BG33303 – FRANCHISING

MARKETING MANAGEMENT

Franchising
History and Overview

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After studying this chapter, you should
be able to…
 Understand the history of franchising
 Understand the concepts of international franchising

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 Franchising: Past
O Most rapid growth in North America
since the 1950s.
O 1960s: Franchisee associations formed
and legislation to protect rights of
franchisees and franchisors.
O More than 40% of all retail sales
resulted from franchising in North
America in the last decade.

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 Franchising: Past
O History of Franchising in the U.S.
O Automotive Industry
O Originally, cars sold direct from factory
O Later, other methods employed
O Direct Mail
O Traveling Salesmen
O Department Stores (!)
O Consignment agents
O The latter evolved into the dealership system we know
today
O > 50% of franchise sales are autos

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 Franchising: Past
O History of Franchising in the U.S.
O Other Businesses
O Rexall Drugs, Western Auto, Howard Johnsons in
the early 1900s
O Primarily Product-and-Trade-Name

O 1950s Take Off

O McDonalds, Kentucky Fried Chicken, IHOP
O 1960s
O New types of businesses

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 Franchising: Malaysia
O Franchising in Malaysia started way back in
1940s with Singer and Bata ( a shoe
manufacturer and distributor), followed by
automobile and petrol station dealers.
However, it was only noticed by the public
when fast food quick service restaurant such
as A&W (1963), KFC (1970), and McDonalds
(1981) commenced operations and expanded
rapidly in the country.

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 Franchising: Malaysia
O The development of modern homegrown
franchises started in the early 1980s mainly in
the sectors of food (Sate Ria, Marrybrown),
automotive (EON), petrol stations
(PETRONAS) and crafts/gifts (Royal
Selangor). Majlis Amanah Rakyat (MARA)
was given the task to facilititate and develope
the homegrown franchise develoment initially.

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 Franchising: Present
O Today franchising is an integral part
of the structural makeup of
American and international business.
O The franchising boom is a result of
two major trends in the American
way of life.
O The first trend is the surge in
entrepreneurial spirit, the desire “to
start a business of my own.”
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 Franchising: Present
O The second trend is the change in
lifestyles in the United States and
Western Europe which has put
growing emphasis on service and
convenience.
O Each of these trends is particularly
conductive to the business-format
approach to franchising.

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What’s Hot

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 Retail Franchising
O Retailing is the prime area of
growth for the business-format
approach to franchising.
O Examples: restaurants, hotels,
recreation, automotive products,
and convenience stores.

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 Retailing Non-food
O The franchising formula has been
known to be a better way to
compete by having:
O centralized purchasing,
O established management techniques,
O brand and firm-name recognition,
O proven market strategies.

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 Retailing Non-food
O Recently, a noticeable shift among
franchised and other non-food
retailers
O Positioning themselves as
specialty shops and “boutiques”
O To keep with consumer tastes,
habits, and desires for
convenience.

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 Hotels, Motels and
Campgrounds
O Consistent with the sizable capital
investment.
O More the 50% standard hotels
are franchised units
O Market segmentation approach
emphasized
O Different hotel chain for
business/pleasure, etc.

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Recreation, Entertainment
and Travel
O Growth of this category has been
strong and is projected to
continue growth into the 21st
century.
O Examples: travel agencies,
miniature golf courses, movie
theaters and dance studios.

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Automotive Products and
Services
O Revenue growth for aftermarket
products and services has
increased an average of 8% per
year since the mid-1980s.
O Total number of cars increased
O Percentage of cars more than 8 years
old has increased in the total car
market.
O Franchising a way to counter DIY
threat
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Business Aids and Services
O Areas
O Accounting and financial planning firms
O Business and services
O Consulting and brokerages
O Education and training
O Gifts
O Fund raising specialists.
O An increasingly complex tax system has
increased the demand for accounting,
financial planning, tax preparation, and
legal services for individual and small
businesses.
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Printing, Copying, and Sign
Products and Services
O This category of franchisors has
the highest ratio of franchisors
who make earnings claims in sales
literature

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 Other Areas
O Employment/Personnel Services
O Maintenance and Cleaning Services
O Construction and Home Improvement
O Convenience Stores
O Laundry & Dry Cleaning
O Health & Beauty Aids

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 Real Estate Services
O Explosive growth through franchising
O Converting existing real estate agencies
into franchised businesses linked
nationally-to-internationally with one
another.

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 Recent Trends in
Franchising
O Baby-boomer preferences have been
shifting from raising families to:
O having kids in college
O looking toward retirement with
substantial investments
O multiple mini-vacations within a year
O up-scale amenities for the person and
the home.

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 Recent Trends in
Franchising
O Other trends
O Transitioned from a manufacturing-
based to a service-based economy
O Double-income household
O Consumer desire for increased
convenience
O Key Franchise Advantage
O Convenience with consistent quality

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International Franchising
O American franchise systems enter
foreign markets using a variety of
methods
O franchising directly to individuals and
operating company-owned units
O joint ventures
O Difficult
O Time Consuming

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International Franchising
The success (or failure) of franchising in
international markets depends on
several factors including:
1) the franchisor’s success in domestic
competitive position and market
penetration
2) its ability to expand based upon its
knowledge/expertise
3) its ability to adapt to countries that
have cultural and language differences
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International Franchising
O International franchising is a strategic
way to reduce dependence on domestic
demand and grow new, future revenue and
profit centers worldwide.
O Franchising involves low risk, requires
minimal investment, and offers a huge
upside potential for scaling capabilities.

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 Size of Franchising
O Accounts for more than $1 trillion in annual
U.S. sales from 320,000 franchised small
businesses in 75 industries
O Accounts for more than 40 percent of all
U.S. retail sales
O Employs more than 8 million people

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 Size of Franchising
O New franchised outlets are opened in
the U.S. every 8 minutes
O More than 180 franchised outlets are
opened a day
O One out of every 12 retail businesses
are franchised

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The top 10 biggest franchises in the world

McDonald’s
Founded in 1954
More than 33 000 outlets worldwide Hertz
Founded in 1918
7-Eleven More than 11,500 outlets worldwide
Founded in 1927
More than 55 000 outlets worldwide Ace Hardware
Founded in 1924
KFC More than 4,800 outlets worldwide
Founded in 1930
More than 18,800 outlets worldwide Circle K
Founded in 1951
Subway More than 8,200 outlets worldwide
Founded in 1965
More than 42,000 outlets worldwide Pizza Hut
Founded in 1958
Burger King More than 14,000 outlets worldwide
Founded in 1953
More than 13,000 outlets worldwide Wendy’s
Founded in 1969
More than 6,500 outlets worldwide

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BRAND ADVANTAGE

As an established brand for more than 25 years, people associate

Q-dees with quality education, and thus making us a brand of
preference. Our franchisees get to leverage on the advantages of
the Q-dees brand impact. With many years of experience in
building company owned centres and franchisees, Q-dees as a
trusted brand empowers you in growing a successful and
rewarding education franchise model.

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Thank you

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