FRAN211

Broad Market Low variety within product lines

MIDTERM REVIEWER
CO-BRANDING
 It occurs when two brands are combined in a business offering.
 Each brand expects the other to be strong and will draw
customers who have brand preference for the other brand.
 According to Ellen Shubart, co-branding columnist for Franchise
times, “No one is keeping tabs on the precise numbers, but
growth in co-branded franchises appears to be higher than
growth in franchising alone.”
 BRANDING: A franchisor’s brand name is a critical element in
the chain’s success as its prominent display at each outlet
signals to potential customers consistent quality at a given
price-level.
 BRAND – is a name, term, sign, symbol or design or a
combination of them intended to identify the goods or services
of seller or group of sellers and to differentiate them from
those of competitors.
 A brand then can be a trademark, name, logo, or symbol
representing the franchise.
 The idea behind co-branding is that several brands can
command more power through customer awareness and traffic
than a single brand-name operation.
BRAND EQUITY (4 dimensions):
o Brand Loyalty
o Brand Awareness
o Perceived quality of brand
o Brand Association
EMERGENCE OF CO-BRANDING:
The following are the most common motivational factors
among franchisors and franchisees:
 MATURE MARKETS – provides little opportunity for sales and
profit growth through traditional outlets.
 LABOR SHORTAGES – as the franchise world begins the twenty-
first century, it faces unprecedented labor shortages to
continue in the future.
 LAND SHORTAGES – location is often the key to reaching the
desired target market. Retail sites that were previously passed
over by a franchisor because they were too large or
inappropriate becomes feasible with co-branded units.
High level of customer traffic General Image
One-stop shopping Some disappointed customers
Emphasis on convenience Reduced customer loyalty
customers
8 STEP PROCESS IN CHOOSING AND EVALUATING A CO-BRAND:
1. Identify your positioning strategy for your local market.
2. Contact industry insiders to learn more about the nature of co-
branding.
3. Define exactly what you want to do in terms of your co-
branding partnership.
4. Meet with principles from the second brand, as well as your
first brand.
5. Perform feasibility analysis to determine the potential return on
investment.
6. Make decision to co-brand or not to co-brand.
7. Negotiate contract with second franchise system.
8. Renegotiate contract with your first brand if necessary.
Once a franchisee decides that co-branding is a viable option for a
given unit or multiple locations, the franchisee has several
FORMATS. The following are frequently cited formats:
 SINGLE FRANCHISEE/SINGLE FRANCHISED
BRAND/ADDITIONAL NON-FRANCHISED BRAND – occurs when
a single franchisee obtains the rights to distribute a second
(non-franchised brand)
 SINGLE FRANCHISEE/DUAL FRANCHISED BRANDS – Occurs
when a single franchisee obtains the rights to franchise a
second system.
 DUAL FRANCHISEES/DUAL FRANCHISED BRANDS – occurs
when two local franchisees decide to coexist and build their
stores together.
PORTFOLIO MANAGEMENT OF MULTIPLE BRANDS – occurs when a
franchisee brings together numerous franchise systems to provide a
comprehensive and market- tailored opportunity at the retail level.
Ex. HMS host corporation is the leading provider of food, beverage,
and retail concessions in travel venues in the world. The company
currently holds licensing and franchising rights to over 100
internationally and regionally known brands representing franchisors
from the United States as well as Europe, Canada and orient.

THE BASIC PROS AND CONS OF CO-BRANDING:

 SINGLE BRAND OFFERING: TRADEMARKS, COPYRIGHTS, PATENTS, AND
ADVANTAGES DISADVANTAGES TRADE SECRETS

Specialist image No-one stop shopping Introduction:

Good customer choice
category
Specialized personnel
Customer loyalty
 MULTIPLE BRAND OFFERRINGS
ADVANTAGES
Too much emphasis on one category
More susceptible to trends
Greater effort needed to enlarge the
size trading area.
DISADVANTAGES
 The term INTELLECTUAL PROPERTY describes a collection of
intangible rights, including trademarks, copyrights, patents, and
trade secrets. These are intangible assets that are formed not
of bricks and mortar, but are expressions of the human
imagination.
 If handled properly, ownership of these forms of intellectual
property will be protected by the law, as the other forms of
private property.
 The intellectual property rights are the basic legal building
blocks of a franchise system.
BRIEF DEFINITIONS ON TYPES OF INTELLECTUAL PROPERTY:
 TRADEMARK – is a word, name, phrase, symbol or in some
cases a design that is used by a manufacturer or merchant to
identify and distinguish its goods from those sold by others and
to indicate the source of the product.
 SERVICE MARK – is the same as a trademark but identifies an
intangible service of a product.
 COPYRIGHT – is a property right provided by the government in
an original work of authorship that is fixed in a tangible form.
 TRADE SECRET – is confidential business information that is
treated in a confidential or secret manner and that would have
independent economic value if it were in the hands of a
competitor.
 PATENT – is a protectable property right granted by the
government that protects an invention, new device, or
innovation.
TRADEMARKS
 It is used by a manufacturer or merchant to identify and
distinguish its goods from those sold by others and to indicate
the source of a product.
Example:
 XEROX is a registered trademark of the Xerox
Corporation, and is used by that company to identify
its famous copier machines and other products and
services.
 The mark PIZZA HUT is used by its owner, PepsiCo, to
identify the restaurant services of its pizzas.
 A TRADEMARK or SERVICE is not always limited to a word or
name or phrase.
 The distinctive logo such as the famous golden aches of the
McDonalds Corporation.
SELECTION OF A TRADEMARK:
 FANCIFUL OR COINED TRADEMARKS – the courts will provide
these marks the greatest protection.
Example. Kodak, Olympus for Cameras, Petron, Caltex, Shell,
Sea oil, Unioil for petroleum products
 ARBITRARY MARKS – Aslo considered as strong marks and are
dictionary words that have been used arbitrarily to identify the
products and services.
Example: Camel for cigarettes, Apple for computers by Apple
computer Corp., Colgate by Colgate - Palmolive Philippines
 SUGGESTIVE MARKS – describe a feature or quality of the
product or service. But require some imagination to make the
connection.
Example: Mustang (Automobiles), Ivory (Soap)
 DESCRIPTIVE MARKS – which merely describe their goods or
service, are weak marks. Little protection from courts.
Example: Honey baked ham, Select Registry
 GENERIC TERMS – Can never become trademarks. These are
dictionary words or other common expressions that describe in
common fashion of a product or service.
Example: Sandwich, Bed, Table
PROPER USE OF TRADEMARKS AND SERVICE MARKS:
1. DISTINGUISH THE MARK FROM ITS SURROUNDINGS –
trademarks are special terms, not ordinary words.
Correct: “You can’t go wrong with Tide powder.”
Incorrect: “Tide powder last a long, long time.”
2. USE ONLY AS AN ADJECTIVE – never as a noun, verb or adverb.
Correct: “Please pass those delicious Goldilocks cake.”
Incorrect: “My hair was Ajaxed until it took on this wonderful
time.”
3. USE NOTICE SYMBOL – your trademarks should carry the
appropriate notice.
TM – Can be placed on any trademark as soon as it is used as a
mark. You need no registration of the mark to display.
® - Indicates that the mark has been registered with the
Intellectual property office of the government.
COPYRIGHTS
 Copyright laws protect the rights of the authors and creators of
writings, artworks, crafts, materials, brochures, sculptures,
plays.
 Computer software, motion pictures, sound recordings and
works of architecture.
 It is provided by the government in an original work
of authorship that is fixed in a tangible form.
 An author cannot protect ideas, but can claim
copyright in the original expression of an idea.
 WHEN SHOULD AN AUTHOR REGISTER A COPYRIGHT?
Registration of a copyright is done with the copyright office
under the intellectual property rights office of the government
by submitting the work in an application form.
 HOW LONG DOES THE REMAIN IN EFFECT?
The copyright remains in effect for the life of the author, plus
5oyears following the death of the author. The copyright will be
effective for seventy-five years from the date of publication.
TRADE SECRETS
 If a business has particularly sensitive and important
information that it does not want to fall into the hands of the
competitors, the law on trade secrets will provide protection.
 A trade secret is generally defined as information, including
formula, pattern, compilation, device, method, process.
PATENTS
In exchange for revealing publicly how the invention works, society
grants the inventor up to twenty years in which to exclude others
from making, using, or selling, offering to sell or importing the
invention in the Philippines.
 What can be patented?
 Whoever invents or discovers any new and useful process,
machine, manufacture of composition of matter, or any useful
improvement.
 Must be new.
 Must be useful.
 Must be non-obvious to one of the ordinary skill in the art to
which the subject matter pertains.
FRANCHISING YOUR FRANCHISED BUSINESS
FINANCIAL OBLIGATIONS OF THE FRANCHISEES:
 Franchising fees
 Royalty fees
 Advertising fees
 Training fees
 Other fees
FINANCIAL RESOURCES OF FRANCHISEES:
(Debt Financing and Equity Financing)
• Equity Financing – is selling the ownership of the company to
other investors.
• Debt Financing – generally involves short-term debt incurred to
help purchase investors or covers accounts payable.
When borrowing it is important that the franchisee understand
the five C’s of credit
1. Capacity (ability to repay the loan)
2. Capital (personal financial strength-net worth of
business)
3. Character (personal attributes of the applicant)
4. Collateral (assets pledged against the loan amount)
5. Conditions ( general economic climate at the time of
the loan)
DEBT FINANCING:
 SHORT-TERM FINANCING – generally involves the use of
money for less than one year.
 TRADE CREDIT – the most common term of short-term
financing. The franchisee can receive credit from suppliers
and/or service companies.
 COMMERCIAL PAPER – is a short-term promissory note which
the franchisee signs and sells to the investor. 30 to 270 days.
 INTERMEDIATE-TERM FINANCING – one to three year financing
requirements.
 UNSECURED OR SIGNATURE LOAN – a revolving kind of credit
agreement
 INVENTORY LOAN – in this case the franchisee is required to
actually present the purchase orders or inventory at hand.
 LONG-TERM FINANCING – used to provide funds for purchase
of permanent assets.
TYPES OF DEBT FINANCING:
1. BANK TERM LOANS – formal agreement between the bank
and the franchisee for the use of a specified money at a
given interest rate for specific period of time.
2. EQUIPMENT LEASE FINANCING – It enables the franchisee
to obtain equipment at a lower cost, eliminate risk of
ownership, obtain service and maintenance agreements
from the lessor.
EQUITY FINANCING:
 STOCK SALES – a franchisee may obtain long-term financing by
selling stock to family and friends through public offerings. The
stockholders become the actual owners of the corporation or
franchise.
 COMMON STOCK FINANCING – the franchisee obtains funds
necessary to start the franchise.
PARTNERSHIP – desire of the individuals to work together to
contribute certain initial capital for anticipated outlays. All
general partners may act as agents or representatives of the
franchisee.
CAPITAL INVESTMENTS:
• TERM LOANS – debt instruments providing a fixed sum of
money, with interest and principal repaid over a defined period
of time.
• CONVERTIBLE BOND – conversion of bond into shares of stocks
(common shares)
• BOND WITH STOCK WARRANT – allows the bondholder to
purchase a defined number of stock shares at designated price
during a defined period of time.
• PREFERRED STOCK – equity instrument yielding dividend rights
over common stock and steady dividend.
• COMMON STOCK – with voting stock but does not receive
dividends.
• CONVERTIBLE PREFERRED STOCK – preferred stock may be
converted into common stock at stockholder’s option.
LIMITED PARTNERSHIP – must include at least one general
partner, usually the franchisee. The limited partners liability is
limited to the amount of capital contributed or the amount of
risk they agree to bear.
MANAGING THE FRANCHISOR’S OPERATIONS PROCESS
THE PROMOTIONAL PACKAGE
 A franchise package is generally divided into two parts, the
promotional package and the operations materials.
 PROMOTIONAL PACKAGE — is the carefully-prepared
information developed and given by the franchisor to
prospective franchisees in order to 1.) solicit franchisee
applicants to the franchise system, 2.) provide basic
information about the franchise and 3.) Illustrate the follow up
forms used to sign franchises.
 The purpose of the promotional package is to solicit and sign
franchisees.
The franchisee would be interested in learning about the
items identified in the following list:
 A description of the business, its product, and/or
services.
 Background information about the franchisor and
franchised company.
  Historical information concerning development and
operation of a franchised unit.
 Amount of money required for acquisition of a
franchise.
 Assistance offered by the franchisor (financial,
training, and service) to a franchisee.
 Site, equipment, and building information.
 Marketing factors associated with promotion and sale
of the franchise system’s products or services.
 Financial information about franchisees and the
franchise system.
 According to Mark Seibert, “The best franchisees are motivated
adopters, that is, people are willing to take on some level of risk
and are willing to follow rules set forth by the franchisor.”
 For example, when someone buys a McDonald’s franchise, they
are not buying it to learn the recipe of the big mac sandwich.
Instead they are buying into a system that offers superior value
as a brand to a franchisee and quality products to its customers.
 Prospective franchisees want to buy a consistent customer
experience that is proven, day after day, to be successful in the
marketplace.
FIVE APPROACHES TO THE MARKETPLACE:
1. Biggest: dominant assortment of products
2. Quickest: Fast service
3. Cheapest: Lowest prices on a day to day basis.
4. Hottest: quickest availability of newest fashion, newest
technology.
5. Easiest: High service orientation: “We’ve got it all for you”
according to SM., “We implement the solution until you are
satisfied.”
ADMINISTRATIVE EXPENSES:
The primary administrative costs are hiring and training salespeople
to recruit or solicit prospective franchisees. The nonpersonnel costs
include: the cost of publishing brochures, advertising or promoting
the business.
RECRUITMENT PACKAGE:
Usually consists of a recruitment brochure, a disclosure document
and other information about the benefits and opportunities of
becoming a franchisee with the franchise system.
Brochures includes:
 Description of the business
 The principal people in the franchise system (primary
ownership)
 The franchise system:
a. Territory covered
b. Operating assistance
c. What is needed for a franchisee to get started.
d. Franchise system’s regional or national
advertising program.
 Operating a franchise;
a. Location
b. Training
c. Insurance
d. Assistance
e. Management and planning
f. Standards of performance
g. Trademarks and trade names
h. Duration of the franchising agreement.
 Investments
 Franchise application
OPERATIONS PACKAGE:
 Is fairly extensive, and the materials are often put in the form of
manuals.
 The purpose of the manuals is to properly conduct the
operations of the franchise.
There are at least 10 MANUALS WHICH MAKE THE OPERATIONS
PACKAGE:
1. OPERATING MANUAL – it is the bible of the franchise system.
Given to the franchisee on loan, and is to be returned to the
franchisor if the franchisee ever leaves the system.
2. TRAINING MANUAL – a guide for teaching operating
procedures and personnel management.
 Formal training program – provide opportunity for the
franchisor to help new franchisees develop specific
knowledge about the franchise system and business
factors in running a successful franchised unit.
 Ongoing training – is usually provided by field staff of the
franchisee after the franchisee has entered business.
3. TRAINING PROGRAM DEVELOPMENT – the franchisees need to
learn in order to be successful operator. It should develop basic
management and business skills.
4. LOCATION SELECTION CRITERIA – one of the most crucial
decisions confronting a franchisee in the selection of the site for
the new franchised business. Depend on drive thrus, extensive
advertising, their business name in the phonebook.
5. MARKETING MANUAL – describes the franchisor’s marketing
philosophy. It discusses in detail the features and
characteristics used to market the franchised business offering
which may be consumer or industrial goods, durable or
nondurable goods, or a service.
 It also includes about packaging, labelling, and consumer
services.
 It should also include the market position the franchise
system seeks, in terms of the market segment and
customer groups targeted and competitive position the
franchise system wants to reach and maintain.
6. ADVERTISING MANUAL – means effective communication and
promotion of the franchised product to the targeted audience.
It covers at least four topics:
a. advertising
b. promotion
c. graphics
d. signage.
 Determine the objective of the advertisement, what
message is to be conveyed and the media most
appropriate in conveying the message.
 The promotional materials are to attract market response
or enhance existing customer demand.
  The graphics provides the franchisee with information
about how, where, and when to use the trademarks, logos,
and service marks.
 The franchisees are requested to help identify those
copying of trademarks, logos of the franchisor.
 Signage – the franchisor insists on one unchangeable sign
for the entire franchise system.
7. FIELD SUPPORT MANUAL – it includes training, inspection,
record-keeping, financial planning, and quality-control
standards and procedures of the business.
8. PRE-OPERATING MANUAL – it includes the checklists of
activities and steps that must be completed before a grand
opening.
9. SITE INSPECTION MANUAL – It includes store ambiance,
attractiveness of décor, cleanliness of restrooms and operating
equipment, neatness of customer service and personnel
appearance of employees.
10. RECORDKEEPING MANUAL – the franchisor, working with the
accountant which is to develop a standardized accounting and
recordkeeping system. Obtaining accurate financial information
with a minimum time and effort.
 Needs to have weekly or monthly income statements
reflecting sales and expenses, the balance sheet also on
monthly or semi-annually basis.

DAWANG | MM2-1