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8/2/2019 Esbm8 Ppt04 Notes
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 1
Franchising and the
Entrepreneur
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 2
The Franchising
Boom!!! Sales exceeding $1 trillion from virtually
every product or service imaginable.
One out of 12 retail businesses in theU.S. is a franchised operation.
Franchise sales account for 40% of totalretail sales.
A new franchise opens somewhere inthe world every six-and-a-half minutesand in the United States every eightminutes.
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 3
274,265
290,605
310,044
341,579 337,693351,459
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
N u
m b e r o f F r a n c h i s e d U n i t s ( i n
T h o u s a n d s
)
2000 2001 2002 2003 2004 2005
Year
Franchising Grow th
Number of Units (in Thousands)
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 4
Franchising
Franchising – semi-independent businessowners pay fees and royalties to a parent
company in exchange for the right to sell itsproducts and services under the franchiser’strade name and often to use its businessformat and system.
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 5
Types of Franchising
Tradename
Product distribution
Pure (Business format)
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 6
Why Buy a Franchise?
Franchisees benefit from the franchiser’sexperience.
Franchisees get a proven business system andavoid having to learn by trial-and-error.
Franchisees earn a great deal of satisfactionfrom their work.
Before buying, ask: “What can a franchise dofor me that I cannot do for myself?”
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Benefits of Franchising
Business system
Management training and support
Brand name appeal
Standardized quality of goods andservices
National advertising program
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Benefits of Franchising
Financial assistance
Proven products and business
formats Centralized buying power
Site selection and territorial
protection
Greater chance for success
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Drawbacks of Franchising
Franchise fees and profit sharing
Strict adherence to standardized
operations Restrictions on purchasing
Limited product line
Unsatisfactory training programs Market saturation
Less freedom
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Drawbacks of Franchising
Limited product line
Unsatisfactory training programs
Market saturation
Less freedom
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Ten Myths of Franchising
1. Franchising is the safest way to gointo business because franchises
never fail.2. I’ll be able to open my franchise for
less money than the franchiser
estimates.3. The bigger the franchise organization,
the more successful I’ll be.
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Ten Myths of Franchising
4. I’ll use 80 percent of the franchiser’sbusiness system, but I’ll improve
upon it by substituting myexperience and know-how.
5. All franchises are the same.
6.
I don’t have to be a “hands-on” manager. I can be an absenteeowner and be very successful.
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Ten Myths of Franchising
7. Anyone can be a satisfied, successfulfranchise owner.
8. Franchising is the cheapest way to getinto business for yourself.
9. The franchiser will solve my business
problems for me; after all, that’s why Ipay an on-going royalty.
10. Once I open my franchise, I’ll be ableto run things the way I want to.
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What Do Franchisers Look
for in a Franchisee? Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
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Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
What Do Franchisers Look
for in a Franchisee?
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Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
What Do Franchisers Look
for in a Franchisee?
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Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
What Do Franchisers Look
for in a Franchisee?
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Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
What Do Franchisers Look
for in a Franchisee?
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Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
What Do Franchisers Look
for in a Franchisee?
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Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
What Do Franchisers Look
for in a Franchisee?
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Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
What Do Franchisers Look
for in a Franchisee?
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Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
What Do Franchisers Look
for in a Franchisee?
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 23
Franchising and the Law
Key protection is the Uniform FranchiseOffering Circular (UFOC).
Franchisers must deliver a copy of UFOC before any offer or sale of afranchise.
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 24
Franchising and the Law
The UFOC contains information on 23topics, including:
Franchiser’s business experience Franchise fees and costs
Lawsuits involving the franchiser
Financial assistance available Territorial protection granted
Restrictions on purchasing
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 25
Detecting Dishonest
Franchisers Claims that the contract is “standard;
no need to read it.”
Failure to provide a copy of therequired disclosure documents.
Marginally successful prototype or noprototype.
Poorly prepared operations manual.
Unsolicited testimonial from “a highlysuccessful franchisee.”
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 26
Unusual amount of litigation byfranchisees.
Promises of future earnings with nodocumentation.
High franchisee turnover or terminationrate.
Attempts to discourage your attorneyfrom evaluating the contract beforesigning it.
(Continued)
Detecting Dishonest
Franchisers
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 27
No written documentation. High pressure sale. Claims to be exempt from federal
disclosure laws. "Get rich quick" schemes, promising
huge profits with minimal effort. Reluctance to provide a list of existing
franchisees. Evasive, vague answers to your
questions.
Detecting Dishonest
Franchisers(Continued)
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 28
How to Buy a Franchise
Preparation, common sense, and patienceare vital ingredients in choosing the rightfranchise.
Evaluate yourself - What do you like anddislike?
Research the market.
Consider your franchise options. Get a copy of the franchiser’s Uniform
Franchise Offering Circular (UFOC) andstudy it.
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 29
What Should You Look
For? A unique concept or marketing
approach
Profitability
A registered trademark
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 30
What Should You Look
For? A business system that
works
A solid training program
Affordability
A positive relationship
with franchisees
(Continued)
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 31
How to Buy a Franchise
Talk to existing franchisees.
Ask the franchiser some tough
questions.
Make your choice.
(Continued)
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Table 4.4 Advantages and Disadvantages of Buying a New vs.
an Established Franchise
Pros Cons
New
Franchise
Can be new and exciting
Business concept can be fresh and
different in the market
Possibility of getting lower fees as
a “pioneer” of the concept
Potential for a high return oninvestment
Business is not tested or
established in the market
Unknown brand and trademark
Possibility that the concept is a fad
with no staying power
Franchiser may lack theexperience to deliver valuable
services to franchisees
Established
Franchise
Business concept likely is well-
known to consumers and market for
the products or services is already
established.Franchiser has experience in
delivering services to franchisees
Franchiser has had time to work
the “bugs” out of the business
system
High franchise fees and costs that
often are non-negotiable
Concept may be on the wane in the
marketFranchiser’s brand and trademark
may remind customers of an
outdated concept
Franchiser’s “trade dress” may be
in need of updating and redesigning
Source: Based on Andrew A. Caffey, “Age Issues,” Entrepreneur , January 2002. p. 118.
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 33
Franchise Contracts
Note clauses covering:
Termination Renewal
Transfers and Buybacks
40% of New Franchisees Sign
Contracts Without Reading
Them !!!
Contract
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 34
Three major Growth
waves 1970s : Fast food industry
1980s : services
1990s – today: low-cost franchisesfocus on specific market niches
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 35
Trends Shaping
Franchising International opportunities
Smaller, nontraditional locations
Conversion franchising
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Chapter 4 Franchising Copyright 2006 Prentice Hall Publishing Company 36
Trends Shaping
Franchising Multiple-unit franchising
Master franchising
Piggybacking (Combinationfranchising)
Serving aging baby boomers
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Franchising Web Sites
Entrepreneur’s Franchise Zonehttp://www.entrepreneur.com/Franchi
se_Zone/FZ_FrontDoor/0,4670,,00.html
Subway Sandwiches and Salads
http://www.subway.com/ Auntie Anne’s Pretzels
http://www.auntieannes.com/