Chapter 8 Lecture.docx - Franchising and the Entrepreneur...

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Franchising and the Entrepreneur Introduction Franchises play a significant role in the U.S. and world business economy. Refer to Figure 7.1, Number of Franchised Outlets in the United States, to see the growth of the number of franchised outlets in the United States. Franchising has grown beyond traditional fast food to many different industries. Refer to Figure 7.2, Franchised Outlets by Industry. Many franchises are now international in scope. Franchising is a system of distribution in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchisor) 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. As presented in Figure 7.3, The Franchising Relationship, the connection between the franchiser and the franchisee is a unique and often a highly structured and defined business relationship regarding: Site selection Design Employees Products and services Prices Purchasing Advertising
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Quality control Support Types of Franchising There are three types of franchising systems: 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 products under the franchisor’s name. Examples include True Value Hardware or Western Auto. 2. Product distribution franchising : a system of franchising in which a franchisor licenses a franchisee to sell its products under the franchisor’s brand name and trademark through a selective, limited, distribution network. Examples include automobile sales like Chevrolet, or gasoline such as Exxon Mobil. 3. Pure franchising : a system of franchising in which a franchisor sells a franchisee a complete business format and system. This type of business format franchising accounts for nearly 95 percent of all franchised outlets. Examples include quick service restaurants, hotels, etc. Franchises are subject to changes in the economy just as are non-franchised businesses. Refer to Figure 7.4, the Franchise Business Index. The Benefits of Buying a Franchise
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Franchisees can own a small business relatively quickly and often reach break-even faster than an independent business would because of the identification with an established product and brand name. Franchisees benefit from the franchisor’s business experience. Access to a business model with a proven track record may be the safest way to own a business. Benefits of franchising include: Business System.
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