Francising and the Entrepreneur Chapter 7

Franchising A system of distribution in which semi- independent business owners (franchisees) pay fees and royalties to a parent company (franchisor) 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.

3 Types of Franchising Trade-Name Franchising A system of franchising in which a franchisee purchases the right to use the franchisor’s trade name without distributing particular products under the franchisor’s name. Product Distribution Franchising A system of franchising in which a franchisor licenses a franchisee to sell its products under the franchisor’s brand name and trademark through a selective, limited distribution network. Pure Franchising A system of franchising in which a franchisor sells a franchisee a complete business format and system.

Benefits of Buying a Franchise A Business System Management Training and Support Brand Name Appeal Standardized Quality of Goods and Services National Advertising Programs Financial Assistance Proven Products, Processes, and Business Formats Centralized Buying Power Site Selection and Territorial Protection Greater Chance for Success

Drawbacks of Buying a Franchise Franchise Fees and Ongoing Royalties Strict Adherence to Standardized Operations Restrictions on Purchasing Limited Product Line Contract Terms and Renewal Unsatisfactory Training Programs Market Saturation Less Freedom

Uniform Franchise Disclosure Document Uniform Franchise Disclosure Document (UFDD) A document that every franchisor is required by law to give prospective franchisees before any offer or sale of a franchise; it outlines 23 important pieces of information.

Franchise Turnover Rate The rate at which franchisees leave a franchise system.

Intercept Marketing The principal of putting a franchise’s products or services directly in the paths of potential customers, wherever they may be.

Conversion Franchising A franchising trend in which owners of independent businesses become franchisees to gain the advantage of name recognition.

Area Development A method of franchising in which a franchisee earns the exclusive right to open multiple units in a specific territory within a specified time. Master Franchise A method of franchising that gives a franchisee the right to create a semi-independent organization in a particular territory to recruit, sell, and support other franchisees.

CoBranding A method of franchising in which two or more franchises team up to sell complementary products or services under one roof.