Scarborough eesbm11e ppt06 Franchising and the Entrepreneur

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall 6-1

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall. 6-2

Chapter 6

Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall.

Shoppers can now buy virtually every product or service imaginable through franchises

More than 757,000 franchise outlets in the United States Employ almost 8.2 million peopleGenerate $802 billion in annual economic

output – adding $460 billion to the country’s GDP

6-3


Franchised Businesses by Product or Service Line


Franchising in Global Markets International Franchise Association survey:

61% percent of members operate in international markets74% plan to accelerate global growth

32% of the units of the 200 largest U.S. franchisors are located outside the U.S.Hot markets: Brazil, Russia, India, China, and

nations in the Middle East and North Africa

6-5


Franchising: semi-independent business owners pay fees and royalties to a parent company in exchange for the right to sell its products and services under the franchiser’s trade name and often to use its business format and system Going into business for yourself, but not by yourself

6-6


Three basic types:1. Trade-name franchising2. Product distribution franchising3. Pure franchising (or comprehensive

franchising or business format franchising

6-7


Primary reason to buy a franchise is the mutual benefits to the franchisor and franchiseeFranchisees are buying the franchiser’s

experience Franchisees get a proven business system and

avoid having to learn by trial-and-errorBefore buying, ask: “What can a franchise do for

me that I cannot do for myself?”

6-8


The Franchise Relationship


What do you get when you buy a franchise?A business systemManagement training and supportBrand name appealStandardized quality of goods and servicesNational advertising programFinancial assistanceProven products and business formatsCentralized buying powerSite selection and territorial protectionIncreased chance for success

6-10


Franchise Lending Activity


What are the drawbacks of a franchise?Franchise fees and ongoing royaltiesStrict adherence to standardized operationsRestrictions on purchasingLimited product lineMarket saturationLimited freedomNo guarantee of success

6-12


A Franchise Evaluation Quiz


Franchisors are required to file a Franchise Disclosure Document (FDD) Key tool for protection Franchisers must deliver a copy of a FDD

before any offer or sale of a franchiseThe FTC requires that FDDs use ‘plain English’

6-14


The FDD contains information on 23 topics, including:Franchiser’s business experienceFranchise fees and costsLawsuits involving the franchiserFinancial assistance availableTerritorial protection grantedRestrictions on purchasing

6-15


Preparation, common sense, and patience are vital ingredients in choosing the right franchiseEvaluate yourself

What do you like and dislike?Research the marketConsider your franchise optionsGet a copy of the FDD and study it

6-16


What should you look for?A unique concept or marketing approachA profitable business modelA solid brand name and a registered trademarkA business system that worksA solid training programAffordabilityA positive relationship with franchisees

6-17


Preparation, common sense, and patience are vital ingredients in choosing the right franchiseEvaluate yourself

What do you like and dislike?Research the marketConsider your franchise optionsGet a copy of the FDD and study it

Franchise turnover rateTalk to existing franchiseesAsk the franchisor some tough questionsMake your choice

6-18


A franchise contract summarizes the details that will govern the franchisor-franchisee relationshipOutlines the rights and obligations of each party

Often favors the franchisorFTC requires that franchisees receive a complete

and revised contract at least 5 days before signing it

6-19


Pros Cons

New Franchise

Can be new and exciting Business concept can be fresh

and different in the market Possibility of getting lower fees

as a “pioneer” of the concept Potential for a high return on

investment

Business is not tested or established in the market

Unknown brand and trademark Possibility that the concept is a fad

with no staying power Franchiser may lack the experience

to deliver valuable services to franchisees

Established Franchise

Business concept likely is well-known to consumers and market for the products or services is already established

Franchiser has experience in delivering services to franchisees

Franchiser has had time to work the “bugs” out of the business system

High franchise fees and costs that often are non-negotiable

Concept may be on the wane in the market

Franchiser’s brand and trademark may remind customers of an outdated concept

Franchiser’s “trade dress” may be in need of updating and redesigning


Three terms responsible for most disputes: 1. Termination

Franchisees are usually prohibited from terminating the agreement, but franchisors can terminate ‘with or without cause’

2. RenewalFranchisors usually have the right to renew or refuse

contract renewal3. Transfer and buybacks

Franchisees are usually not free to sell their business without approval

6-21


Three major growth waves since the beginning of franchising1. Early 1970s – fast food boom2. Mid-1980s – shift to the service sector3. Early 1990s – focus on specific market niches

6-22


Changing face of franchiseesToday’s franchisees are:

More diverse Better educated More experiencedMore financially secure

Multiple unit franchising Multiple-unit franchising is more efficient

International opportunitiesKey to success: Adaptation

6-23


Smaller, nontraditional locationsIntercept marketing

Conversion franchisingConversion franchising offers instant name

recognitionRefranchising

Refranchising is reducing the number of company-owned stores

6-24


Area development and master franchisingArea development offers exclusive rights to an

areaMaster franchises or subfranchises can be a

good option in international marketsCobranding

Cobranding or combination franchising involves teaming up with complementary products or services

Serving dual-career couples and aging baby boomers

6-25


Entrepreneurs can use franchising as a growth strategy

To create a successful franchise operation you need:A unique conceptA replicable conceptAn expansion planTo do due diligenceLegal guidance

Initial cost to launch a franchise business is $100,000 to $750,000

To provide support for franchisees

6-26


Engineering

Scarborough eesbm11e ppt06 Franchising and the Entrepreneur