Franchising - Introduction

Franchising

Chapter1

Objectives

• Understand definition & concept of franchising .

• Types of franchising .

• Benefits & pitfalls of franchising .

2

Introduction

• Mr. Menon an NRI ,was very happy to return to India .

• He was amazed to see changes in Indian economy

• What one noticed is that all these companies have expanded gradually & made their presence by franchising

3

History of Franchising

• The earliest signs of franchising in the united states datesback to 1850’sjust after Isaac Singer invested Sewing machine.

• The problem was lack of capital for manufacturing the machine.

4


• Singers idea got noticed and over the next several decades many other companies began to copy and enhance the business model franchising.

• Later Companies such as McDonald’s and Burger king took franchising to a whole new level.

5


• Franchisor is the entity or person owning to the rights orlicense of the business.

• Authorization granted by a manufacture to a distributor or dealer to sell his products.

6

Definition of Franchisee

• An individual or a company who purchases and runs a franchise.

• Franchisee is the party in franchising agreement that is purchasing the rights to use business trademarks, associated marks & other proprietary knowledge in order to open branch.

7

Definition of Franchisor

• An individual or a company owning rights or license of business.

• Franchisor is a person who grants the license or permission to various franchisees

8

Definition of Franchisor

Franchisor Franchisee

Site Selection Oversees, may choose Chooses with approval

Design Provides Prototype Design

Implements design

Menu Set by Franchisor Changed only by approval

prices Recommendations Decides actual prices

9

Franchising in India

• India with its huge market and growing demand in all sectors of the economy is extremely attractive proposition for entry of foreign brands through franchising route.

• In the 1990 the market opened foreign franchise.

10


• The key attractions for this franchising is.• Lower capital requirement• Laws• Language• Huge Market

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• Franchising is in early stages in India ,and has become increasingly popular as a means of doing business.

• As a result the Franchising Association of India was set up Mumbai in the year 2000.

12


Early Entry of Foreign players.• International soft drinks and hotel Franchisor arrived in

India.• Marks & Sponsors• Pepe Jeans & Adams• Baskin Robbins• Pizza Hut

13


Indian companies adapting the Franchise Model.• Franchising become very popular method of doing

business in India • This has case in IT education e.g.• SGL• NIIT• Aptech

14


• It took some time for international franchise to become acceptable because of certain attitudes of Indian Business.

• If the brand name is very well known worldwide and the product is marketable in India.

15


• Lower the price ,product or services can be sold at , the more customers they are likely to have.

• It is not difficult to spot malls• India offers lots of potential for franchising community.

16


• In many instances the product sold by the franchisee outlets may have to be significantly tailored to local taste.

• Foreign Franchisor to be needs aware of local culture and customs.

17

Types of Franchise

• Business format• Product or trade name• Dealership • Master Franchise• Unit Franchise• Regional Franchise

18

Business Format Franchise

• Business Format Franchise is the most popular form of Franchising.

• Agreements under this Franchisor offer are:• Use trademark• Advertising

19

Product or trade name Franchise

• Product Franchise or Trade Franchise0nly involves product.

• Agreements under this Franchisor offer are:• Allows Using trademark• The manufacture grants a Franchise the authority to

distribute goods

20

Dealership or Distributorship ,Licenses, Agencies

• Dealership and distribution ship Format Franchise is the also most popular form of Franchising.

• Allow to sell Franchiser product under their own trademark.

• Agencies Format Franchise Own the rights to sell products on behalf of a supplier.

21

Manufacturing & Unit Franchise

• Manufacturing Franchise provide an organization with the right to manufacture

• Examples include Coca Cola.

• Unit Franchise is granted the right to operate one unit.

22

Master Franchisee

A Master Franchisee is granted the rights to a substantial territory, usually a whole country.

• This a structure adopted by many Franchisee.

23

Franchisor

Unit Franchise Unit Franchise

Master Franchisee

Regional Franchisee

In a Geographically large area Master Franchisee may decide to appoint Regional Franchisee

24

Franchisor

Unit Franchise

Unit Franchise

Regional Franchisee

Regional Franchisee

Unit Franchise

Unit Franchise

Multiple Franchisee

Some Franchisees operates not just one unit but several.

•

25

Franchisor

Unit Franchise

Developers

Large corporations sometimes prefer to exploit their territory by opening outlets themselves.

•

26

Franchisor

Developers

Advantage of Franchise

• Increase number of outlet with minimum capital

• Name recognition

• Running small business under Franchise name is very beneficial

•

27

Advantage of Franchise

• Big Business help in corporate marketing.

• Proper & effective marketing tactic.

• Training & Management facilities

28

Disadvantage of Franchise

• It has to control and coordinate a network of semi independent businessmen.

• Indulgence of big business into small business.

• Safe guarding the interest of both the parties are complex.

29

Disadvantage of Franchise

• Much time is required while selecting a Franchise • Complex procedure

30

Summary

• Franchisee is the party in franchising agreement that is purchasing the rights to use business trademarks, associated marks & other proprietary knowledge in order to open branch.

• Franchisor is an individual or a company owning rights or license of business.

• Franchisor is a person who grants the license or permission to various franchisees

•

31

Summary

Types of Franchise• Business format• Product or trade name• Dealership • Master Franchise• Unit Franchise• Regional Franchise

32

Summary

The main advantage of franchising• Increase number of outlet with minimum capital• Name recognition

• Running small business under Franchise name is very beneficial

However disadvantage

• Much time is required while selecting a Franchise • Complex procedure

33

Franchising

End of Chapter1

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Franchising - Introduction