proprietor which hires a director to run the mercantile establishment, so the utile effects of franchising on fiddling are lost.

Passive ownership has received small attending to day of the month in the franchising literature.

Though, inactive ownership is familiar in franchise dealingss ( Shane, 1998 ) .

And the concluding decisions were foremost, it appears that the credence of inactive ownership restrictions does non significantly affect the public presentation result. Second, it was found that motion off from the best determinations on inactive ownership positively affects the rate of franchisee failure in such systems ( Vazquez, 2009 ) .

Chapter Five: Business Performance

Optimizing franchisee gross revenues and concern public presentation:

franchise disposal:

Franchising has successfully applied by transnational retails ironss as an enlargement instrument in abroad markets after look intoing its advantages. The return of franchising includes leting the house to get the better of resource restraints of unequal capital and cut down the ranks of experient directors.

Happening in the Franchising an exchange and transportation of excellence for complex undertakings performed by the franchisees more efficient, conveying the cost curve in a manner that is comparatively speedy. There is no demand for supervising its related costs because the franchisees are puting their ain capital and is motivated to work hard for profitableness ( Preble & A ; Hoffman, 2006 ) .

The franchise contract determine franchise spouse choice, the franchise relationship, the usage of maestro country of franchising and the back uping mechanisms, and this found to be the cardinal methods by which international retail franchisors put forth control over their franchise webs.

The compulsory and non compulsory beginnings of power are determined in the franchise contract signifier and support mechanisms ( Doherty & A ; Alexander, 2006 ) .

Franchisors value the utile construct of the assorted types of ownership and they try to keep that mix over clip, but still some grounds of a larger inclination to change over bing franchised mercantile establishments on a lasting base to a company owned mercantile establishments and addition higher entree to resources.

A significant efficiency is offered in franchising offers in publicity and advertisement by increasing the value of a hallmark and trade name image.

In add-on, it helps in pull offing each one of them hazards, since franchisors can change over profitable franchise locations to a company owned operations, although this scheme raises ethical concerns.

Globalization has moved the constructs of co-branding and multi trade name in franchising as a scheme to animate and review growing in a in the premier retail nutrient franchising sector. Because of the sector ‘s requires happening out new agencies of enlargement beyond the standard theoretical account of franchising a development tendencies such as several unit franchising, nomadic franchising and co-branding happens ( Dant & A ; Kuafmann, 2003 ) .

franchising and client value:

Franchisees on a regular basis do non be cognizant of the ground behind what is affects client satisfaction is non the same ground what causes trueness to the shop, and as a consequence do non turn up limited resources consistently among scheme program impacting one or the other. Except if they are cognizant to the altering consumer behaviour forms, the elements of the retail mix can non be isolated from scheme that could insulate loyal clients from attracted to rivals particular offers ( Miranda, Konya, & A ; Havira, 2005 ) .

A major difference exists in consumer perceptual experiences of gratifying shopping value along assorted retail trade names. Consequently, clients seem that they can place the exceptionality through the inside shop experience that retail merchants are barely working to accomplish. So acquiring this value looks to be an effectual beginning of distinction. Retailers who are utilizing the scheme of ‘store as the trade name ‘ should travel on to put in making a particular and a alone shopping experience to be available for their mark customers. , on the other manus, retail merchants should ever be cognizant that although the enthusiasm and merriment offered in the shopping experience, consumers come into position to be anticipating value together with the right ware, at the right clip, in the right topographic point and at the right monetary value ( Carpenter, Moore, & A ; Fairhurst, 2005 ) .

The franchising growing is expected holding a considerable impact on the development of retailing. Shoping public presentation at franchisee mercantile establishments indicates a consecutive relationship among tourers taking to acquire shopping satisfaction throughout the expected values on leisure attractive forces and shop trueness. Therefore, directors believe in major franchisee enlargement on a demographic and territorial footing to increase the trueness in client shopping behaviour.

In a sub-urban market place franchising is in some manner is a recent phenomenon which requires adding of a new recreational installations and retail substructures to pull leisure shopping.

One of the steps of retailing public presentation is the client satisfaction. Buying keepsake and leisure eating activities in manner merchandises, eating houses and, and expensive merchandises point to the retailing scheme is going more client oriented at franchisee mercantile establishments ( Rajagopal, 2006 ) .

public presentation steps in franchising:

The compensation agreements are a success factors impacting franchise relationship. The franchisors provide a value of services to franchisees which strongly impacts the studied compensation agreements ; therefore the capital end of these agreements is to retrieve back the franchisors offered costs of the services. Adding to this, two extents of transactional quality are recognized from the franchisee point of view which includes contents and aid. Conversely, these extents of transactional quality from the franchisor ‘s sentiment Aims at formality and determine of concern chances while the relationship quality indicates variables such as trust between spouses, common committedness and relational apprehension ( Monroy & A ; Alzola, 2005 ) .

Franchise stigmatization:

the function of franchise stigmatization in pulling franchisees:

Due to the spreading of franchises in the United States and internationally, a batch of franchisees have a broad scope of franchising chances from which to choose ( Michael S. C. , 2003 ) .

Franchisors must vie in between by marketing their opportunity to franchisees To help franchise growing. Consequently, the franchisor should develop a “ franchise trade name ” with which to distinguish their chance, and by this agencies of pulling franchisees.

The American Marketing Association describes a trade name as “ A name, term, design, symbol, or any other characteristic that identifies one marketer ‘s good or service as distinguishable from those of other Sellerss ” ( Association, American Marketing, 2010 ) .

A elaborate instance of a franchisor selling its franchising opportunity as a trade name is franchise stigmatization. Meanwhile it ‘s theoretically similar to corporate stigmatization and merchandise or service stigmatization ( Aaker, Building strong trade names, 1996 ) .

Corporate stigmatization takes topographic point when a company creates organisational associations with the company ‘s individuality, reenforcing in a wide scope of stakeholders ‘ heads that the company will stand behind its merchandises and services ( Aaker, 2004 ) .

Franchise stigmatization considered different in rather a few cardinal ways. First, the franchisor is specially marketing an chance deliberately to “ sell ” the possible franchisees a contract. And other, franchise branding dressed ore on a mark audience of possible franchisees while corporate stigmatization is wider in its scope of mark audience ( including possible franchisees ) .

In malice of being holding different construct, a franchise trade name should be similar to a corporate trade name in many ways. One of the ways is that the franchise trade name includes facets of the organisation ‘s features, for illustration, its nucleus values and activities ( Argenti & A ; Druckenmiller, 2004 ) .

In decision, the franchisor ‘s corporate stigmatization before subscribing a franchising contract aims to the franchisee which the franchisor will go on to put in trade name development ( Mathewson & A ; Winter, 1985 ) .

market orientation and organisational individuality:

The house big coevals, distribution, and sensitiveness to market information is the features of the market orientation ( Kohli & A ; Jaworski, 1990 ) .

Executed best by the houses that observe the collection and sharing of market information as widening beyond the country of the selling section, concentrating on the MKTOR conceptualisation of market orientation as it is considered the most widespread and inclusive definition of the market orientation. MKTOR is consists of five dimensions: rival orientation, client orientation, long-run focal point, inter-functional coordination, and profitableness. Theoretically, market orientation is viewed as a unidimensional concept due to the close relationships between the dimensions ( Narver & A ; Slater, 1990 ) .

Inside the model of market orientation, a client orientation is the degree to which a house supports and understands a client ‘s full value concatenation. Likewise, a rival orientation is the degree a steadfast understands and overcome rivals by sing both current and future ways and through it client value will be created and maximized.

The way of a house toward long term marks is the long term focal point with regarding of all dimensions of market orientation. Profitableness considered as an purpose and constituent of market orientation ( Kumar, Subramanian, & A ; Yauger, 1998 ) .

entrepreneurial orientation and organisational individuality:

An entrepreneurial orientation is described as the patterns and procedures which are characteristic of entrepreneurial companies. A house have an entrepreneurial orientation is expected to expose a combination of five features: competitory, independency, innovativeness, aggressiveness, hazard pickings and pro action, these features are expected to act upon steadfast public presentation ( Rauch, Wiklund, Lumpkin, & A ; Frese, 2009 ) .

Independence indicates the actions of individuals or squads to face and path chances till completion. Whereas franchisors usually desire to standardise procedures such that franchisees can cover with most issues by utilizing of the operations guide, but non all of the affairs can be addressed in this manner, franchisees are considered a chief support of financess and growing for franchisors ( Lumpkin & A ; Dess, 1996 ) .

Selling Scheme:

growing of franchising:

Franchising developed in two ways over the last 35 old ages, waies that are closely similar but non the same: domestic ( Inside US ) , and the other is internationally.

Franchising started continued to turn, expand and alteration inside the U.S.A.

Even if the public perceptual experience of franchising is tied to fast nutrient well-known trade names, franchising includes more than 60 concern sectors, from wellness to automotive services and instruction systems to place attention and concern services.

Franchising systems, normally opened one by one, constructed units all through the local market and so a province or a part boulder clay eventually, a national concatenation, today expand both more rapidly and in a assortment of ways ( Raab & A ; Matusky, 1987 ) .

Today legion markets are flooded, because franchise companies are seeking topographic points and locations they had before bypassed or overlooked ( cut downing sometimes the standard unit to do usage of these chances ) seeking for more diffident urban or interior metropolis locations, the usage of drive-through or drive-ins, military bases, smaller strip promenades, infirmary nutrient services and school. Franchisor may spread out a hundred of concatenation or more units at one clip by the purchase and exchange of some or all of the units of a less successful system.

A new type of franchisee is frequently a successful and experient bourgeois, who is rapidly replacing the original “ Mom ‘n ‘ Pop ” investors. Possibly the most seeable and noticed alteration is the growing of international franchising ( Hoffman & A ; Preble, 1991 ) .

financing a franchise operation:

Past concern success with record franchisors, or even freshly started franchises with an appropriate concern program, obtain renting agreements, debt capital, and recognition lines, for precedence if such agreements be present. Specialized funding programmes can be available in some states within their banking system for established franchises with a personal resources and proper recognition history to cover as loan security. Governments can assist entrepreneurs ; part pools of venture capital can be established to back up them, private sector hazard capital is besides needed. Prime chosen locations in cardinal places or big shopping centres are easy available to cognize trade name names, without elaborate cogent evidence of their fiscal status in developed states such as Canada ( Zeidman, 1993 ) .

start-up franchisees are in a worse place, even in developed states:

Franchisees have to corroborate their existent net value and entree to liberate hard currency militias merely to get down dialogues and may set up recognition dealingss with a franchisor in footings of delayed payments of royalties and other franchising fees. This is critical in the set up periods where a elaborate fiscal program should assist in incorporating with initial fiscal loads. Similar agreements are being used in the reforming economic systems of developing and post-socialist states. Three beginnings of a franchisor ‘s net incomes can be defined initial franchise fee, changeless royalty or service fee, supplies and merchandises and sale of equipment.

There is force per unit area on franchisors ‘ net income borders from other franchisors viing to get franchisees in a competitory environment. The competition is on their offer for initial and on-going franchise fees, sale of supplies of merchandises and equipments. There are another conditions obtained that non straight affect the fiscal status of the franchisee for illustration free proviso of entire preparation bundle at the franchisor central office and, elsewhere, deferred payments of the initial fee and the absence of incurred specific advertizement costs. In developed states Bankss do non waver to finance franchisees on enhanced conditions than for other signifiers of SMEs ( Hoffman & A ; Preble, 1991 ) .

Chapter Six: Conclusion & A ; Recommendations


Franchising is now being used as a specialised selling device to present new merchandises and services to the populace. And there are other developments.

Many American merchandises are hard to present into the Common-Market states of Europe. Yet more American franchisors need to come in this market, so that their merchandises can be sold straight to the franchised mercantile establishments and therefore short-circuit the distribution channels through which the European states could command the monetary values of American merchandises in their several states. Besides, big drink houses are negociating to set up franchises in the Iron Curtain states.

Another hereafter tendency has to make with informations treating. It would be most hard to watch and command legion franchised retail mercantile establishments without the usage of processing.

In this context, the franchisor has invested the necessary resources to make and provide the franchise web ( e.g. know-how transmittal, developing investings, and finance resources ) and the franchisee has besides made specific investings ( e.g. initial investing, royalties ) in the relationship. These specific investings act as an issue barrier when fade outing the franchise relationship. Therefore, franchisor and franchisee will merely retrieve or increase the value of their investing if the relationship continues over clip.

Equally good as specific investings, committedness besides includes an affectional aspect reflecting both parties ‘ positive attitude towards keeping the relationship in the long term.

It appears that whilst some people enter franchising with good purposes and optimism for their hereafter success in the system, others may utilize franchising as a agency of come ining the industry as independent operators.

Franchising is an inherently geographical concern theoretical account. It involves making districts or market countries which individual franchisees will be given merchandising rights to function on either an sole or a non-exclusive footing.

Trusting on franchised mercantile establishments for decision-making can convey about of import efficiency additions by heightening system-wide adaptability and franchisees ‘satisfaction.

Regulators rely on revelation in franchising, as they do in other contexts, mostly because of its self-regulatory qualities. It allows the people who are in many ways best suited to the undertaking, the parties themselves, to play a function in their ain ordinance. Though it is believed to be efficient as a regulative tool, nevertheless, there is no grounds that revelation makes a important difference in consumer or market behaviour in the franchising sector.

The public presentation of franchisee mercantile establishments depends on in-store attractive forces, supply and fabrication direction, quality, monetary value and promotional schemes.


The hereafter of franchising research is grown with chance to analyze the franchisor franchisee relationship by anchoring it in theoretical models offered in both selling and organisational behaviour. Because of the importance of franchising in the domestic economic system, and surely given the recent adversities suffered by so many little concerns, analyzing the franchising concern theoretical account, and specifically relationship and public presentation drivers, will go more critical. We have taken a little measure to progress the field in this way. Traveling frontward, we urge research workers to badger out the relationship shadows, paying peculiar attending to relational variables that will make more insight about the possible benefits gained from stronger relationships and/or the booby traps to avoid in the franchising context.

The widespread pattern of binding understandings has harmful effects on the franchise system of distribution.

Franchisors evidently have a vested involvement in the wellness of the franchise system and, hence, should reconsider their policies of utilizing binding understandings to sneakily bring forth gross from their franchisees. Franchisors that are presently utilizing binding understandings to bring forth the gross needed to keep their franchise plans should see offering their franchisees new understandings with commissariats that reflect an equal royalty and a less restrictive supply plan. With regard to franchisees that reject the new contract, franchisors lawfully may be able to go on to enforce the purchase demands.

Several franchisors have successfully converted the bulk of their franchisees to royalty contracts, and these companies do go on to roll up income from non royalty franchisees in the signifier of surcharges on certain supplies.

Attempts by franchisors to rectify the jobs associated with binding agreements in franchising may prevent burdensome, restrictive statute law and ordinance, decelerate down the inundation of judicial proceeding, and beef up the franchising system of distribution.


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