Elective 103 - FRANCHISING

Chapter 1 The Power of Brand: Franchising and You

Part I Prepared by: Ma. Teresa G. Salumintao

Objectives:
At the end of the chapter you should be able to: know the history of franchising explain the meaning of franchising understand what are the roles of the franchisor and the franchisee Differentiate the Franchise siblings identify what are franchise wannabes, and why should you avoid them? understand if franchise agreement grant ownership and a guarantee of profitability

Common Franchise Terms:

Franchising

Franchise
Franchisor Franchisee

Brand penetration.

 Franchising is the engine that drives much of the worlds entrepreneurial train, but its more than just fast food.

The Birth of Franchising

The origins of franchising can be traced back to the middle ages (400 A.D. 1500 A.D.) at that time, it was an accepted practice for local governments to offer important persons, even high church officials, a license granting them the right to maintain civic order and to make special tax assessments.

 Courts or lords could also grant rights to others to operate ferries, hold markets, and perform the business activities today carried out by professionals. The licensee (or franchisee) would pay the licensor (franchisor) a specific fund from the tax revenues collected or assessmets made and in return receive military or other forms of protection.

 In the middle of the 19th century, a franchising system was introduced when the Singer Sewing Machine Company formed a franchise in 1851. Singer had been experiencing difficulty in marketing its new product. Singer needed to educate customers before they would purchase a machine for sewing.

 Because the sewing machines industry was in its nascent stage of development, Singer needed a huge capital to develop a large sales force and to open a series of company branch offices. Agents were then commissioned to demonstrate, sell, and repair the Singer line of sewing machines.

 This was done through a franchise system. Interestingly, once the sewing machine caught on, the company changed its marketing approach and began selling its machines exclusively through company owned stores during the 1860s.

 In the late 1800s, a significant change occurred because of the industrial revolution. Automotive manufacturers became aggressive in their efforts to sell and distribute their products. In 1898, William E. Metzger of Detroit became the first official franchisee of the General Motors Corporation.

 Henry Ford followed the example of General Motors and, after establishing a mass production system for the Model T, he looked for an efficient mechanism for the distribution of the product. His search ended in franchising. Henry Ford focused on establishing dealers in as many communities as possible throughout the United States.

 The franchising concept did not boom until the early 1950s when Ray Kroc started scribbling the success story of McDonalds. It stresses upon quality, service, cleanliness, and value (QSCV) proposition in 1955 and started growing through the franchising route.

Internationalisation of Franchise Operations by US Franchisors

Franchising became a significant force in the post-World War II United States in the form of gasoline franchises. Since the 1970s, the growth in franchise arrangements has shown explosive growth, representing nearly one-third of domestic retail sales.

In Philippines
The Philippines has seen the value that franchising has given the economy since 1910, when Singer Sewing Machine entered the market. The growth of franchising in the country has been tremendous, and because of its popularity it has also opened a Pandoras Box of pseudo franchising

So what is a Franchise, Anyway (And whats the Big Deal)?

Franchising is a system for expanding a business and distributing goods and services and an opportunity to operate a business under a recognized brand name. Its also a relationship between the brand owner and the local operator. (Franchising for Dummies)

 For example, Jollibee doesnt franchise hamburgers, and The Generics Pharmacy doesnt franchise medicines.
They franchise business systems that provide hamburgers and medicines to customers with consistent delivery of products, services, and customer experience.