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Types of franchising However, this type of franchise will also include some form of
Why franchise? integration of the business activities.
Considerations for franchisor/franchisee
Examples of famous product distribution franchise:
Pitfalls/Be careful
What is franchising? Examples of famous product distribution franchise:
“A franchise operation is a contractual relationship between the franchisor
and franchisee in which the franchisor offers or is obliged to maintain a
continuing interest in the business of the franchisee in such areas as know-
how and training; wherein the franchisee operates under a common trade
name, format and/or procedure owned or controlled by the franchisor, and
in which the franchisee has or will make a substantial capital investment in
his business from his own resources.”
- Definition by International Franchise Association
Legal and commercial arrangement concerning the successful
business of a franchisor
Use of franchisor’s trade name, format, system and/or procedure
under license
Means to raise capital and expand quickly
Assistance to franchisee
Marketing, management, advertising, store design,
standards specifications
Payment by franchisee by way of royalty, licensee fee or other
means
Franchising is more than distributorship
Extends to an entire operation or method of business Business format franchising
Greater assistance, control and longer duration In a business format franchise, the integration of the business is
Distributor merely re-sells products to retailers or more complete.
customers The franchisee not only distributes the franchisor’s products and
3 main types of franchise: services under the franchisor’s trade mark, but also implements the
Product distribution franchise; franchisor’s format and procedure of conducting the business.
Business format franchise; and
Management franchise.
Product distribution franchise
A product distribution franchise model is very much like a supplier-
dealer relationship.
Famous Examples Famous Examples
Franchisor–Franchisee relationship
Regulated by contract which usually covers:
Initial fee
Royalty fee/Management fee
Capital required from franchisee
Territory/Area of operation
Duration of license and renewal
IPRs
Termination
BE CAREFUL
The franchisee is not completely independent.
In addition to the initial franchise fee, franchisee must pay ongoing
royalties and advertising fees.
Franchisee must be able to balance restrictions and support
provided by the franchisor with their own ability to manage the
business