 Franchising is fast emerging in India as a popular way

of establishing distribution channels

 According to Hunt (1972), franchising is a ‘vertical
marketing system in which one form (the franchisor)
provides another individual or firm (the franchisee) ,
for consideration , a licensed privilege to do business in
a specified geographic area, along with assistance in
organizing,training,merchandising,and management’

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 Legal relationships
 Business relationships
 Non-business relationship

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 Any franchisee arrangement is based on legal contract
 The legal contract gives greater stability and
consistency in the functioning of the franchisee
network with all the members of the franchise network
being treated in the same manner

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 The parties to the franchise network agree to work
together, primarily based on the attractiveness of the
business proposition that underlines the relationship
 While the legal relationship is static but the business
relationship is dynamic
 The business relationship varies when there is a change
in the market situation

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 This relationship takes the form of personal
relationships between entities within the franchise
network
 They have more impact on the overall management of
the franchise than the legal or commercial relationship

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 Tied-house franchising system
 Product / trademark franchising
 Business format franchising

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 In this franchising format, the franchisee agrees to
source one category of products from one particular
producer
 These arrangements are still in existence with certain
hotels advertising that they use a particular type of oil
to cook products
 Eg:-The manufacturers of PCs which use intel
components stick an ‘Intel Inside’ logo in order to
promote the Intel brand with the brand name of the PC
manufacturer

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 It involves a branded manufacturing house arranging to
distribute its brand(s) exclusively with a franchisee in a
particular geographic area
 Most popular example is car dealerships
 Most of the car dealerships are the product/trademark
franchisees with the car manufacturers appointing
exclusive dealers in geographically defined areas
through legally binding agreements

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 It involves franchising an entire business format
 Example :-McDonald’s
 In this the franchisee not only ends up using the brand,
but will also agree to operate in a manner agreeing to
all the operational procedures and processes specified
by the franchisor

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 Expansion can be faster because franchisees provide
the labour and their sales provide the growth
 Franchisees are responsible for their company’s success
so they are more motivated
 Franchisees may be more talented at growing the
business and turning a profit than employees would be

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 Franchisees cannot be managed as closely as
employees and they may have different goals to the
franchisor
 Franchise recruitment can be slower and less efficient
 Franchisees don’t always work together
 Selecting one wrong franchisee can ruin the reputation
of the whole franchise

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 Release of proprietary information to outside parties
 Non-payment or short payment of royalties
 Refusal to adhere to standardized conditions
 Other issues like Tying agreements, Capricious
termination

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