Compilation of Topics Discussed in Marketing 21

8/8/2019 Compilation of Topics Discussed in Marketing 21

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COMPILATION OF TOPICS IN MARKETING2

(FRANCHISING)

(A FINAL PROJECT REQUIREMENT OF MARKETING 2)

Submitted by:

BRIAN R. GANGCAStudent

Submitted to:

MR. MANOLITO M. MONTECLARO, MBAInstructor


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FRANCHISING

A start-up entrepreneur may decide togo into business by simpky buying a license to localluoperate lets day Jollibee or Pizaa Hut. This practice is known as franchising. The past years have shown

phenomenal increase in franchising all over the world. In the U.S alone, the sales in the franchising

industry in 1991 were $758 billion as compared to the $334 billion in 1980. Here in the Philippines, thereare projected sales of 82 billion pesos for year 2000 and 100 billion pesos for year 2001. There have beensignificant numbers of Filipinos wanting to won or operate a franchise. This indicates the growingacceptability of franchising business among Filipinos.

Colonel Harlan Sanders himself founded Kentucky Fried Chicken and made it a global businessthrough franchising. In his words franchising is the quickest and mose successful way to become anentrepreneur. Another franchising expert, Andrew Kostechka, who works in the US Department of Commerce, thinks that franchising is considered a way of life.

As a backgrounder, the term franchise came from the Old French franchir, which means freedom,

privilege or immunity from burden. During the feudal ages in Europe, the local landlords would grantrights to the subordinates to hold or attend markets or fair. The landlords then were the first franchisor and the subordinates the first franchisee.

One of the first franchise agreements was during the nineteenth century when Singer SewingMachine Company granted distribution franchises to their dealers. Singer was the first to have writtednfranchise contracts. In the late 1880s, cities began giving franchises tot he newly established electricitycompanies. After World War II, there was the expansion of motels, drugstores, variety shops, andemployment agencies which exhibited franchising principles. In 1950s, products and services started tofranchise in the U.S. In 1955, Ray Croc started to franchise a fast-food chain called McDonalds. Thefranchising boom came in 1960s and 1970s when fast-food outlets started to franchise. In thePhilippines, the 70s were marked by the introduction of Jollibee and McDonald franchises.

1. FRANCHISING CONCEPTS

There are common concepts that pertain to the discussion of the topic on franchising. These arethe following:

Franchise - it is anagreement whereby an independent person is given exclusive rights to sell a specifiedgoods o service.

Franchising is a marketing system based on a legal agreement wherein one party (franchisee or franchiser) is given the right to handle business as an independent owner but is required to abide by theterms and conditions specified by the other party (franchisor). For the franchisor, therefore, franchisingmeans selling the franchise, while for the franchisee or franchiser, the franchising is understood to mean

buying a franchise.

Franchisor refers to an entity that ownd the franchise name and distinctive elements (such as patent,trademark, signs and symbols) which grant others the right to sell its product.


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Franchisee or the franchise buyer it is the entity that buys to operate the business using the name, product, trademark, service mark, product and business format of the franchisor under the terms andconditions of the franchise contract.

Franchising Contract it refers to the legal document involving two parties (franchisor and franchisee)

specifiying the obligations, primarily of the franchisee and the conditions under which the latter willconduct business.

2. BENEFITS OF FRANCHISING

According to Megginson, both the franchiser and the franchisee can benefit from franchising.For the franchiser, this guarantees faster expansion and greater market penetration for his business. Ineffectm this can result to lower operating costs. For the franchisee, getting a franchise gives him better

brand recognition and less-costly share in local and national promotion of the product. Furthermore, thefranchisee can avail of management training at less cost. In somes casesm the franchisee can also enjoyfinancial assistance from the franchiser .

WHAT ARE THE TYPES OF FRANCHISING?

Generally, franchising is divided into two types: the Product and Trademark Franchising and theBusiness Format Franchising. The former is further subdivided into Manufacturer-Retailer Franchise, theManufacturer-Wholesaler Franchise and the Wholesaler-Retailer Franchise.

The Product and Trademark franchising involves an arrangement wherein the franchisee is giventhe right to manufacture and/or distribute a widely recognized brand or product. The franchisor has verylittle control over how the business is operated but it demands that the franchisee maintain the integrity of

the products. Examples of these are franchises in the soft-drink industry, gasoline service stations andautomobile and truck dealerships. There are three types:

1. Manufacturer-Retailer Franchise2. Manufacturer-Wholesaler Franchise3. Wholesaler-Retailer Franchise

Manufacturer-Retailer Franchise. This is a franchise in which the franchisee buys fromthe manufacturer (franchisor) and then directly sells it to the end consumer. The franchisor gives right to

the franchisee to use its name, trademarks, logo and other identifying marks. The franchisee meanwhilemaintains a distribution outlet that sells and stocks the franchisors products.

Manufacturer-Wholesaler Franchise. In this type, the manufacturer (franchisor) sellsto the franchisee partially completed products. The franchisee is given the right to complete the productsusing the manufacturers name, trademark, logo and other identifying marks then distribute and sell the

product to the retailer.


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Wholesaler-Retailer Franchise. It is a type of franchising in which the wholesaler is theFranchisor that grants the retailer (franchisee) the right to retaile the product but use the wholesalersname, trademark, logo or other identifying marks. At times, the franchisee may be permitted to carryother products and distribute to other companies.

The Business Format franchising, on the other hand, is a relationship wherein the franchisee isgranted the rights to use the franchisors entire marketing system along with the continuing assitance andguidance. Aside from marketing, this will also include advertising, strategic planning, training, productionof operations manuals and standards and quality control guidance. This is the most popular franchisestructure which may be seen in a multitude food and non-food franchises.

ADVANTAGES AND DISADVANTAGES OF FRANCHISING

Like any other business, franchising too has its advantages and disadvantages. Any start-upentrepreneur should carefully weigh the options based on the gains and drawback before making thedecision.

The following are the advantages when an entrepreneur engages in franchising; meaning, heobtains a license to operate a franchise locally:

1. Possibility of failure is lessened.2. Increase in new market location through urbanization of loca areas.3. Customers tend to patronize a specific franchised service or product.4. Customer loyalty and rpeference for a successful brand name.5. Better amangement through training provided by the franchisor.6. Technical and other assitance is easily accessed from the franchisor.7. It is easier and faster to build good reputation and gain recognition.8. A better assuance that the business will be profitable.9. Obtain greater purchasing power.10. High performance standards.11. Advertising cost is less. Lesser Possibility of Failure. This is perhaps the most important reason why one

contemplates on franchising. Franchises have a high degree of resiliency in the industry. According to thePhilippine Franchising Association (PFA), out of the 177 foreign franchises that was include in thestudies, only nine hace ceased operations. This translated to a 95% franchise success rate in thePhilippines.

Increase in new market location. There are areas that have been targeted as key areasfor development. There are key provinces like Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon)and the Mimaropa (Mindoro, Marinduque, Romblon, and Palawan), certain parts of Mindanao, etc. thathas been identified as potential economic boom zones. The growing numbers of the population hasresulted to the creation of several establishments like ew roads, schools, malls, and subdivisions.Businesses are looking at these areas for the potential of supplying the demands of people.


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Customer preference for a franchised product or service. Franchise possesses certainunique characteristics.These are what their regular customers look for because they like it. Transportationdevelopments make it easier for people to reach from one place to another. In these places, people look for a tried and tested business that will satisfy their needs. Fro example, there are a lot of travelers fromManila who lookk for Jollibee or McDonalds when they reach the provinces. They find a sense of security in the ambiance and quality of food offered by these fast-food outlets. The uniformity of the

products as well as the services offered by the franchise gives the customers a homey feeling.

Advantage in using a successful brand name . The franchisee acquires the franchisorsadvertised trademark or brand name.Trademarks and brands are not just sybols or designs printed on the

product. It communicates to people. The reputation enjoyed by a widly accepted brand or trademark esenough for people to buy the product. Here in the Philippines, there are people who have actuallyinterchanged the product type with their brand name or vice versa. For example, i a avariety store, it is notuncommon for people to ask for Colgate in purchasing toothpastes. If a person asks for a beer, also inavariety store, the attendants will give San Miguel Beers Pale Pilsen unless the buyer specifies what he or she wants. People ask for a Pentel Pen when actually they want marker pens, or calling a photocopiedmaterial a Xerox. Having a successful brand name ensures the business on certain degree and customers.

Better Management through training provided by franchisor. The franchisee receivestraining from the franchisor. This is one prerequisite of a franchisee-franchisor agreement. Fro example,McDonalds requires its franchisees to attend an extensive course and obtain the dgree in hamburgerologyin Illinois. Likewise, the Holiday Inn University was created in 1972 to teach and train franchisees thehotel operations. Sir Speedy requires an intensive two-week course at Sir Speedy University in Californiawhere Business and Financial Management, Marketing and Sales Management, Operations andProduction Management, and Employee Management will be taught. The training will help the franchiseedevelop the managerial skills and help alleviate the lack of it to ensure the success of the business. It willalso help the franchisee obtain the necessary and relevant information (accounting, advertising,

purchasing, human relations, etc.)needed in the over-all operation.

Better access to technical and other assistance. The franchisor gives the neededsupport to make the task of start-up and continued operation easier. Site selection advice, facilities layout,employee selection, management training are just some of the help the franchisors give. Perhaps animportant assistance it gives is the financial aspect. There are cases where the payment for the franchise isstaggered thereby helping the new franchise cope up with in the start-up period. Furthermore, traming upwith a franchising operation increases the possibility of financial assistance to be granted to thefranchisee.

Ease in building reputation. In franchising, the franchisee does not have to worry aboutthe much -sought reputation unlike in establishing a new business wherein there is the possibility of leansales becanuse of lack of recognition. The franchise will reap the benefits of joining an organizationwhose safety, efficiency, quality, strength and prduct have been established. The franchisee will enjoyimmediate recognition as a part of big organization.

There is a higher uncertainty of profit in a new business as compared to a franchise.


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In franchising, onemay be able to use the sales of an existing franchise in a nearby place to project thesales of another franchise that is about to be put up. Plus, the existing franchise outlets wil guide the

prospecting franchisee to select one, which attracts buyers.

Greater purchasing power . Franchisees are able to get supplies, equipment, services,etc

at a lower price Better assurance that the business will make money , simply because they are a part of a big organization. Purchasing power is achieved due to volume discount on purchases made collectively

by the organization. In addition, suppliers may provide them with better service because of theimportance of the organization in which the franchisee is a part of.

High performance standard . The franchise organizations have operating manuals andProcedures given to franchises that permit the efficient operation from the start. This manual is a productof thorough research based not only on theories but also experiences of the other franchises which has

been previously bought.

Lesser Advertising cost. An advertising scope of a franchise organization is nationwide.Franchisees get quality advertisement for a little amount they shed. Fro example, there is no Jollibeecommercial that encourages people to patronize a specific branch. Its media advertisements promote thename which in turn is enjoyed by the franchisees.

Franchising also pose some disadvantages.These are:1. High cost of franchise.2. Operation is controlled by the franchisor.3. Presence of fierce competition.4. Pressure to continuously make the product acceptable to the market.5. Problems associated with expiration of the franchise.

High cost of buying a franchise . Franchise fees in the Philippines may range fromP20,000 to 50 million pesos. Of course, the well-known franchises charge higher franchise fee. The initialcapital may also include expenses for pre-opening, training, personal ang other predicaments dependingon the franchise contract.

The operation of the business is controlled by the franchisor. One of the maincharacteristics of franchises in uniformity. It is quite common for franchise to state the franchises thatfollow whatthe operating manual. Franchising restricts the movement of the entrepreneur because actionsand decisions that may be taken, with regards to the franchise, it must be within the parameters set. For

example, a franchise owner of McDonalds cannot offer another food product even if he/she sees that itwill make tremendous sales. Thus, you will not find any McDonalds outlet selling dumplings or dimsums perhaps. The franchisee is obliged to follow management devised by the franchisor. In effect,the entrepreneur losses a degree of independence because of the direct supervision.

Fierce competition. The franchise service is an attraction to customers. That is why a lotof newly created businesses imitate what an established venture offers. Other competing organizations arealso quick to react if a certain strategy has been proven to be great Come-ons to customers.


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Pressure to continuously meet market expectation. The franchise organization needstodevelop and continue on retooling its strategy to differentiate it from its competitors. It must continue toencuse its unique chareacteristics that set it apart from the other competitor.

The expiration of the franchise. Franchise contracts have expiration dates. When theTermination date is reached, the franchise will have to renegotiate once again the contract. Terminationmay be an advantage or a disadvantage depending on the condition of the business. This is a disadvantage

because, lets say that the franchise contract is for 5 years, there may be times when the franchise iscurrently enjoying a big sales during the period when the contract is about to expire. Instead of concentrating on the sales, the franchisee will now have to divide the time in renewing the contract whileat the same time managing the outlet. Also, renewing contracts means spending. In addition, applying for a new contract dows not mean that the franchise contract may be renewed. There may be grounds whereinthe franchisor might have seen the incapacity of the franchisee in maintaining the outlet. Or maybe therehave been grave errors committed that warrants the renewal not to be granted like delays of royalty fees,

poor sanitation and maintenance of the outlet, etc. The approcal depends on the assessment of thefranchisor.

WHAT DOES A FRANCHISE PROVIDE?

Like other businesses, franchising also requires commitment. The time, effort and themoney tahtone would spend on franchising would surely merit an investigation by both the franchisee and thefranchisor. The franchisor not only looks at the location of the outlet but also, usually, on the financialand management capability of their prospective partners. In return, the franchisee has to make sure that itis able to meet the expectation of the franchisor. The following factors or considerations that both thefranchisor and franchisee always look intom in the process of negotiationg and finalizing the franchiseundertaking. In each of these factors, the franchisors preference or perspective carries a bigger weight in

order for the franchising relationship to materialize.

1. Business Name2. Market research3. System ideals and the Operating Manual4. Proprietary marks5. Experience6. Good judgment of the franchisor 7. Training8. Location assistance and approval

9. Store layout and construction supervision10. Exclusive area coverage11. Procurement programs12. Hiring assistance13. Grand opening assistance14. Marketing strategies15. |Effective field service


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16. Research and development

Business NameThe franchisee may have a different company name but its products should have the names that

are patented by the franchisor. The name and the way it is written designed or printed should be uniform

with the other franchise outlets.

Market ResearchThe marketing research of the franchisor should benefit the franchisee. It will serve as

guide to help the franchisor in evaluating the proper location, promotions, personnel, distribution and thetarget segment.

System Ideals and the Operating ManualThe system ideals are written on the operating manual which shuld be provided by the

franchisor. It describes how things should be conducted in the operation of the system. The operatingmanual communicates the complete operating procedures necessary to maintain the standards of thefranchise.

Proprietary MarksProprietary marks include the logo, slogans and other printed signs that show distinction

of the franchise. The franchisee is allowed to use the patented marks of the franchisor.

ExperienceThis is an important service that the franchisor provides to the franchisee. With the vast

experiences of the franchisor, the franchisee avoids mistakes committed by a new and growing company.It will help reduce losses brought about by the miscalculation of risks.

Good Judgment of FranchisorAlong with the exprience comes the knowledge gained through past mistakes and

succeses. The franchisor, especially thse whose franchise organization have been existent for along time,has been endowed with the wisdom to judge circumtances. The franchisee may be able to get soundadvice from the franchisor regarding the business.

Training

Franchisors provide training assistance to the franchisee. This is a critical aspect of thefranchise because training does not only provide knowledge of the operation but more importantly, ithighlights and emphasizes the contextual framework for the franchisee. Furthermore, the continuoustraining provided by the franchisor organization avoids poor management.

Location Assistance and ApprovalUnlike in other countries, particularly in the United States, prospective franchisees have


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to look for suitable location where the business establishment will be built, Franchisees have to be criticalin assessing the location. Franchisors, however, can guide the franchisee by giving ideas on where afranchise would likely get more sales. They will be the ones to inspect the location and judge if it isdeemed fit for the business.

Store Layout and Construction SupervisionFranchisors give the franchisee the specification for the construction of the store. These

specifications are based on careful planning that would bring about the efficient operations. It alsoincludes how the store facilities will be installed, the color of the walls, decoration and other pertinentmaterials necessary to bring about the ambiance and the distinction of the store.

Exclusive AreaCoverageFranchisors provide exclusive territories to franchise holders. Exclusive territory means

that no other franchise coming from the same organization may overlap territorial limits set by thecontract. The franchisee may enjoy a wider coverage depending of the type of franchise applied for.Usually, the area is about 500 meters in radius for unit franchises, a province or a city for an areafranchise and the whole country for a master franchise. Exclusive areas provide the outlet with the needed

target population without the threat of competition coming from the same organization.

Procurement ProgramsFranchise organizations share the system of procurement with the franchisees. It provides

the list of authorized suppliers for different needs of the franchise outlet. The suppliers give franchiseesthe products at discounted prices.

Hiring AssistanceThe franchisor usually gives the franchisee the guidance needed in hiring personnel that

would fit the nature of the organization. Ensuring qualified personnel is an important preparation prior to

opening of the outlet. The assistance is helpful especially to those who are just beginning to run their own business. The organizations commonly sets aside some of its personnel to help the franchisee in selectingor screening of applicants.

Grand Opening AssistanceThe opening is a highlight event of the franchise outlet. It is common to see businesses

employing propaganda so that many may know of their opening day. Also, the opening day is whn all odthe training and plans will be operationalized. It may be possible that some glitches may occur at theoperation. The franchise organizations management and staff lend a helping hand to make sure thateverything goes smoothly starting at day one.

Marketing StrategiesThe franchisor is generally familiar with tested and proven strategies to guide the

franchisee to remain competitive. It includes aspects of advertising and different promotional tacticsdesigned to ensure continued profit.

Effective Field ServiceFranchisors also provide well-trained and knowledgeable salespersonnel to help the


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franchisee resolve difficulties in the workplace.

Research and DevelopmentThe franchisee must see to it that the business does not remain stagnant. The franchisor

spends time to ensure that improvement in products, services, equipment, operation processes, etc willhappen. Research and Development is necessary to beat the competitors.

CHOOSING A FRANCHISE

1. Why an Entrepreneur may buy a Franchise.

There area many reasons why an entrepreneur may decide to go into business byAcquiring a franchise. These are:

1. Earning depends on the effort2. Opportunities for unlimited income3. Personal Satisfaction4. Tax Benefits5. Freedom to pursue the job you want6. Assurance of continuous employment7. Eliminates the difficulties in starting-up8. Ease in operationalizing the business plan9. Benefits of having an established system10. Benefits from quality research and development

11. Quicker start-up12. Probability of Success is High

Earning depends on the effortA lot of people feel restrained by working in a company. They are not contented with the

salary they receive. The amount of compensation they receive does not reflect in the income they get.When you operate your won franchise, the success depends in how hardworking you are. It is verydifferent in wrking in a company wherein even if so much effort is exerted, the income cannot exceed thesalary cap. Owning a franchise opens an opportunity to have unlimited income.

Opportunities for unlimited incomeA common similarity among wealthy people is taht they own business. Owning a

franchise gives one the chance to earn relatively large sums especially if the franchise is a real crowd-drawer. Succeed in running a business and gain financial strength.

Personal SatisfactionSuccess may be measured in two ways: by the amunt of money and property one acquires


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and by the amount of personal satisfaction gained indoing certainmatters. There are alot of wealthyindividuals that will declare that although having money bring benefits, personal fulfillment broughtabout by achieving dreams, making a management turanaround, employing people etc. are more self-gratifying.

Tax BenefitsOwning a business venture may spell a lot of perks foir the entrepreneur. The

entrepreneur can spend substantial amount for cars, travel, etc. and reflect it as company expemditure.

Freedom to pursue the job you wantOwning a franchise allows a person to choose whatever type of work he/she wants todo

in the operations. Having a franchise merits that the entrepreneur will never be laid off, fired or transferred. This allows certain degree of flexibility unlike in working for a company wherein you areconfined to a rigid description of your job.

Assurance of continuous employmentUnlike working for a company where there is uncertainty of tenure, the entrepreneur has

say on the continuity of the venture. The entrepreneurs capability to manage is a big factor in the business process. Good management allows quality time with the family, friends or for recreation.

Eliminates the difficulties in starting-upThe franchisors experience puts the franchise in middle of the race. In starting a

business, the entrepreneur starts from scratch. Franchisin eliminates those start-up years that are verycrucial stages of the venture.

Ease in operationalizing the business planStarting a franchise eliminates the nitty-grityy of a business start-up. The entrepreneur

does not have to worry too much about the business plan because it has been done. All the entrepreneur needs to do is to actualize what the franchisor has provided.

Benefits of having an operationalized systemThis is an advantage for the entrepreneur as a lot of time may be saved for just thinking

of effective systems for the business. Franchise organization, with all its experiences and resources, provides a big plus factor in business success int he form of its business methods.

Benefits from high quality research and developmentFranchise organziations, especially thse enjoy a degree of success, has a responsibility

To develop itself to maintain that status.Thus, research and development is a part of thier operations.Franchisees obtain the benefits of this research. This is what the royalties, advertising, and other annualfess bring to the business, This is very different in starting own business because the entrepreneur may betied to making profit and neglects the research and development aspect.


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Quicker start-upThe preparations prior to start-up are less time-consujming for a franchise as compared to

starting a business. The initial preparations for franchising have been made by the franchisor.

Probability of success is highThere are surveys that franchising increases not only in the Philippines but in other

countries as well. The Philippine Franchising Association cites that 95% of franchises have made profit.Projection of sales in franchising is as equally promising.

CONSIDERATIONS IN SELECTING FRANCHISES

Though franchising offers to certain degree, smaller amount if work in comparison to starting anew business, it comes with it, nonetheless, significant preparations. The prospective franchisee shouldtake the initiative to investigate the franchise. The entrepreneur shoudl study the franchise well before

buying. One should ask questions about the franchise and it is imperative that all doubts be sufficed. Onemay ask the owner of an existing franchise to answer all the questions the entrepreneur has. Or, one mayalso ask professional advice especially in contracts offered. Never commit the mistake of buying afranchise without a thorough evaluation. In evaluating what franchise to acquire, the following points areimportant to consider.

1. Cost of investmentsa. Franchise Fee

b. Set-up operation

c. Operational expenses and purchasesd. Royaltiese. Advertisements

2. Franchisees preference and interest3. Location of the franchise4. Reputation of the franchise organization5. Franchise support and assistance6. Possibility of obtaining a master franchise

Cost of investments. The amount to be shed for a franchise is substantial. There area

franchises that may cost to just over P20,000.00 to an amount of 50 million pesos. The prospectivefranchisee must ahve knowledge of how much money he/she has and the amount he/she wanted to invest.A franchise requires more than the franchise fee to be spent. There are usually the financial cosniderationsof owning a franchise in the Philippines.

- Franchisee Fee. Depends upon what type of business. Here are of some franchise fess asked byfranchisors. Note: all amount are in Philippine Peso. Data are from the brochures handed out bythe companies given.


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Majestic Ham 500,000 Spped Drinks 300,000Candy World 690,000 Candy Bouquet 500,000Korean Palace 500,000 Business Depot 500,000

- Set-up operation. These are expenses incurred for the renovation or the constructionof the building. This also includes those that will be spent for the arrangement and decoration of the building. There are franchises that have this in the franchise contract but there are lots that donot. The set-up operation fees depend on the size of the location and the facilities required.

- Opreational expenss and purchases. At the start, the franchisee may have to shell out someamount to ensure the flow of operation since the initial sales may not be enough to cover theneeded expenditures.

- Royalties. This is the amount paid to the franchisor periodically. Usually, royalties are per year bais. Franchisors ask for 5 to 15% from the franchisee. This is the mode of income of thefranchisor.

- Advertisements. Franchisees are required to pay some designated amount for advertisements.This is a relatively small amount compared to the benefits the franchise outlet would getespecially if the advertisement is good. Advertisement also covers the promotions in the grandopening that usually cost about P10,000 to P20,000. The gross sales should be alloted by thefranchisee to its local store marketing.

Franchisees Preference and Interest.Though not a very important factor, having a business that fits the entrepreneurs

personality amy help entice him/her to do the job extraordinary well. The entrepreneur may find the work not as a work but as a way to enjoy hin/herself. There are businesses that require the presence of theowners. If the franchisee is interested in the line of work and operations, then there should be no problemson this. Nevertheless, it does not mean that one has to be good cook or an experienced restaurateur tohave a food franchise since adequate training will be provided by the franchisor.

Location of the Franchise.This is the extremely important factor in the business. One hsoul dhave look for a

location that has access to a sizeable number of people, has floor area that may accommodate customershas available parking space for customers and for srvice vehicles. But sometimes, even of the location hasthese, the franchisor may not approve the franchise application. In the Philippines, there is no study yet of the correlation of the amount of sales versus the number of people passing in relation to a location. This issimply because business owners will not disclose the amount if income they make thereby, making itdifficult to forecast the sales with respect to a location.

Also, lcoation is important on the type of franchise onw considers to take. LeCoeur de France, fr example, rejects a lot of franchis eapplications because of location. It looks not for theamount of people passing by the area but the class of people in the area. This is understadable since theAB crowd may only appreciate the products.

Reputation of the Franchise OrganizationOne should check the franchise organization before joining in. It is not a joke to have a


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franchise. Check if the franchise organization provides what is listed in the previous discussion. Dont jump unless you know where youll fall.

Franchisor Support and AssistanceProspective franchisees should check whether the franchise organization has continuing

services offered like product and service development, promotion and public relations design, qualitycontrol programs and financial and administrative programs.

Possibility of obtaining a master franchise.A master franchise is a franchise that is offered by a foreign franchisor to asingle party in

the Philippines. It may also apply to a local company that has plans of extending its operations to other places and wants to apply their management style in all the stores. They are the ones that offer sub-franchises to other people interested in the business. Usually, the cost of master franchises are smaller than the sub franchises. For example, McDonalds, an international food chain has a master franchisor here in the Philippines in the person of George Yang. Prospective franchisee must approach GoldenArches Development Corporation to be able to be granted a McDonal franchise in the Philippines.

DOES THE FRANCHISE HAVE WHAT IT TAKES TO BE SUCCESSFUL?

Table 4-6 below enumerates the factors necessary to ensure that the franchise chosen has theotential for eventual success. They reflect the conditions needed to establish a long-term and stablerelationship. These are must haves that the franchisor-franchisee relationship should enjoy.In other words, a successful franchise is dependent ont he share commitment of both the franchisee and thefranchisor to make the franchise succeed.

FACTORS NECESSARY TO A SUCCESFUL FRANCHISE1. An effective organization2. A clear regulation on products and services to carry3. Policy control on operating assets, goods and services for quality and uniformity.4. Regulation on the use of the franchisees business premises.5. Territorial protection by the franchisor.6. Geographical limits and restrictions to the franchisee.7. Exclusivity and focus in business relationship.8. Restrictions on transfer of the franchise.9. Protection clause to the franchisee after expiration of contract.10. A vision, philosophy and culture harmonious to both franchisor and franchisee.11. Reasonable provision for expansion.12. Continuous improvement and implementation of effective systems to guarantee superior

operations.13. Franchise is recognized as something that provides value-added benefits to the franchisee.14. Franchise disagreements are easily resolved between the parties.


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An effective organizationThe franchise-franchisor relationship is based on the parameters that have been set. The

structure then must reflect an operative system that guarantees communication and commitment withinthe constraints arising from the contract. The structure should offer security to both the franchisor and the

franchisee. A clear regulation on products and services to carry

There is a justification as to why the franchisors only allow certain products and servicesto be offered by the franchisee. They allowa limited scope that is within their expertise. It is also done toensure uniformity of all the franchise outlets. There are instances wherein the franchisor allows somefranchisee to experiment on adding some variants because the franchisor also knows that franchisees areexcellent sources of innovation. An example of this is the product Big Mac of McDonalds. This is aninnovation by the franchisee here in the Philippines. That is why you cannot see a product like this inother countries.

Policy control on operating asets, goods, and services for quality and uniformityThe reason for this is the same as the previous one. In addition control of equipments,

fixtures, signs, goods, and services makes possible that he high quality and uniformity of the goods sold by the franchisee is maintained, taht the products and services are competitively or much lower pricedthan the oterh sources, that confidential information be protected and to ensure profit for the franchisor.

Regulation on the use of the franchisees business premisesThere are times when the franchisor tries to lease or sublease the premises from the

franchisee. This is done so that the franchisor may have the control over the franchisee and effectivelycontrol the business. This is an additional cost to the franchisro but then the fanchisor is sure that the

business continues even if the franchisee does not want to. Petroleum giants like Caltex, Shell and Petron

practice an example of this. These companies lease the location of the gas stations from the franchiseowner. If the franchise owner sees that he/she can not contniue with the business for any reason, thecompanies will look for another willing franchise owner to continue the business at the same place. Theformer owner will now receive only the monthly lease for the use of location.

Territorial protection by the franchisorThe exclusive territories given by the franchisor is a great invitation to potential

frachisees to try their business. Franchisees are more inclined to join franchise organizations especially if they know that they will experience no competition coming from the same brand in their vicinity.Franchisors however may find a difficulty if they overshoot the needed population in the territory. Itmight invite competition commingfrom other company especially if the franchise outlet cannot meet the

demands of th epopulation.Furthermore, the structure of the franchise location provides order fro a strategic market penetration. It allows futher system expnasion without arising conflicts among the franchisees.

Geographical limits and restrictions to the franchiseeAs an effect of the given exclusive territory, franchisors prohibit the franchisees from


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engaging business outside their territorial limits. This allows the franchisee to fully exploit the assignedterritory the franchise outlet has.This is also done to prevent overpopulation which may compromise thequality of the goods.

Exclusivity and focus in business relationshipAlso, the contract will include relationship exclusivity. Franchisors prohibit franchisees

to engage business with a competitive business. This prohibition is necessary to dafeguard confidentialinformation like the revenue and the product and service knowledge. This will also allow the franchisee tochannel all the efforts on the franchised business. The prohibition on exclusive relationship does not onlyapply to the franchisee but may extend to immediate families. This would usually warrant contracttermination of violated.

Restriction on transfer of the franchiseThe franchise cotnract stipulates the details for approval of the transfer and the terms of

Transfer. It will also indicate that the franchisor shall not unreasonably withhold apprival of a transfer.But in actual, franchisors usually restrict the transfer of franchises, unless in extreme cases, in order toeffectively manage the franchisee. The franchisor has the right of first refusal and denies the proposed

transfer especially if the franchisor has sufficient grounds that lead him/her to beleive that the transfer will not benefit the organization.

Protection clause to the frachisee after expiration of contractThis is critical element of the contract. Usually, franchise contract is from 5 to 10uears

for local franchise and 25 years for a master franchise of a foreign organization of the cotnract. There arecontracts that provide the conditions of rthe granting of succession.there are also contract that provide acondition that the franchisee cannot establish a business that will compete with the franchise organization,which he/she belongs to once.

A vision, philosophy and culture harmonious to both franchisor and franchiseeThe philosophy and culture are determinants of the actions of each party. These are the

Perspectives taht would reflect upon the action taken by each. Though the contract and guidelines exist,there will be times these written documents will fail to address a particular instance. These moments callfor actions depending on the dicretion of the franchisee. It is important that both parties have the mutualtrust and confidence that thier moves is in accordnce to the thrust of the organization.

The franchisor has the responsibility toorganize activities that would allow for a regular communication among franchise holders and all the participants of the franchise. There should be venueswhere sharing of ideas, resolving of disputes, planning and creating of innovations is possible.

Reasonable provision for expansion

Expansion is a factor in determining the success of a franchise organization. It is anindicator of progress because it reflects that more and more people are patronizing the product or servicesthat the franchise organization offers. Expansion, however, is only good if the franchise organization canmaintain the franchise integrity vis-a-vis the added responsibilities of effective monitoring and support

backed by excellent marketing studies. Expansion must show that hte new outlets will eran withoutcompromising the income of the existing franchises of the franchise organization.


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Continuous improvement and implementation of effective systems to guarantee superioroperationsThe franchise system is one of the attractions why one considers franchising. The policies

and procedures implemented, more or less, give the franchise its character. Though, franchisor has lesscontrol over franchisees compared to companies, he, nontheless, should improve the system, through

marketing tools, to ensure the excellent performance of the franchise outlets. Moreover, the franchisor should be opent ot he suggestions of the franchisee on upgrading the system. Like any other business,franchises must be adaptable to the constant change of market environment wihtout losing its character.

The franchise is recognized as something that provides value-added benefits tot hefranchiseeThe actions of the franchisor regarding the franchise organization must provide the

franchisees with value satisfaction from the capital they have invested. They should create the perceptionthat the franchise organization is giving the franchisees enough services that would more or less equal theamount of their investments. There should ways to address the dissatisfaction of franchisees with regardto the notion that they do not get enough for what they spend. If the franchisor fails to check this aspect,

the franchisee amy loose interest witht he franchise and may most likely divert their attention to other business ventures.

Franchise disagreements are easily resolved between the partiesThere was news that came out regarding a case filed by a franchisee against the

franchisor. The franchisee filed a case in court against the franchisor that terminated the franchisecontract because he brought into their attention the apparent shortcomings they are committing. Thefranchisor, on the other hand, contrued the criticisms as a strange and unsual behavior in finding faultwith the operations taht is why they terminated the franchisee agreement (See Tempo, September 10,2010, p.5).

This incident will clearly show that in franchisor-franchisee relation, there is a high possibility

that disputes may happen. If either one lodges complaint against the other in court, it would take aminimum of five years for the case to be resolved. The ligitation would prove to be a burden to all partiesconcerned. It is therefore vital for the franchise network to have an effective process to resolve disputes.Arbitration should be the first opiton rather that litigation. Not only does it cost less but also it is muchfaster. Also, some concessions may be made in arbitration that my bring about mutual satisfaction in both

parties. Furthermore, in arbitration, depending on how the arbiter handles the proceeding, a flow of communication that reduces antagonism may happen.

CAN YOU BUSINESS BE FRANCHISED?

Franchsing is a strategy that enables a business toe xpand with the franchsior spending minimal

for the startup of ranchise outlets. The result is an inflow of additional revenue and profit for thefranchisor. Nowadays, we can see significant number of Filipino-owned franchises. A lot of these startedas small business ventures that eventually found their product and system profitably into the market.

An entrepreneur who want to let other people use his business patent, trademark, system or product should also carefuly evaluate the strong and weak points of his business. One should remember that not all businesses could be franchised. A business should carefully assess itself and determine if itcan exist in a highly competitive franchise environment. Table 4-6 below gives some basic factors or conditions under which a business or product may quality to be franchised:


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Table 4-6Conditions Making A Product Eligible For Franchise

1. Business must be in operation for at least a year.2. The business systems can be easily migrated and operationalized3. The business has proven record of profitability.4. There is need for the kind of business in other places.5. The product or services is needed for a long time.6. The prospective franchisor can cope up with expanding administrative job.

Business must be inoperation for at least a year.The products and system are critical element of any franchise. The business, during its

first year of operations, is the prototype. The one-year period will test the validity of the workability of itssystem. It will test if the target market accepts the product. The period will be the trial period whereexperiences are assumed to give the valuable lessons of marketing. During this period, the owner maymaster the procedures and protocols and see if it operates well. This is the trial period where the niche isclearly seen and the business character gains its definition. This is the period where the prototype is

perfected.

The business systems can be easily migrated and operationalized.The franchise relies heavily on the system. If the system can be copied then it is possible

that the business maybe franchised. A system that can be copied means that the business does not ned theclose supervision of the owner for it to be effective. The system should be teachable and can be

performed by other persons.The franchise system must be able to bring the feel that the new franchise is a carbon copy of

the other existing outlets.

The business has proven record of profitability.The input of cash should serve as gauge for your business to be franchised. The profit

reflects the acceptance of the products and the over-all effectiveness of the franchise system.Furthermore, fast, return of investments (ROI) is what franchisees look for.

There is a need for the kind of business in other places.Be sure that the product or services the business offers will find its use in other places. Its

usefulness should not be affected by regional boundaries. Businesses must be judged to have the potentialfor its repeatability in other areas.

The product or services is needed for a long time. Never start a frachise if the product is on the decline. Franchising is a strategy for

additional income but resorting to it to be able to get you out of financial trouble is no-no.Responsibilities come along with franchising. It usually entails cash. There is a need for a continuous


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profit for a long time to make sure that those responsibilities are met and at the same time, the franchiseesget value for their investments.

The prospective franchisor can cope up with expanding administrative job.Franchising a business means additional mamnpower, labor, promotions, etc. The

prospective franchisor must evaluate himself/herself if he/she has the capacity to lead a big organization.The franchisor mest make sure that the franchise is developed on professiional mannerm that there is

peoplw-oriented environment , that he/she has the resiliency against the difficult start-up, and that he .shecan manage to establish an enduring lasting relationship with a team.

MISTAKES TO AVOID IN BUYING A FRANCHISE

If you are a startup entrepreneur who plans to buy or acquire a franchise, it is important to bear inmind that a franchise is not a gurantee of success. You must always evaluate the cost of purchase, therisks and other disadvantages and compare them againt the benefits you expect. Very often, buying afranchise may help bring success in a hurry, since it provides successful management and operating

procedures to guide the business. But thishappens mainly because the franchise buyer has the necessaryability, resources and determination to make it succeed. Furthermore, he is able to anticipate early the

possible risks, problems and mistakes and make provisions for addressing them to his benefit. Some of these mistakes, in fact, can be identified as:

1. Buying a franchise with minimal capital left for operations- After paying the franchise fee, a franchisee must have sufficient funds to sustain the operations

until it generates profit.

2. Being the first in the franchise system- Unless you are very sure that the product will succeed, you are taking a big risj by being that first

to get a franchise in particular area. The first franchise outlet usually sufers great difficulties inoperations and this may cause the franchise to fail.

3. Not following entirely the business plan of the franchisor - Some franchisers modify the business plan of their franchisor to suit their style. This can be an

unwise move since the franchisor has invested a lot to make its system, product or service gainacceptability in the market.

4. Complacency on the part of the franchiser - Franchising requires, hard work, determination and commitment. Success today may mean

failure tomorrow if the franchiser becomes complacent and indifferent to the rapid change goingon in the market environment.

FRAUDULENT FRANCHISORS TO AVOID

The prospective franchisee, before deciding to purchase a franchise and sign any contract, shoulddo a careful investigation first of the franchise organization. This is done as a precaution to avoid scmasand the abundant fraudulent schemes present in the business world. But let us also face the fact that there


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are certain limitations to our jedgment. We may not be able to recognize a fraud especially if the scamartist are good. We might not know we are being taken for a ride. Here are some signs that the

prospective franchise investor must watch out for:

The too-good-to-be-true impression.

These are sales representatives or people who hope to intimidate you into buying the franchise byshowing off. They wear expensive clothes and accesories when you meet them. They may evendrive you around in their up-to-date model car or treat you to an expensive restaurant. They try toconvey a message that whatever they have they got from the franchise. You want to be like me?Then buy the franchise! is the statement that summarizes their set of actions. An unsuspectingvictim will naturally fall for this trap because of the perks the coy artist shows. Always chech theauthenticity of the financial statements and if possible, audit it.

The make-it-fast-deal.This is exhibited by people who insist upon you the franchise using the element of times asleverage. They will give statements like they are leaving town, or that there are other prospective

buyers waiting, or maybe say that the franchise fee might go up, and so forth. They would pressure the buyer and make them feel that not deciding at the soonest possible time is a sign of incompetence. Always take your time and be aware that a deal like this is closing strategy thataims to sell any product fast.

We only accept cash.Be on the lookout for these scam artists. It is quite obvious that the franchise organizationinsisting in this deal is qither withour consideration to the franchisee or is going to the dogs. Cash

payments are difficult to recover. Therefore, if something goes wrong, the franchisee cannot getwhat he/she paid for anymore. Insist to pay in check payable to the company , not any individual.If possible try to ask if payments can be staggered.

Come on, brag.These are sweet-talking people who will promise you the heavens just for you buy the franchise.They will fabricate stories of people eraning so much, regaining their return on investment at ashort period, and so forth. It is easy to spot this because most of the statements are exaggerated.Always put reality on your head. Dont get easily swayed by words. It is good if you stick to your carefukky done business plan. Try to check with BIR or with the PFA if the claims are true.

Living like a dream .These are schemes that tell the investor that there is money in laziness. They will tell you of

procedures that show that cash will be earned for just a small effort and time to give. It is best roremember that no business succeeded without hard work. The first step to fulfill your dream is towake up.

Works on any location.


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A claim like this is obviously a fraud. Business is always affected by its location. Be realistic inthe assessing the market available in choice of location.

Secret!.Ask about the amount being earned per month. If they couldnt give you a supported financial

statement, better walk away. They would usually appeal to your emotions and ask you to trustthem. Dont! Most likely the franchise does not exist.

Exempted from registration.It is illegal fro any business to operate without the necessary permits and registration. Ask for thelegal documents that will certify the existence of the franchise.

Franchisor lacking in capital.This is not necessarily a scam. This is a warning to the franchisee that the franchise organizationisrisky to take. Since the franchisor need to fulfill responsibilities tot he franchisee like researchand development, advertising, training, etc., money will surely be spent. A thinly capitalizedfranchisor may not fulfill the obligations.

LIST OF LOCAL AND FOREIGN FRANCHISES

The boom in the franchising business has encouraged many aspiring entrepreneurs to enter thefranchising scene. In fact, this development is a boost for the countrys franchising potentials, andsuccess, making way for the industrys expansion and maturity. To help potential entrants in identifyingand choosing what type of business franchise to buy, a list of the top franchises in the country is herein

provided.

Documents

Compilation of Topics Discussed in Marketing 21