is a way of doing business. It is a method and marketing tool for companies to
expand their market share more rapidly. It is more economical too.
three basic types of franchises:
- Distributorships, which
grant the right to sell their parent company's products, such as auto
dealerships (Toyota, Ford, GM, Mercedes, etc).
- Trademark or brand name licensing,
which gives the licensees the right to use the parent company's trademark
and brand in conjunction with the operation of their own business such as
beverages (Coca Cola, Pepsi).
- Business format franchises,
the type most people are familiar with (Subway, Muffin Break, Ultra-Tune)
are the focus of this article.
format franchisors offer to their franchisees the license and rights to sell
its goods or services and use its business techniques. The franchisees usually
pay an initial fee (franchise or license fee) to acquire this right, and
thereafter pay a percentage of their gross sales (royalty) to the franchisor throughout the term of their
for these payments, franchisees gain privileges, including the right to sell a
proven and recognized product or service, to use the franchisor's business
practices, and to receive initial training and ongoing support. Additional responsibilities
- Requirements to meet a
variety of quality controls for products and services sold.
- Restrictions on what they
can sell or how they can operate using the company's name.
- Specifications for their
business location and site appearance.
- Prohibitions on the
operation of any similar businesses during or after the term of the
Franchisees usually have an
advantage over their non-franchisee competitors, since they have the rights to use
By following the franchisor's business practices
and offering products that meet the company's standards, franchisees can consistently
provide customers with quality goods and services
- Brand names, trademarks,
copyrights, trade secrets, and patents.
- Uniform logos, storefronts, purchasing
power and interiors.