FREE online courses on Franchising Business and You - Franchising
Distinguished - Reasons Franchisors Offer Franchises Vary
Franchisors' motives for franchising may be as varied as the
forms of franchising they choose.
Understanding why a company franchises and its goals for its franchising program
can provide critical insights into what franchise relationships will be for that
company. Franchising objectives
also are usually like the type of franchise relationships that the franchisor
develops and how the management of the franchising company may react to business
challenges.
Some of the reasons franchising is selected by franchisors
are:
Under this model the owner of a successful business is
persuaded that by teaching other people the formula for his success and
licensing his trademarks, he and his franchisees can become successful. Often lacking either the capital or the
desire to continue investing in replicating the original successful business,
the owners of the company are persuaded that they can seize upon the popularity
of their businesses hoping to receive income from licensing fees, royalty fees
and also obtain benefits of lower costs for inventory and supplies as the volume
purchased by the franchise network grows.
These cloning franchisors may also see that they can derive benefits from
increased advertising in a given market.
They see their mission as cloning an entire system of conducting a
business.
Some companies adopt franchising almost as a defensive
mechanism. Either strapped for cash
or suffering from a less than acceptable return on assets invested, companies
may decide to sell off operating units as franchises, sometimes to their
managers, so that they can increase capital without diminishing the overall
scope of their business network. At
least in the early stages, these franchisors will not see franchising as the
principal focus of their business strategy.
Some companies devote their capital and management resources
to operations in major markets of a country, region or the world. They recognize that their products or
services are appealing and the returns they could achieve would be lower
in these markets. They may,
therefore, offer franchises in the “secondary” markets, believing that with the
entrepreneurial effort that often comes with locating the right owner-operator,
that these franchisees can achieve a requisite level of success, and that the
brand may benefit from the increased advertising, purchasing and distribution
that the franchising program adds.
Some companies have developed successful operating systems,
vendor relationships and financing programs for use in their own businesses
which can be adapted to provide support to independent business operators. In these relationships, the franchisees
are often primarily engaged in selling a product or service and sometimes
providing the services to customers in their businesses or homes. Especially when no major companies
dominate the industry, franchising programs may succeed because the franchisors
offer franchisees support services which are vital to any business, but which
small business owners often lack.
For example, franchisors may provide accounting systems, order products or
services for the franchisees, assist franchisees in preparing competitive bids,
provide sourcing and beneficial pricing for inventory sold by franchisees, and
sometimes actually enter into contracts with customers which will be carried out
by the franchisees. They also may
provide promotional services, internet access, etc., thereby leaving the
“franchisees” to focus on sales or operations. This division of labor between
franchisee and franchisor may give franchisees competitive and well as
operational advantages.
