Scarb Eesbm6e Ppt 06

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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Franchising and theFranchising and the

Entrepreneur Entrepreneur

Franchising and theFranchising and the

Entrepreneur Entrepreneur

CHAPTERCHAPTER

66



Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - 2Ch. 6 !ranchising and the Entrepreneur

The Franchising BoomThe Franchising Boom

More than 3,000 franchisors operateMore than 3,000 franchisors operatemore than 0,000 out!ets in themore than 0,000 out!ets in the"nited #tates$"nited #tates$

Each %ear, franchises produce goodsEach %ear, franchises produce goodsand ser&ices that are 'orth ())*and ser&ices that are 'orth ())*+i!!ion, $- of the "$#$ ./P$+i!!ion, $- of the "$#$ ./P$

Franchises emp!o% one in e&er% *Franchises emp!o% one in e&er% *'or1ers in the "$#$ in more than 30'or1ers in the "$#$ in more than 30ma2or industries$ma2or industries$



Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - "Ch. 6 !ranchising and the Entrepreneur

The Franchising BoomThe Franchising Boom

Economic impact of franchisingEconomic impact of franchising

on the "$#$ econom% ($3 tri!!ion$on the "$#$ econom% ($3 tri!!ion$

A ne' franchise opensA ne' franchise openssome'here in the 'or!dsome'here in the 'or!d

e&er% ) minutes$e&er% ) minutes$



Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - #Ch. 6 !ranchising and the Entrepreneur

FranchisingFranchising

A s%stem in 'hich semi4independentA s%stem in 'hich semi4independent

+usiness o'ners 5franchisees pa%+usiness o'ners 5franchisees pa%

fees and ro%a!ties to a parentfees and ro%a!ties to a parent

compan% 5franchiser in return forcompan% 5franchiser in return forthe right to +ecome identified 'iththe right to +ecome identified 'ith

its trademar1, to se!! its products orits trademar1, to se!! its products or

ser&ices, and often to use itsser&ices, and often to use its+usiness format and s%stem$+usiness format and s%stem$



Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - $Ch. 6 !ranchising and the Entrepreneur

The Franchising Re!ationshipThe Franchising Re!ationship

The Franchiser The Franchisee%&ersees and appro&es' (ay choose site

Pro&ides prototype design

)a*es general reco((endations and

training suggestions

+eter(ines product or ser&ice line

Can only reco((end prices

Establishes uality standards and suppliers

+e&elops and coordinates national ad

ca(paign' (ay reuire (ini(u( le&el o

spending on local ad&ertising

ets uality standards and enorces the(

/ith inspections' trains ranchisees

Pro&ides support through an established

business syste(

Chooses site /ith ranchisers appro&al

Pays or and i(ple(ents design

Hires, (anages, and ires

e(ployees

)odiies only /ith ranchisers appro&al

ets inal prices

)ust (eet uality standards and purchase

only ro( appro&ed suppliers

Pays or national ad ca(paign' co(plies /ith

local ad&ertising reuire(ents' gets ranchisor

appro&al on local ads

)aintains uality standards' trains e(ployees

to i(ple(ent uality syste(s

%perates business on a day-to-day basis /ith

ranchisers support

#ite #e!ection

/esign

Emp!o%ees

Products and #er&ices

Prices

Purchasing

Ad&ertising

7ua!it% Contro!

#upport

E!ement

F8."RE 6$*Source: dapted ro( Economic Impact of Franchised Businesses: A Study for the International Franchise Association,

ational Econo(ic Consulting Practice o Price3aterhouseCoopers, 4I! Educational !oundation, e/ 5or* 200#, pp. ",$.



Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - 6Ch. 6 !ranchising and the Entrepreneur

T%pes of FranchisingT%pes of Franchising

TradenameTradename

Product distri+utionProduct distri+ution

Pure 5Business formatPure 5Business format


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Franchising BasicsFranchising Basics

Franchisee gets the right to use a!! ofFranchisee gets the right to use a!! of

the e!ements of a fu!!% integratedthe e!ements of a fu!!% integrated

+usiness operation$+usiness operation$

Essence of 'hat franchisees purchaseEssence of 'hat franchisees purchase

from the franchisorsfrom the franchisors ExperienceExperience$$

9e% 7uestion :;hat can a franchise do9e% 7uestion :;hat can a franchise dofor me that 8 cannot do for m%se!f<=for me that 8 cannot do for m%se!f<=



Benefits of FranchisingBenefits of Franchising

A +usiness s%stemA +usiness s%stem Management training and supportManagement training and support

#tart4up#tart4up

>ngoing>ngoing Brand name appea!Brand name appea!

::C!oning=C!oning=

#tandardi?ed @ua!it% of goods and#tandardi?ed @ua!it% of goods andser&icesser&ices




ationa! ad&ertising programsationa! ad&ertising programs Franchisees contri+ute *- to - of sa!esFranchisees contri+ute *- to - of sa!es

Financia! assistanceFinancia! assistance

>n!% 0- of franchisors offer direct>n!% 0- of franchisors offer directfinancia! assistance to franchisees$financia! assistance to franchisees$

#BA Franchise Registr%#BA Franchise Registr%

Pro&en products andPro&en products and+usiness formats+usiness formats



F8."RE 6$3 Franchisor Financia! AssistanceSource: The Profle o Franchising 2006, International Franchise Association

(Washington, DC: 2007), ! 70!




Centra!i?ed +u%ing po'er Centra!i?ed +u%ing po'er

#ite se!ection and territoria! protection#ite se!ection and territoria! protection

8mportant issue8mportant issueTerritoria! encroachmentTerritoria! encroachment

.reater chance for success.reater chance for success


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/ra'+ac1s of Franchising/ra'+ac1s of Franchising

Franchise fees and ongoing ro%a!tiesFranchise fees and ongoing ro%a!ties A&erage upfront franchise fee D (,*A&erage upfront franchise fee D (,* Ro%a!ties range from *- to **- ofRo%a!ties range from *- to **- of

franchisees sa!esfranchisees sa!es A&erage ro%a!t% D 6$- of sa!esA&erage ro%a!t% D 6$- of sa!es

#trict adherence to standardi?ed#trict adherence to standardi?ed

operationsoperations Restrictions on purchasingRestrictions on purchasing

Appro&ed supp!iers on!%Appro&ed supp!iers on!%


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/ra'+ac1s of Franchising/ra'+ac1s of Franchising

Gimited product !ineGimited product !ine Contract terms and rene'a!Contract terms and rene'a!

A&erage term D *0$3 %earsA&erage term D *0$3 %ears

"nsatisfactor% training programs"nsatisfactor% training programs Mar1et saturationMar1et saturation

Gess freedom Gess freedom ::o independence=o independence= ::Happ% prisoners=Happ% prisoners=

4continued


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Ten M%ths of FranchisingTen M%ths of Franchising

*$*$ Franchising is the safest 'a% to go intoFranchising is the safest 'a% to go into+usiness +ecause franchises ne&er fai!$+usiness +ecause franchises ne&er fai!$

$$ 8!! +e a+!e to open m% franchise for !ess8!! +e a+!e to open m% franchise for !ess

mone% than the franchiser estimates$mone% than the franchiser estimates$3$3$ The +igger the franchise organi?ation, theThe +igger the franchise organi?ation, the

more successfu! 8!! +e$more successfu! 8!! +e$

$$ 8!! use )0 percent of the franchisers8!! use )0 percent of the franchisers+usiness s%stem, +ut 8!! impro&e upon +%+usiness s%stem, +ut 8!! impro&e upon +%su+stituting m% eperience and 1no'4ho'$su+stituting m% eperience and 1no'4ho'$




$$ A!! franchises are the same$A!! franchises are the same$

6$6$ 8 dont ha&e to +e a hands4on manager$8 dont ha&e to +e a hands4on manager$

8 can +e an a+sentee o'ner and sti!! +e &er%8 can +e an a+sentee o'ner and sti!! +e &er%successfu!$successfu!$

$$ An%one can +e a satisfied,An%one can +e a satisfied,

successfu! franchise o'ner$successfu! franchise o'ner$

(continued)(continued)




)$)$ Franchising is the cheapest 'a% to get intoFranchising is the cheapest 'a% to get into

+usiness for %ourse!f$+usiness for %ourse!f$

$$ The franchiser 'i!! so!&e m% +usinessThe franchiser 'i!! so!&e m% +usiness

pro+!ems for meI after a!!, thats 'h% 8 pa% anpro+!ems for meI after a!!, thats 'h% 8 pa% anongoing ro%a!t% fee$ongoing ro%a!t% fee$

*0$*0$ >nce 8 open m% franchise,>nce 8 open m% franchise,

8!! +e a+!e to run things8!! +e a+!e to run thingsthe 'a% 8 'ant to$the 'a% 8 'ant to$




Franchising and the Ga'Franchising and the Ga'

Franchise /isc!osure /ocument 5F//Franchise /isc!osure /ocument 5F// Esta+!ished in 00) to rep!ace the "niformEsta+!ished in 00) to rep!ace the "niform

Franchise >ffering Circu!ar 5"F>CFranchise >ffering Circu!ar 5"F>C Re@uires franchisors to disc!ose toRe@uires franchisors to disc!ose to

potentia! franchisees information on 3potentia! franchisees information on 3

important topicsimportant topics >+2ecti&e To gi&e franchisees the>+2ecti&e To gi&e franchisees the

information the% need to protectinformation the% need to protectthemse!&es from dishonest franchiseesthemse!&es from dishonest franchisees

and to ma1e good in&estment decisionsand to ma1e good in&estment decisions

/ t ti /i h t F hi



/etecting /ishonest Franchisers/etecting /ishonest Franchisers

C!aims that the contract is :standardI no need toC!aims that the contract is :standardI no need toread it$=read it$=

Fai!ure to pro&ide a cop% of the re@uired disc!osureFai!ure to pro&ide a cop% of the re@uired disc!osure

documents$documents$

Margina!!% successfu! protot%pe or no protot%pe$Margina!!% successfu! protot%pe or no protot%pe$

Poor!% prepared operations manua!$Poor!% prepared operations manua!$

Promises of future earnings 'ith no documentation$Promises of future earnings 'ith no documentation$

High franchisee turno&er or termination rate$High franchisee turno&er or termination rate$

"nusua! amount of !itigation +% franchisees$"nusua! amount of !itigation +% franchisees$

In addition to the text

/ t ti /i h t F hi/ t ti /i h t F hi



Attempts to discourage %our attorne% fromAttempts to discourage %our attorne% from

e&a!uating the contract +efore signing it$e&a!uating the contract +efore signing it$

o 'ritten documentation$o 'ritten documentation$

A high pressure sa!e$A high pressure sa!e$ C!aims to +e eempt from federa! disc!osure !a's$C!aims to +e eempt from federa! disc!osure !a's$

::.et rich @uic1= schemes, promising huge profits.et rich @uic1= schemes, promising huge profits

'ith minima! effort$'ith minima! effort$

Re!uctance to pro&ide a !ist of eisting franchisees$Re!uctance to pro&ide a !ist of eisting franchisees$

E&asi&e, &ague ans'ers to %our @uestions$E&asi&e, &ague ans'ers to %our @uestions$


/etecting /ishonest Franchisers/etecting /ishonest Franchisers




TheThe Right Right ;a% to;a% to

Bu% a FranchiseBu% a Franchise E&a!uate %ourse!f 4 ;hat do %ou !i1e andE&a!uate %ourse!f 4 ;hat do %ou !i1e and

dis!i1e<dis!i1e< Research %our mar1et$Research %our mar1et$

Consider %our franchise options$Consider %our franchise options$ .et a cop% of the Franchisors F// .et a cop% of the Franchisors F// andand

read it! read it!

Ta!1 to eisting franchisees$Ta!1 to eisting franchisees$ As1 the franchiser some tough @uestions$As1 the franchiser some tough @uestions$ Ma1e %our choice$Ma1e %our choice$



Factors That Ma1e aFactors That Ma1e a

Franchise Appea!ingFranchise Appea!ing

"ni@ue concept or mar1eting approach"ni@ue concept or mar1eting approach

Profita+i!it%Profita+i!it%

Registered trademar1Registered trademar1

Business s%stem that 'or1sBusiness s%stem that 'or1s

#o!id training program#o!id training program Afforda+i!it%Afforda+i!it%

Positi&e re!ationship 'ith franchiseesPositi&e re!ationship 'ith franchisees




Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - 2"Ch. 6 !ranchising and the Entrepreneur

Trends #haping FranchisingTrends #haping Franchising

Changing face of franchiseesChanging face of franchisees Better educated 'ith more +usinessBetter educated 'ith more +usiness

acumenacumen

Mu!tip!e4unit franchisingMu!tip!e4unit franchising - of franchisees operate mu!tip!e out!ets- of franchisees operate mu!tip!e out!ets

5and gro'ing5and gro'ing

8nternationa! opportunities8nternationa! opportunities 8FA #ur&e% - of "$#$ franchisors ha&e8FA #ur&e% - of "$#$ franchisors ha&e

an internationa! presencean internationa! presence

Master franchisingMaster franchising



Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - 2#Ch. 6 !ranchising and the Entrepreneur

Trends #haping FranchisingTrends #haping Franchising

#ma!!er, nontraditiona! !ocations#ma!!er, nontraditiona! !ocations 8ntercept mar1eting8ntercept mar1eting

Con&ersion franchisingCon&ersion franchising

- of orth American franchisors use- of orth American franchisors useas a gro'th strateg%as a gro'th strateg%

Pigg%+ac1ing 5or com+ination orPigg%+ac1ing 5or com+ination or

mu!ti4+randed franchisingmu!ti4+randed franchising #er&ing dua!4career coup!es and#er&ing dua!4career coup!es and

+a+% +oomers+a+% +oomers



Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - 2$Ch. 6 !ranchising and the Entrepreneur

Conc!usionConc!usion

FranchisingFranchising

8s a 1e% part of the sma!! +usiness8s a 1e% part of the sma!! +usiness

sector sector

8ncreases the chance of +usiness8ncreases the chance of +usiness

success for the entrepreneur success for the entrepreneur

.ro'th continues.ro'th continues



6 26

ll rights reser&ed. o part o this publication (ay bereproduced, stored in a retrie&al syste(, or trans(itted, in anyor( or by any (eans, electronic, (echanical, photocopying,recording, or other/ise, /ithout the prior /ritten per(ission o

the publisher. Printed in the :nited tates o (erica.

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