Franchising

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Meaning :

  1. Franchising is the method whereby the firms transfer the rights & products to another party, who in turn takes the responsibility for the sale of the product in the local market.
  2. The firm transferring the right is known as franchisor.
  3. The firm to whom the right is transferred is known as franchisee.
  4. The dictionary meaning of franchisee is right to vote, the citizenship & authorization to sell the company’s product.

 

Merits / Advantages:

 

  1. Sells intangible property –

                          Franchisor sells intangible property (trademark) & insisted franchisee agrees to abide by strict business rules ( location, methods, design, staffing, supply chain ).

 

  1. Royalty –

                           Once the network of franchises is set up, company enjoys regular income in form of royalty without much fresh investment & additional effort.

 

  1. Opportunity for expansion –

                            The franchisor provides the franchisee an opportunity to operate a tested, proven & profitable business & in addition provides his support services & training that increase his chances of success.

 

  1. Self Motivation for franchisee –

                             When a franchisee invests his own money in a franchise, commitment follows. Unlike a salaried manager, a franchise generally prides his ownership & is self motivated in operating a successful business.

 

  1. Less Problems –

                             A franchisee generally requires fewer management personal than a chain organization & therefore, has a lower staff payroll & problems.

 

  1. Others –

They can cover more territories.

They get the marketing support from the entrepreneurs.

Big giants through franchising can create entry barriers for competitors. Franchisees act as category killers.

 

 

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