The Copperbelt University

BS 361: Entrepreneurship
Studies

Lecture 2B: Franchising

K. Mulenga
May 2020

Friday, May 08, 2020 K. Mulenga, April 2020 1

 Introduction
• Franchising offers entrepreneurs an
opportunity to own and operate a
business with greater chance for success.
• Franchising is a method of marketing,
distributing and selling of a product or a
service.

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 Definition of Franchising
• A system in which semi-independent
business owners (franchisees) pay
fees and royalties to a parent
company (franchiser) in return for the
right to become identified with its
trademark, to sell its products or
services, and often to use its
business format and system.
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 Franchised Outlets by Industry (USA)

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 Types of Franchising
• Trade Name Franchising
• Product Name Franchising
• Pure Franchising

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 Trade Name Franchising
• A franchisee purchases the right to use
the franchisor’s trade name without
distributing particular products
exclusively under the franchisor’s name.
• True Value and Western Auto are
examples of trade name franchising.

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 Product Distribution Franchising
• A franchisor licenses a franchisee to sell
its products under the franchisor’s brand
name and trademark through a selective,
limited distribution network.
• Used to market cars (Ford, Lexus), soft
drinks (Pepsi, Coca Cola), gasoline
products (Puma Energy, Total, Engine)
and cosmetics.

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 Pure Franchising
• A franchisor sells a franchisee a complete
business format and system.
• Aka comprehensive or business format
franchising.
• Accounts for 85.1% of franchises in USA.
• Common among fast food restaurants,
hotels, car rental agencies, educational
institutions, business service firms etc.
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 Examples of Zambian Franchises
• Debonairs • Sounds Arcade
• Pizza Inn • Protea Hotels
• Pizza Hut • Subway
• Spar Supermarket • Hungry Lion
• Land Rover • Keg
• KFC • Galito’s

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 Franchisor Advantages

• Low expansion risks

• Low capital investment to expand /
International expansion
• Higher Return on Investment
• Better market observation / Strategic
planning more effective

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 Franchisor Advantages Cont.
• Faster growth
• Low involvement in daily operations /
Less personnel costs
• Highly motivated franchisees to
accomplish work and operate units

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 Franchisor Advantages Cont.

• Franchisees maintain steady quality

control
• Minimum overheads and costs
• Brand awareness
• Low advertising costs

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 Franchisee Advantages
• Risk reduction & safety its an
established brand proven and tested
• Low capital investment
• Initial & ongoing support: Technical ,
managerial, sales and marketing
• Standardized products & services

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 Franchisee Advantages Cont.
• Standardized financial & accounting
systems
• Operations manual provided
• Use of franchisor's secret methods
• Collective buying power

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 Franchisee Advantages Cont.
• Market research
• National & international advertising
programs
• Ongoing research & development
• Quality control standards

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 Franchisee Advantages Cont.
• Supervision & consulting readily
available
• Faster growth
• Site selection guidance and Turnkey
operation (in some franchises only)
• Uniform packaging

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 Obligations

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 Disadvantages
• Costs may be higher than you expect

• Their Way or The Highway

• Lack of creativity and personal decisions

• “Guilt by Association”/ Bad news spreads

quick

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 Disadvantages Cont.

• Reduced risk doesn’t always mean

large profits
• Limited transfer of franchise
• Limited Growth/Expansion
• Cultural Behavior and traits

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 Franchise Costs
• Franchise fee / Entering the system
fee
• Infrastructure and store build up cost
• Royalty fees from gross
revenue/Service management
fee/mark up
• Advertising Fee
• Management Fee
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 How is the initial fee
determined?
• Size of territory

• Potential market

• Number of possible units

• Cost of initial training and support for

the franchisee
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 Is your business ready for franchising?

• Credible

• Unique

• Teachable

• Return

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 Ten myths of franchising
1. Franchising is the safest way to go into
business because franchises never fail.
2. I’ll be able to open my franchise for less
money than the franchiser estimates.
3. The bigger the franchise organization, the
more successful I’ll be.
4. I’ll use 80 percent of the franchiser’s business
system, but I’ll improve upon by substituting
my experience and know how.
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 Ten myths of franchising cont.
5. All franchises are the same.
6. I don’t have to be a hands on manager. I can
be an absentee owner and still be very
successful.
7. Anyone can be a satisfied, successful franchise
owner.

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 Ten myths of franchising cont.
8. Franchising is the cheapest way to get
into business for yourself.
9. The franchiser will solve my business
problems for me; after all, that’s why I
pay an ongoing royalty fee.
10. Once I open my franchise, I’ll be able to
run things the way I want to.

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 Conclusion
• Franchising is a significant part of
small business sector.
• It enhances the chance of success for
the entrepreneur.

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