Advantages of Franchising


Franchising may combine the advantages of a small business managed by its owner and the resources, especially marketing impact, available only to large firms. The franchisee may be interested mainly in securing the privilege of selling a highly advertised product. Usually one of the most important advantages of a franchise to the franchisee is the right to use a trademark owned by the franchisor that is well known and/or highly advertised. In addition, many franchisors have developed a standardized and tested method of conducting the business, whether it is producing hamburgers, conducting an employment service, or replacing automobile mufflers, that will be adopted by the franchisee.

From the franchisee’s standpoint, especially if he or she has little or no experience in the business being franchised, the most important services of the franchisor are likely to be advertising , training in the business, and advice after the business is under way. Some franchisors also assist with financing. They may build and equip the place of business and lease it to the franchise—a so called turnkey operation.

One of the major advantages of franchising for the franchisor, however, is the possibility of rapid expansion by using the financial resources of the franchisees. Through franchising, the franchisor can gain considerable control over the distribution of its products or services without owning the retail outlets. By carefully controlling the number and location of outlets, the franchisor can reduce competition among them and perhaps encourage them not to carry competitive products. This may make the franchise organization’s competition against similar products (or services) more effective by encouraging bigger investments and more aggressive marketing by franchisees. Efforts may also be made to influence prices charged by the franchisee. Where the franchisee prepares a product, such as food, or offers a service, the franchisor usually maintains a high degree of control over operations to standardize quality.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

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Franchises


A franchise is a contract arrangement by which the owner of a trade name, trademark, copyright, or process grants permission to others to use this property in selling goods or services under specified conditions.

The purchaser of a franchise (franchisee) obtains the advantage of offering a well-known or unusual product that may already have wide appeal. The franchisee  also receives the benefit of mass buying and advertising. Typically, the buyer of a franchise may pay a flat fee for the franchise as well as an additional percentage based on sales. The franchisee may also be required to pay a fractional share of the franchisor’s promotional costs and to purchase certain supplies from the franchisor.

Contract and sales laws pertaining to franchises are comparatively new. If the franchise involves the resale of goods or food, both the franchisor and franchisee will usually be liable under a breach of warranty if the food or other merchandize is not wholesome or proper from the consumer’s standpoint. However, tort liability to a third person is usually the responsibility of the franchisee alone. In a case where the franchisee’s truck struck  and negligently injured a pedestrian , the franchisor would normally have no responsibility.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

Legal Fiction or Economic Reality?


Knowing the cost of your operations, however, is not enough. To compete successfully in an increasingly competitive global market, a company has to know the costs of its entire economic chain and has to work with other members of the chain to manage costs and maximize yield. Companies are therefore beginning to shift from costing only what goes on inside their own organizations to costing the entire economic process, in which even the biggest company is just one link.

The legal entity, the company, is a reality for shareholders, for creditors, for employees, and for tax collectors. But economically, it is fiction. Thirty years ago the Coca Cola Company was a franchisor. Independent bottlers manufactured the product. Now the company owns most of its botling operations in the United States. But Coke drinkers–even those few who know that fact–could not care less. What matters in the marketplace is the economic reality, the costs of the entire process, regardless of who owns what.

Again and again in business history, an unknown company has come from nowhere and in a few short years overtaken the established leaders without apparently even breathing hard. The explanation always given is superior strategy, superior technology, superior marketing, or lean manufacturing. But in every single case, the newcomer also enjoys a tremendous cost advantage, usually about 30 percent. The reason is always the same: the new company knows and manages the costs of the entire economic chain rather than its costs alone.

A powerful force driving companies toward economic chain costing will be the shift from cost-led pricing to price-led costing.

It will be painful for most businesses to switch to economic chain costing. Doing so requires uniform or at least compatible accounting systems at companies along the entire chain. Yet each one does its accounting in its own way, and each is convinced that its system is the only possible one. Moreover, economic-chain costing requires information sharing across companies, yet even within the same company, people tend to resist information sharing. Despite those challenges, companies can find ways to practice economic chain, costing now.

Whatever the obstacles, economic chain costing is going to be done. Otherwise, even the most efficient company will suffer from an increasing cost disadvantage.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact http://www.asifjmir.com

Setting off for a franchise


The largest fortune in the franchise industry have been made not by those who bought franchises, the franchisees, but by those who sold them, the franchisors.

Some aspects of know-how that must be brought to the franchising task include the following:

1. A pat formulation of the system to be franchised, which includes:

  • Standard procedures for running the unit;
  • Bookkeeping and other paperwork systems, forms, and procedures;
  • Any special equipment, tools, signs, or parts.
  • Supplier contracts for any special deals or buying, or custom ingredients such as labels, boxes, displays, etc;
  • Sample pro forma operating figures backed by the track record of a flagship unit;
  • A written loose-leaf manual covering all phases of the operation for franchisees to use. Included would be such things as operating instructions, policies for monitoring performance, ordering supplies, hiring and firing, canned pitches for dealing with prospects and customers, pricing rules, etc.

2. Legal coverage, which should include:

  • Protection of the system . . . . . .

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact Asif J. Mir.