Francising and the Entrepreneur Chapter 6

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.