Franchising

 Definition:
“Franchising is an arrangement
whereby the manufacturer or sole distributor
of a trademarked product or service gives
exclusive right of local distributor to
independent retailer in return for Royalties
and conformation to standardized operating
procedures”.
 Types of Franchising

1. Trade Name Franchising:

A system of franchising in which a
franchisee purchases the right to use
the franchisor’s trade name without
distributing particular product under
the franchisor’s name.
2. Product Distribution Franchising:
A system of franchising in which a
franchiser licenses a franchisee to sell its
products under the franchiser’s brand name
and trademark through a selective, limited
distribution network.

Automobile
3. Pure Franchising:
A system of franchising in which a
franchisee sells a franchisee a complete
business format and system.
 Advantages of Franchising
 Management Training and Support
 Brand Name appeal
 Capital Requirement
 Standard Quality of Goods and Services
 Knowledge of the market
 Operating and Structural Control
 Centralized Buying Power
 Greater Chance for Success
 Advantages to Franchiser
 Expansion Risk
 Cost Advantages
 Profitability
 Location advantage
 Name recognition
 product success
Drawbacks of Buying a Franchisee
 Franchise fees and Profit Sharing
 Strict Adherence to Standardized
Operations
 Restrictions on Purchasing
 Limited Product Line
 Unsatisfactory Training Programs
 Market Saturation
 Lees Freedom
10 myths of franchising
Myth 1:-
Franchising is the safest way to go into
business because franchises never fails.

• The failure rate is lower than the

independent busi.
• No guarantee of success
• Potential franchises take same degree of
caution in judging the risk as they would any
other business.
Myth 2:-
I'll be able to open my franchise for less money
than the franchiser estimates
• Wants to establish a new busi, normally it
takes more money & more time than the
estimation
• One retail company advices, “ if a
franchiser tells u that u need $100000to get
started busi than better u have $150000.”
Myth 3:-
The bigger the franchise organization, the
more successful I’ll be
• Bigger is not always better
• largest franchise has to struggle for
maintaining their growth because the best
location is already taken.
• Market saturation is big problem for large
franchises.
• While smaller franchises are accounting for
much of the growth in the industry.
Myth 4:-
I'll use 80% of the franchiser’s busi system, but
I’ll improve on it by substituting my experience
and know-how.
• When franchisees buy a franchise they are
buying the franchiser’s experience and know-
how.
• If the franchisee isn’t willing to use
franchiser’s system then why to pay all
money to him?
Myth 5:-
All franchises are same.
• Each franchise has its own unique
requirement , procedures, and culture.
• Some will suit on u than others
• Avoid to select the franchise which offers
lowest cost.
• Always see that whether u will be
comfortable with system or not
Myth 6:-
I don’t have to be “hands-on manager”. I can be an
absentee owner and still be very successful

• Hands-on manager means the manager who

solves the problems as it comes
• They don’t believe in formulation of any kind
of strategy.
• So the franchise success requires the
attention of hands on managers
Myth 7:-
Anyone can be a satisfied, successful franchise
owner.
• Free spirit person means the person like
hands-on managers are not always success
and satisfied owner.
Myth 8:-
Franchising is the cheapest way to get into busi
for yourself.

• Sometimes the price tag of buying into some

system is running into several hundreds of
thousands of dollars.
• Actually franchiser look for candidates who
are on solid financial footing.
Myth 9:-
The franchiser will solve my business problems for me,
after all, that’s why I pay ongoing royalty
• The franchiser offers franchisees start-up and
ongoing training programs
• Franchisers will not run their franchisees’
busi for them
• The franchisees’ job is only to take the
formula that he franchiser has developed &
make it work on his location.
Myth 10:-
Once I open my franchises ,I’ll be able to run
things the way I want to
• Franchisees are not free to run the busi any
way.
• Every franchisee signs a contract that
requires to run the busi according to the
franchiser’s requirement.
• If the franchisees violates the terms of an
agreement then the relationship of them
are cancelled.
The right way to buy a
franchise
Before buying a franchise clues which gets
suspicious of an entrepreneur to invest in a
franchise.
• Claims that the franchise contract is a
standard one that you don’t need to
read it.
• Fails to give you a copy of the required
disclosure document at your first face to
face meeting.
• A marginally prototype store or no
prototype at all.
• A poorly prepared operations of the franchise system
& it has only manual outlining or it has no system at
all.
• When the franchiser makes oral promises without
any written documentation.
• If the franchisee turnover rate is high or high
termination rate.
• An unusual amount of litigation brought against the
franchiser.
• Attempts to discourage you from allowing lawyer to
evaluate the franchise contract before you sign it.
• If there is no written documentation to support
claims & promise.
• Claiming to the exampt from federal laws
requiring complete disclosure of franchise details.
• A high pressure sale sign the contract now & lose
the opportunity.
• “Get-rich-quick schemes” promises of huge profits
with min efforts.
• Unwilling to provide a list of present franchisees
for you to interview.
• Evasive, vague to your questions about the
franchise & its operations.
Steps which will help you to make u right
choice
1) Evaluate yourself:-
• Entrepreneurs should study their own traits,
goals, experience, likes, dislikes, risk orientation,
income requirements, time & family
commitments, & other characteristics.
• Will u be Comfortable working in a structured
environment?
• What kinds of Franchises fit your desire lifestyle?
• In what Religion do you want to work or live ?
• What is your detailed Job description?
• Goal is right or not
2) Research your market
• Before buying franchise, research the market in
the area you plan to serve.
• How fast the overall market growing?
• In which area the growth is fast?
• Potential customers & their characteristics?
• Education & income?
• Products & service s do they buy?
• Gaps exit in the market?
• These gaps represent potential franchise
opportunity for you.
3) Consider your franchise option:
• The international association publishes the
franchise opportunity guide, which lists its
members & some basic info about them.
• Many cities host franchise trade shows
throughout the year, where hundreds of
franchisers gather to sell their franchises.
• Convenient & efficient way
• Magazines – entrepreneur, FSB
• Help u to find best franchise within you price
range
4) Get a copy of the franchisers’ UFOC:
• UFOC means Uniform Franchising Offering Circular.
• The law requires franchisers to register a UFOC &
deliver a copy to franchisees before any offer or sale
of a franchise.
• Once you narrow down your choices, you should
contact each franchise & get a copy of UFOC. Read it.
• This document is an important tool in your search for
the right franchise.
• You should make which is the most.
• When evaluating a franchise opportunity ,what
should a potential franchisee looking for?
• Actually there is no guarantee of success ,there are
some characteristics which are:
Characteristics:
• A unique concept & marketing approach
• Profitability
• A registered trademark
• A busi system that works
• A solid training program
• Affordability
• A positive relation with franchisees
I) A unique concept or marketing approach:
Ex:- “me-too” franchises are no more
successful than “me-too” independent
businesses.
Ex:- pizza franchiser like PAPA JOHNS is
known for its quality of its ingredients
while DOMINO’S is known for its fast
delivery
ii) Profitability:
A franchiser should have a track record of
profitability.
Franchisees who follows the business
format should expect to earn a reasonable
rate of return.
iii) A registered trademark:
Name recognition is difficult to achieve
without a well known & protected
trademark.
iv) A business system that works:
A franchiser should have a system i.e
efficient & is well documented in its
manner.
v) A solid training program:
The most valuable components of a
franchise system is the training which offers
to franchisee.
The system should be relatively easy to
teach.
vi) Affordability:
A franchisee should not have to take on
excessive amount of debt to purchase a
franchise.
Being forced to borrow too much money to
open a franchise outlet can ruin a business
from the outset.
vii) A positive relationship with franchiser:
The most successful franchises are those
that see their franchisees as partners &
treat them accordingly.
5) Talk with existing franchisees:
• Interview some franchise owner who is in the
busi at least 1 year about positive & negative
features of the agreement
• Did the franchise estimate the Start-up cost
accurately?
• Do they get support from the franchiser which
has promised?
• Has the franchise met their expectations
concerning profitability & return on investment?
• Would they buy franchise again?
6) Ask the franchiser some tough questions:
• Que about the company & relationship with its
franchisee
• What is the company culture?
• What is the philosophy concerning the relationship?
• How much input do franchisees have into the system?
• What are the franchisers’ future expansion plans?
• What kind of Profit can you expect?
• Does the franchiser have well formulated strategic
plan?
• What happens if you want to sell your franchise in
future?
• In what circumstances either party terminate the
franchise agreement?
7) Make your choice

• After completing research, make the

informed choice about the franchise is right
or not.
• It is time to put a solid busi plan will serve u
on the path of success.
Trends shaping in franchise
Three major growth waves since its beginning
• First wave – early 1970 when a fast food
restaurants used the concept to grow rapidly.
• Second wave – mid 1980s as our economy
shifted heavily towards service sector.
• Third wave – early 1990s & even continuing
today which is characterized by new & low
cost franchises that focuses on specific
market niches.
Significant trends affect the franchise:
1) Changing face of franchises:
• Educated, more sophisticated, more busi
acumen, & more financially secure than
those of 20 years ago.
• Franchising is attracting skilled, experienced
businesspeople whose goal is multiple
outlet & want to cover entire states or
region .
2) International opportunity
• One of major trends in franchising is internationalization
of American franchises system
• Franchising is becoming major export for US
• Growing no of US franchises are moving into international
markets to boost the sales & profit.
• According to the report by Arthur, 44% of US franchisers
have international locations which up from 34% in 1989.
• International expansion is a relatively new phenomena in
franchising & appro. 75% of franchisers established their
first foreign outlet within past 10 years.
• As they venture into foreign market, franchisers have
learned the adaptation which is the key of success
• Busi format may not change, some of the details of
operating of its local outlets must be I there.
3) Smaller, non traditional location
• Actually, the cost of building in full scale
locations is very high so the franchisers are
searching out non traditional location
• In non traditional location, they want to
build smaller & less expensive outlets
• They want to use intercept marketing- it is
the principal of putting a franchises’ products
or services directly in the path of potential
customers
4) Conversion franchises
• Means the owner of independent busi
become franchisees to gain the adv of name
recognition
• The franchiser gets immediate entry into
new market & experienced operators
• The visibility of franchisee gets increased & a
big sales boost
5) Multiple unit franchising
• Means a franchisee opens more than one unit in
a broad territory within a specific time period.
• Multiple ownership of franchise unit has
expanded in recent years.
• Now it is common to own 60, 70, or even 200
units.
• The popularity of multiple unit franchising has
paralleled the trend towards increasingly
experienced & sophisticated franchisees.
• They set very high performance goals which can
not be achieved by a single outlet.
6) Master franchising:
• Means a method of franchising that gives the right to
create a semi independent organization in a particular
territory to recruit, sell & support other franchises.
• The master franchisee buys the right to develop sub
franchises within broad geographic area or sometimes
in entire country.
• Many franchisers use it to open outlets in international
market more quickly & efficiently because it
understand local laws
• Ex:- a YOGURT franchise has a master franchise with
TCBY international and opened 21 stores in China &
Hong Kong.
• Based on his success, the company has sold him the
master franchise in India.
7) piggybacking:
• Piggybacking means combination franchising.
• There are two or more distinct franchise under
one roof
• It is called a “Buddy System”
• This buddy system approach works when the
two franchise ideas are well suited & appeal to a
similar customers.
• Some franchisers are discovering new ways to
reach customers by teaming up with the other
franchisers which selling complementary
products or services.
Ex:- The franchisee who combined
Shell oil (gas station),
Charley’s Steakery (sandwich shop)
TCBY (frozen yogurt)
Franchises under one roof in Columbus, &Ohio.
• Their sales are running 10% higher than the
three outlets would generate in separate
location.
THANK YOU