14-1

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Service Provider Participants

 Service Principal (Originator)
 creates the service concept
 (like a manufacturer)

 Service Deliverer (Intermediary)

 entity that interacts with the customer in the execution of the service
 (like a distributor/wholesaler)

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Services Intermediaries
Franchisees -e.g., Jiffy Lube, H&R Block, McDonalds

Agents and Brokers e.g., travel agents, independent insurance agents

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FRANCHISING
 Franchising is a type of contractual vertical marketing system that involves a continuing relationship in which a franchisor provide the right to use a trade mark plus various forms of management assistance in return from payments from franchisee  The FRANCHISE system is the combination of franchisor and franchisee.

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Types Of Franchising

 Product Or Trade Name Franchising

focuses on what is sold

 Business Format Franchising

focuses on how the business is run

How can franchising be used to develop a business?

There are four basic ways in which franchising can be used:
 Creation of a new business specifically for franchising  Development of an existing business  Conversion of an existing business to a franchise format  International Expansion

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Basic Rules For Franchising

Expectation of Franchisee
 Transfer of know how by franchisor  Promotional support for the products/services  Credit for the supplies

Expectation Of Franchisor
 No trading of other product

 Optimum standards of sale and services  The inventory and lead time standards as agreed by franchise  Ambience, maintenance of premises and equipment to agreed operational standards

 Advisory services for managerial and financial areas

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Expectation of Franchisee
 Identification franchisee services with

Expectation of Franchisor
 Pricing as per agreed terms of contract. Financial commitment and information on franchisees operation  Display of franchisors identification and equipment  Right to purchase of franchisee business in the event of his disposing it

 Exclusiveness geographically.

of

right

 Recruitment and standards and risk

training

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PAYMENT
 Upfront lump sum
Franchise fee and which is paid to obtain the license or franchise.

 Royalty Payments
Amounts based on a percentage of turnover

Benefits and Challenges for Franchisors of Service

 Leverages the business format to gain expansion and revenues  Maintains consistency in outlets  Gains knowledge of local markets  Shared financial risk and more working capital
 Difficulty in maintaining and motivating franchisees  Highly publicized disputes and conflict  Possibility of inconsistent quality that can undermine the company name  Control of customer relationship by intermediary

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Benefits and Challenges for Franchisees of Service

Benefits
 Obtaining an established business format on which to base a business  Receiving national or regional brand marketing  Minimizing the risks of starting a business

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Challenges
 Disappointing profits and revenues  Encroachment and franchise saturation  Lack of perceived control

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Advantages Of Buying A Franchisee

 Lower Failure Rate  Help with Start Up and Beyond  Buying Power  Star Power  Profits

Disadvantages Of Buying A Franchisee

 Their Way or The Highway  Ongoing Costs  Ongoing Support  Cost

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Agent
 One person (the agent) has authority, express or implied, to act on behalf of another (the principal) and consents so to act.  The agent may contract with third parties on behalf of the principal without itself incurring any liability. In other words, although an agent may negotiate an agreement with a third party, it does so, on behalf of its principal, and it is the principal that becomes liable for the acts, omissions and defaults of the agent.

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Duties of an agent:
An agent owes the principal a number of duties. These include:  a duty to undertake the task or tasks specified by the terms of the agency which means the agent must not do things that he has not been authorised by the principal to do  a duty to discharge his duties with care and due diligence  a duty to avoid conflict of interest between the interests of the principal and his own which means the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal.

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Liability of agent to principal

 If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage.

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Liability of principal to agent

 If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal's business.

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Liability of agent to third party

 If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, so long as the relationship of the agency and the identity of the principal have been disclosed.  When the agency is undisclosed or partially disclosed, however, both the agent and the principal are liable. Where the principal is not bound because the agent has no actual or apparent authority, the agent is liable to the third party for breach of the implied warranty of authority.

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Broker
 A broker is a party that arranges transactions between a buyer and a seller, and gets a commission when the deal is executed.  In general a broker is an independent agent used extensively in some industries

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 The prime responsibility of a broker is to bring sellers and buyers together. Therefore, a broker is the third person facilitator between a buyer and a seller. An example would be a real estate broker who facilitates the sale of a property.  Brokers may represent either the seller or the buyer but not both at the same time. An example would be a stockbroker, who makes the sale or purchase of securities on behalf of his client. Brokers play a huge role in the sale of stocks, bonds and other financial

services.

Benefits and Challenges in Distributing Services through Agents and Brokers Benefits  Reduces selling and distribution costs  Intermediarys possession of special skills and knowledge  Wide representation  Knowledge of local markets  Customer choice Challenges  Loss of control over pricing and other aspects of marketing  Representation of multiple service principals

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When to use Agent for service delivery?

 At the time of entering the market

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 For launch of new products to find their way into the market  To cover a wider market reach

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Broker operates in Service Industry which characterized by:

 Large number of small suppliers and purchasers  Require finding the right mix for a client  Require advisory deal  Require tools and resources to reach the largest possible base of buyers

Basis
Represent

Franchising
Represent one company

Agent
Represent one or more company To act on behalf of Principal

Broker
Represent one industry

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Responsibility

To use the brand name as per guidance of franchisor A much greater degree of control is exercised by the franchisor over a franchisee

To make negotiation between two parties No such control

Control

Partial control given by principal

Liability

Principal is liable Principal is liable No such liability for the act of agent for the act of agent

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Basis
Commission

Franchising
Franchisers get fees or commission form the agent.

Agent
Agent get fees or commission from the principle

Broker
Broker get commission when deal is finalised

Management

High levels of management by franchiser Franchising within a relatively short time built brand reputation Shared financial risk and more working capital Rigid contracts

Less levels of management by Principal Take longer duration as compared to franchising No such sharing of risk Not so rigid contract

No such management Not relevant

Brand reputation

Risk

Rarely involved on financing and assuming risk Contract is not rigid

Contract

Nipun Kesari (FC10149)

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Mohit Chaudhary (FC10144)

Thank You

Aishwarya Jaiswal (FC10122)

Aditi Tyagi (FC10121)