The franchisor will be able to enjoy the royalty payments from the franchisee. They also have the business expansion with reduced financial risk on their part and the company brand is taken to another location so the spread of the business makes them2
Franchisingcloser to being known in the global community. The franchisee gets the benefit of brand recognition and having the franchiser’s marketing support. The startup cost won’t be that much for the franchisee because the franchiser already had a strategy for them to follow. The start-up costs are usually lower than what the franchiser had to pay when they started as well. Franchisers also do not have to worry about the running cost of the franchisee all they have to ensure is that they get their royalty payments from the franchisee. Even though there are benefits to the franchiser and franchisee relationship there are also risks. Some risks are that the franchiser takes is not able to control everything the franchisee does in the business location. Sometimes they are not close enough to be monitored and the franchiser may not know if the franchisee is upholding their standard. If the franchisee is not holding the same standards as the franchiser as far as customer service, pricing and cleanliness then this could hurt the brand of the company. The disadvantage of being a franchisee is that the costs are usually set and cannot be negotiated. If the franchisee does not meet certain standards then they can be closed at any time. Not meeting certain expectations can lead to a franchise agreement being cancelled or terminated. The franchisee usually does not have control and has little to say about the term of the termination. If a franchisee decides that they may want to closethe business, it is not as simple to close. They have to notify the franchisor first and then they have to pay additional fees and all the decisions of the business will mostly have to include the franchiser since it is there brand. 3
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- Fall '14
- Sales, franchisee, franchiser, Franchisee Relationship