The franchising business model and marketing channels Essay

Selling Channelss
Harmonizing to recent informations the franchising concern theoretical account is go oning to spread out its presence throughout the United States. Harmonizing to the International Franchise Association, in 2006, the about 300 established franchise trade names expanded their entire by an norm of 4 per centum ( 1 ) . In add-on to this growing, in 2006 there were more than 300 companies both new and established, which began franchise for the first clip. There are 550,000 franchised concerns located in the United States which jointly generate more than $ 800 billion in gross revenues. These franchised concerns sell more than $ 758 billion in goods and services. Franchising represents 35 % of all retail gross revenues in the United States, using over seven million people. One out of every 12 concern constitutions is a franchised concern. There are over 1200 franchise companies stand foring 18 different industries.

So what is a franchise? A franchise is a signifier of licencing agreement whereby one portion licenses another to utilize its concern system and hallmark. Franchisees typically pay to the franchisor an initial franchise fee and ongoing royalty payments throughout the franchise term. In consideration for these payments, franchisors permit the franchisee to run the franchised concern under the franchisor ‘s chief hallmark and typically supply the franchisee a bundle of initial and on-going aid and preparation. Such aid and preparation typically includes site choice aid ; loan of the franchisor ‘s operations manuals ; preparation ; opening aid ; advertisement stuffs ; engagement in purchasing and advertisement stuffs ; and accounting, concern, and runing system aid.

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The sale of franchises is regulated at both the federal and province degree. Federal jurisprudence requires that franchisors give prospective franchisees a revelation papers within the “ clip for doing revelations ” under the Federal Trade Commission ‘s “ Trade Regulation Rule: Disclosure Requirements and Prohibitions Refering Franchising and Business Opportunity Ventures, ” 16 C.F.R. A§436 which is by and large referred to as the “ FTC Rule. ” Franchise relationships are regulated under a assortment of province Torahs, and many facets are besides regulated by federal jurisprudence.

A relationship is deemed a franchise if its meets the definitional elements of a franchise under federal and province jurisprudence. The federal definition of this term is contained in the FTC Rule, which defines a franchise as any agreement whereby the franchisor ; Renders important aid to the franchisee in runing its concern or significantly controls the franchisee ‘s method of operation, licenses the franchisee to administer goods or services under, or run utilizing, the franchisor ‘s hallmark, and requires payment of a minimum fee to the franchisor.

There are distinguishable grounds why people choose to franchise. Some people want to minimise the hazard of get downing a concern. These people want person else to worry about the hereafter and related schemes. Franchises give the franchisee the chance to take advantage of combined buying power. One of the most of import factors of franchising is the minimizing of error that can be avoided.

A possible concern proprietor or franchiser seeks independency of being a little concern but without sing the turning strivings of new and startup concerns. Franchisers are n’t entrepreneur. An enterpriser is prepared to set everything they own at hazard merely so they canA own a successfulA concern. One cardinal issue with being an enterpriser is utilizing the individual ‘s wealth and the hazard of losing everything and covering with utmost uncertainness and hazard. Franchising is a good option for concern proprietors who want limited hazard. Franchising gives an proprietor some of the qualities of entrepreneurship and preparation and counsel like a corporate occupation

Franchisees provide the twenty-four hours to twenty-four hours support of the trade name. Franchisors provide the thought and schemes for the hereafter. Franchises handle twenty-four hours to twenty-four hours operational facets of the trade name and the franchisor handles schemes and the hereafter. Franchisees are independent but they are besides contractually bound to the franchisor.

A common barrier of an enterpriser is the bounds of buying power. The universe has seen the power of purchasing by big companies of similar Wal-Mart. Franchisers can take advantage of the buying power of the franchisor. Group buying normally consequences in lower monetary values. Bing in the nine or group that can supply reduced costs is a benefit of franchises.

The errors of the enterprisers can be dearly-won to learn.A Using the cognition of a franchisor and the information they have accumulated about their channel members can salvage a batch of money. This expertness is valuable for a possible to a prospective concern or franchisee. Harmonizing to Arthur L Pressman, with the Thomas Reuters concern, franchise companiesA are regulated by theA Federal Trade Commission ( FTC ) that requires them to haveA a Franchise Disclosure Document ( FDD ) that creates transparence of the franchise chance being offered.A A

A Other grounds to franchise include purchasing into a recognized trade name name, enhanced concern image, and the perceptual experience of consistent quality.

Franchisors do many things to develop a recognized trade name name. Franchisors offer support for that includes site choice. Many old ages of test and mistake combined with analysing these results contributes to of import determination devising informations.

Potential franchisees do non hold to believe about the image of their concern. Franchisors can happen locations where there factors are similar to conditions their franchises thrive in. The manner the concern expression is besides taken attention of. A franchisor can supply in-depth support for the design and building of the edifice the franchise will be run from.

Convention enterprisers may hold issues obtaining loans because of several grounds. Banks may desire to look at the projections of the proposed concern every bit good as the concern program and aims. This information can be readily available by a franchisor. In some instances financing support can be given by the franchisor. The path record of the franchisor can be good to the credibleness of the intent for a loan.

A really of import factor of franchising is the preparation support that is offered. The preparation support starts with the concern proprietor. The possible concern proprietor or franchise proprietor can acquire the chance to see an bing franchise. This visit can be valuable because the concern proprietor can see what goes in to the twenty-four hours to twenty-four hours operations and the duties that they will potentially be set abouting. Operating processs and runing aid have been developed with and from developing. Supervision and direction support is besides perfected from preparation and observation by the franchisor.

Conversely, there are besides many grounds why a individual would either take non to go a franchisee or be discouraged. Franchises can be really expensive. Harmonizing to a 1996 survey by the International Franchise Association ( IFA ) , 20 per centum of franchises had up-front costs of more than $ 250,000 and 54 per centum required initial investings of more than $ 100,000. Franchises can acquire really expense a can frequently necessitate acquiring a loan. Continuing throughout the concern the franchisee requires royalty payments. These payments can change from standard rates to per centums of net incomes. In some instances the per centum of royalties due to the franchisor makes the franchisee unprofitable. The franchisor may bear down fees for preparation, and other plans that single franchisors do non utilize.

Franchisers may besides necessitate rigorous attachment to their regulations. The good known illustration of Subway used in many schoolrooms as a franchise includes issues with these sorts of regulations. Subway franchisors have to incur disbursals without small say. Metros demand their franchises to bake a preset sum of each type of bread regardless of the initial demand. This rigorous enforcement ensures consistency among a house ‘s franchises, but it may enables independency and creativeness. This may thwart you if you are an enterpriser at bosom. This shows the difference between being a concern proprietor with control and a member of a franchise. Individual franchise proprietors are expected to follow the regulations operations, and guidelines of the franchisor at all clip. This attachment is what keeps the franchise integral and consistent. Entrepreneurs who are seeking to do their grade or suggest alterations in the franchise may non do in advancement in acquiring a alteration.

As we talked about earlier the enhanced concern image can be a great factor in carrying a individual to go a franchisee. This can besides be dearly-won to the concern proprietor. The value of the trade name and name of a franchise is of import to the theoretical account. Having control over the channel member and monitoring actions of the channel member is a hard undertaking. The fact the single member make up the trade name make this an utmost precedence. An eruption of nutrient toxic condition in one eating house in the franchise can bring forth bad imperativeness for a franchisee 100s of stat mis off and cut down the patronage and net incomes of that location.

Location support was besides identified as an advantage of franchises. This can besides be a disparager. The territory issue of franchising can be thwarting to impart members. Many times districts are setup and the member is stuck with that country. If there is a alteration and an country becomes less profitable the channel member may desire to travel but at that place may non be any country near for them to travel to.

Duty can besides be a disparager of the franchise theoretical account. Franchisees enter a lawfully binding, long-run relationship: the mean length of an initial franchise contract is 10.6 old ages, harmonizing to the IFA ( although the term varies significantly between industries ) . Ten old ages is a long clip to be contractually bound to a company or any sort of entity. The company could be difficult to cover with, pattern sneaky tactics or merely travel out of concern and go forth the franchisor “ keeping the bag ”

Structurally, there are three franchise types: Merchandise, fabrication, and concern. Each performs a different map, but each has a similar end. All types want to travel the ware and do net incomes from an already proved concern theoretical account and its image. Most types of franchisors support undertakings such as maintaining path of stock list ; human resources and assisting their franchisee understand their fiscal informations.

Manufacturing franchises offer a company the right to bring forth goods and services utilizing the maker ‘s name. Harmonizing to Franchise Perfection, many nutrient and drink companies are considered fabrication franchises. Many shoe and vesture shops are fabricating franchises.

One of the less known constructions of franchises is maker franchises. The focal point of this type of franchise is on the fabricating stage of a merchandise ‘s lifecycle. Owners of a maker include companies like 7up bottlers and Sara Lee companies. The maker is contracted in a franchise signifier to do and or administer a merchandise.

Some choose to purchase into a concern structured as a merchandise franchise is buying the right to sell and/or administer a peculiar merchandise from a maker. For illustration, an car fix store like Princeton Tire may take to purchase tyres from cooper tyres to convey in extra gross. Some companies require that franchises to transport their name in order to transport their merchandises. These companies are normally called “ trade name ” franchises.

Business format franchises are the most common. Companies like BPs, Speedways, Wendy ‘s, and some McDonalds are concern format franchises. The franchisor creates selling channels for the franchisee to acquire at that place merchandises from. This is similar to the cell phone companies in the promenade that the bearer a service supplier ‘s name but are non owned by the bearer. The franchisee is truly purchasing is buying a concern theoretical account country or service theoretical account that they believe has value

There are besides ownership differences in franchising. These ownership options include Single -unit ownership and Multi- unit & A ; country development franchise ownership. The gas Stationss mentioned earlier are possibly illustration of a individual unite franchise. The proprietor is merely authorized to run under the franchise name at that location. Single unit franchises exist in all three types of franchises.

More advanced franchise proprietors may take to be multi- unit or country development franchises. The franchises are the same in construct but they differ merely in how and what is managed. The multi-unit franchise proprietor manages multiple franchise locations within an country is may be responsible for the channel members or franchises in the communities, metropolis or province

The Coca-Cola Company is the largest maker, distributer and seller of nonalcoholic drink dressed ores and sirups in the universe. Coca-Cola ‘s central office are in Atlanta, Georgia, in the US. It is best known for its flagship merchandise, Coca-Cola, and is one of the largest corporations in the US. They offer about 400 trade names in over 200 states or districts, besides its namesake Coca-Cola drink. Their concern chances are tremendous and their committedness to consumers and communities is great.

The Coca-Cola Company and/or subordinates merely produce sirups concentrate which is so sold to assorted bottlers throughout the universe who hold a Coca-Cola franchise. Coca-Cola bottlers, who hold contracts with the company, produce finished merchandise in tins and bottles from the dressed ore. Their bottling spouses are local companies so they are rooted in their communities, believing and moving locally. They are employers, buyers of local goods and services, good neighbours, and, of class, manufacturers of the universe ‘s most popular drinks. Coca-Cola introduced franchising into its fabrication and bottling countries to cut down fiscal hazard and addition market portion. And by bottling its sodium carbonate closer to population centres the company could cut down distribution costs. Coca-Cola bottlers, who hold territorially sole contracts with the company, produce the finished merchandise in tins and bottles from the dressed ore in combination with filtered H2O and sweetenings. The bottlers so sell, administer and ware the ensuing Coca-Cola merchandise to retail shops, peddling machines, eating houses and nutrient service distributers. The bottlers are fabricating franchise proprietors. They are besides multi-unit franchise proprietors or country development franchise proprietors.

While Coca-cola is one of the most recognizable trade names in the universe at that place have besides been jobs with the company image. The Coca-Cola Company has been involved in a figure of offense contentions and cases related to its relationship with human rights misdemeanors and other sensed unethical patterns.

Harmonizing to the Bloomberg Business hebdomad article, “ Pepsi: Repairing a poisoned repute in India, ” a figure of cases have been issued in relation to its allegedly monopolistic and prejudiced patterns, some of which have been dismissed, some of which have caused The Coca-Cola Company to alter its concern patterns, and some of which have been settled out of tribunal. It has besides been involved in a favoritism instance. There have been go oning criticisms sing the Coca-Cola Company ‘s relation to the Middle East and U.S. foreign policy.

An issue with pesticides in groundwater in 2003 led to jobs for the company when an Indian NGO, Centre for Science and Environment, announced that it had found malignant neoplastic disease doing chemicals in Coca-Cola every bit good as other soft drinks produced by the company, at degrees 30 times that considered safe by the European Economic Commission. This caused an 11 per centum bead in Indian Coca-Cola gross revenues


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