The Pros and Cons of Franchising

Advantages & Disadvantages of Franchising

Franchising is ‘a continuing relationship in which the franchisor (the owner of a company) provides a licensed privilege to the franchisee

(the buyer) to do business and offers assistance in organising, training, merchandising, marketing, and managing in return for a consideration. It is a form of business by which the franchisor of a product, service, or method obtains distribution through affiliated dealers (franchisees).’ (http://www.business.gov) A franchise is essentially a replica of an existing business. When you purchase a franchise, you buy the rights to use the parent company's name and to sell its product or service in exchange for an up-front franchise fee and ongoing royalties, which are usually between 3 and 6 percent of sales. While buying a franchise does have certain disadvantages, the right franchise can provide a certain amount of security that is often missing from new ventures. The franchisor and franchisee’s aim is to create a strategic alliance with a common goal to dominate a market.

Although there are many advantages for both the franchisor and franchisee, there are also many disadvantages and I will be analysing these throughout the assignment.

Advantages of franchising for the franchisor include increased flexibility. It offers franchisors the ability to expand their brand very rapidly into many new markets across countries and continents, as well as reaping enormous profits in the process, while the franchisees do all the hard work of dealing with customers and selling the product. ‘The franchisor also benefits from the fact that the franchisee, being a sole proprietor in most cases, is likely to be very highly motivated to succeed. The success of the franchisee means more sales, which translate into higher royalties for the franchisor.’

(S. Dibb et al, p335) Franchisors will also gain additional outlets for the distribution of products and services without having too many costs, such as hiring employees and acquiring facilities and equipment. A franchisor may also require the payment of an up front franchise fee, providing immediate revenue. The franchisees, having made a substantial investment in their own businesses, can be relied upon to maximize market penetration of the franchisor brand name on an ongoing basis and to deal with emergencies as they arise. But while franchisees can ...

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...for someone who does not like to be told what to do and likes to do things their own way. Although there are disadvantages for both the franchisor and franchisee, I would personally say that the advantages outweigh the disadvantages and that franchising seems to be a particularly wise option and is expected to increase significantly within the next 12 months.

BIBLIOGRAPHY

· Dibb, S. et al (1994) Marketing: Concepts and Strategies 2nd

Edition, USA: Houghton Mifflin Company

· Glossary of terms, Internet WWW page at URL: http://www.business.gov/ phases/launching/are_you_ready/glossary.html

(accessed 01/11/05)

· How franchising works, Internet WWW page at URL: http://money. howstuffworks.com/franchising2.htm (accessed 01/11/05)

· Advantages of franchising, Internet WWW page at URL: http://www.butterfield.co.za/public/Concept/franchising/advantages.htm (accessed 01/11/05)

· What are the advantages and disadvantages to the franchisor?,

Internet WWW page at URL: www.europeanfranchising.co.uk/ intro_franchising/advantages_franchising.htm (accessed 07/11/05)

· Wild, J. et al (2002) International Business: An Integrated Approach

2nd Edition, Prentice Hall: New Jersey