scarb eesbm6e ppt 06
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7/18/2019 Scarb Eesbm6e Ppt 06
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Franchising and theFranchising and the
Entrepreneur Entrepreneur
Franchising and theFranchising and the
Entrepreneur Entrepreneur
CHAPTERCHAPTER
66
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - 2Ch. 6 !ranchising and the Entrepreneur
The Franchising BoomThe Franchising Boom
More than 3,000 franchisors operateMore than 3,000 franchisors operatemore than 0,000 out!ets in themore than 0,000 out!ets in the"nited #tates$"nited #tates$
Each %ear, franchises produce goodsEach %ear, franchises produce goodsand ser&ices that are 'orth ())*and ser&ices that are 'orth ())*+i!!ion, $- of the "$#$ ./P$+i!!ion, $- of the "$#$ ./P$
Franchises emp!o% one in e&er% *Franchises emp!o% one in e&er% *'or1ers in the "$#$ in more than 30'or1ers in the "$#$ in more than 30ma2or industries$ma2or industries$
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - "Ch. 6 !ranchising and the Entrepreneur
The Franchising BoomThe Franchising Boom
Economic impact of franchisingEconomic impact of franchising
on the "$#$ econom% ($3 tri!!ion$on the "$#$ econom% ($3 tri!!ion$
A ne' franchise opensA ne' franchise openssome'here in the 'or!dsome'here in the 'or!d
e&er% ) minutes$e&er% ) minutes$
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - #Ch. 6 !ranchising and the Entrepreneur
FranchisingFranchising
A s%stem in 'hich semi4independentA s%stem in 'hich semi4independent
+usiness o'ners 5franchisees pa%+usiness o'ners 5franchisees pa%
fees and ro%a!ties to a parentfees and ro%a!ties to a parent
compan% 5franchiser in return forcompan% 5franchiser in return forthe right to +ecome identified 'iththe right to +ecome identified 'ith
its trademar1, to se!! its products orits trademar1, to se!! its products or
ser&ices, and often to use itsser&ices, and often to use its+usiness format and s%stem$+usiness format and s%stem$
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - $Ch. 6 !ranchising and the Entrepreneur
The Franchising Re!ationshipThe Franchising Re!ationship
The Franchiser The Franchisee%&ersees and appro&es' (ay choose site
Pro&ides prototype design
)a*es general reco((endations and
training suggestions
+eter(ines product or ser&ice line
Can only reco((end prices
Establishes uality standards and suppliers
+e&elops and coordinates national ad
ca(paign' (ay reuire (ini(u( le&el o
spending on local ad&ertising
ets uality standards and enorces the(
/ith inspections' trains ranchisees
Pro&ides support through an established
business syste(
Chooses site /ith ranchisers appro&al
Pays or and i(ple(ents design
Hires, (anages, and ires
e(ployees
)odiies only /ith ranchisers appro&al
ets inal prices
)ust (eet uality standards and purchase
only ro( appro&ed suppliers
Pays or national ad ca(paign' co(plies /ith
local ad&ertising reuire(ents' gets ranchisor
appro&al on local ads
)aintains uality standards' trains e(ployees
to i(ple(ent uality syste(s
%perates business on a day-to-day basis /ith
ranchisers support
#ite #e!ection
/esign
Emp!o%ees
Products and #er&ices
Prices
Purchasing
Ad&ertising
7ua!it% Contro!
#upport
E!ement
F8."RE 6$*Source: dapted ro( Economic Impact of Franchised Businesses: A Study for the International Franchise Association,
ational Econo(ic Consulting Practice o Price3aterhouseCoopers, 4I! Educational !oundation, e/ 5or* 200#, pp. ",$.
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - 6Ch. 6 !ranchising and the Entrepreneur
T%pes of FranchisingT%pes of Franchising
TradenameTradename
Product distri+utionProduct distri+ution
Pure 5Business formatPure 5Business format
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Franchising BasicsFranchising Basics
Franchisee gets the right to use a!! ofFranchisee gets the right to use a!! of
the e!ements of a fu!!% integratedthe e!ements of a fu!!% integrated
+usiness operation$+usiness operation$
Essence of 'hat franchisees purchaseEssence of 'hat franchisees purchase
from the franchisorsfrom the franchisors ExperienceExperience$$
9e% 7uestion :;hat can a franchise do9e% 7uestion :;hat can a franchise dofor me that 8 cannot do for m%se!f<=for me that 8 cannot do for m%se!f<=
7/18/2019 Scarb Eesbm6e Ppt 06
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7/18/2019 Scarb Eesbm6e Ppt 06
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Benefits of FranchisingBenefits of Franchising
A +usiness s%stemA +usiness s%stem Management training and supportManagement training and support
#tart4up#tart4up
>ngoing>ngoing Brand name appea!Brand name appea!
::C!oning=C!oning=
#tandardi?ed @ua!it% of goods and#tandardi?ed @ua!it% of goods andser&icesser&ices
7/18/2019 Scarb Eesbm6e Ppt 06
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Benefits of FranchisingBenefits of Franchising
ationa! ad&ertising programsationa! ad&ertising programs Franchisees contri+ute *- to - of sa!esFranchisees contri+ute *- to - of sa!es
Financia! assistanceFinancia! assistance
>n!% 0- of franchisors offer direct>n!% 0- of franchisors offer directfinancia! assistance to franchisees$financia! assistance to franchisees$
#BA Franchise Registr%#BA Franchise Registr%
Pro&en products andPro&en products and+usiness formats+usiness formats
7/18/2019 Scarb Eesbm6e Ppt 06
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F8."RE 6$3 Franchisor Financia! AssistanceSource: The Profle o Franchising 2006, International Franchise Association
(Washington, DC: 2007), ! 70!
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Benefits of FranchisingBenefits of Franchising
Centra!i?ed +u%ing po'er Centra!i?ed +u%ing po'er
#ite se!ection and territoria! protection#ite se!ection and territoria! protection
8mportant issue8mportant issueTerritoria! encroachmentTerritoria! encroachment
.reater chance for success.reater chance for success
7/18/2019 Scarb Eesbm6e Ppt 06
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/ra'+ac1s of Franchising/ra'+ac1s of Franchising
Franchise fees and ongoing ro%a!tiesFranchise fees and ongoing ro%a!ties A&erage upfront franchise fee D (,*A&erage upfront franchise fee D (,* Ro%a!ties range from *- to **- ofRo%a!ties range from *- to **- of
franchisees sa!esfranchisees sa!es A&erage ro%a!t% D 6$- of sa!esA&erage ro%a!t% D 6$- of sa!es
#trict adherence to standardi?ed#trict adherence to standardi?ed
operationsoperations Restrictions on purchasingRestrictions on purchasing
Appro&ed supp!iers on!%Appro&ed supp!iers on!%
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/ra'+ac1s of Franchising/ra'+ac1s of Franchising
Gimited product !ineGimited product !ine Contract terms and rene'a!Contract terms and rene'a!
A&erage term D *0$3 %earsA&erage term D *0$3 %ears
"nsatisfactor% training programs"nsatisfactor% training programs Mar1et saturationMar1et saturation
Gess freedom Gess freedom ::o independence=o independence= ::Happ% prisoners=Happ% prisoners=
4continued
7/18/2019 Scarb Eesbm6e Ppt 06
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Ten M%ths of FranchisingTen M%ths of Franchising
*$*$ Franchising is the safest 'a% to go intoFranchising is the safest 'a% to go into+usiness +ecause franchises ne&er fai!$+usiness +ecause franchises ne&er fai!$
$$ 8!! +e a+!e to open m% franchise for !ess8!! +e a+!e to open m% franchise for !ess
mone% than the franchiser estimates$mone% than the franchiser estimates$3$3$ The +igger the franchise organi?ation, theThe +igger the franchise organi?ation, the
more successfu! 8!! +e$more successfu! 8!! +e$
$$ 8!! use )0 percent of the franchisers8!! use )0 percent of the franchisers+usiness s%stem, +ut 8!! impro&e upon +%+usiness s%stem, +ut 8!! impro&e upon +%su+stituting m% eperience and 1no'4ho'$su+stituting m% eperience and 1no'4ho'$
7/18/2019 Scarb Eesbm6e Ppt 06
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Ten M%ths of FranchisingTen M%ths of Franchising
$$ A!! franchises are the same$A!! franchises are the same$
6$6$ 8 dont ha&e to +e a hands4on manager$8 dont ha&e to +e a hands4on manager$
8 can +e an a+sentee o'ner and sti!! +e &er%8 can +e an a+sentee o'ner and sti!! +e &er%successfu!$successfu!$
$$ An%one can +e a satisfied,An%one can +e a satisfied,
successfu! franchise o'ner$successfu! franchise o'ner$
(continued)(continued)
7/18/2019 Scarb Eesbm6e Ppt 06
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Ten M%ths of FranchisingTen M%ths of Franchising
)$)$ Franchising is the cheapest 'a% to get intoFranchising is the cheapest 'a% to get into
+usiness for %ourse!f$+usiness for %ourse!f$
$$ The franchiser 'i!! so!&e m% +usinessThe franchiser 'i!! so!&e m% +usiness
pro+!ems for meI after a!!, thats 'h% 8 pa% anpro+!ems for meI after a!!, thats 'h% 8 pa% anongoing ro%a!t% fee$ongoing ro%a!t% fee$
*0$*0$ >nce 8 open m% franchise,>nce 8 open m% franchise,
8!! +e a+!e to run things8!! +e a+!e to run thingsthe 'a% 8 'ant to$the 'a% 8 'ant to$
(continued)(continued)
7/18/2019 Scarb Eesbm6e Ppt 06
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Franchising and the Ga'Franchising and the Ga'
Franchise /isc!osure /ocument 5F//Franchise /isc!osure /ocument 5F// Esta+!ished in 00) to rep!ace the "niformEsta+!ished in 00) to rep!ace the "niform
Franchise >ffering Circu!ar 5"F>CFranchise >ffering Circu!ar 5"F>C Re@uires franchisors to disc!ose toRe@uires franchisors to disc!ose to
potentia! franchisees information on 3potentia! franchisees information on 3
important topicsimportant topics >+2ecti&e To gi&e franchisees the>+2ecti&e To gi&e franchisees the
information the% need to protectinformation the% need to protectthemse!&es from dishonest franchiseesthemse!&es from dishonest franchisees
and to ma1e good in&estment decisionsand to ma1e good in&estment decisions
/ t ti /i h t F hi
7/18/2019 Scarb Eesbm6e Ppt 06
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/etecting /ishonest Franchisers/etecting /ishonest Franchisers
C!aims that the contract is :standardI no need toC!aims that the contract is :standardI no need toread it$=read it$=
Fai!ure to pro&ide a cop% of the re@uired disc!osureFai!ure to pro&ide a cop% of the re@uired disc!osure
documents$documents$
Margina!!% successfu! protot%pe or no protot%pe$Margina!!% successfu! protot%pe or no protot%pe$
Poor!% prepared operations manua!$Poor!% prepared operations manua!$
Promises of future earnings 'ith no documentation$Promises of future earnings 'ith no documentation$
High franchisee turno&er or termination rate$High franchisee turno&er or termination rate$
"nusua! amount of !itigation +% franchisees$"nusua! amount of !itigation +% franchisees$
In addition to the text
/ t ti /i h t F hi/ t ti /i h t F hi
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Attempts to discourage %our attorne% fromAttempts to discourage %our attorne% from
e&a!uating the contract +efore signing it$e&a!uating the contract +efore signing it$
o 'ritten documentation$o 'ritten documentation$
A high pressure sa!e$A high pressure sa!e$ C!aims to +e eempt from federa! disc!osure !a's$C!aims to +e eempt from federa! disc!osure !a's$
::.et rich @uic1= schemes, promising huge profits.et rich @uic1= schemes, promising huge profits
'ith minima! effort$'ith minima! effort$
Re!uctance to pro&ide a !ist of eisting franchisees$Re!uctance to pro&ide a !ist of eisting franchisees$
E&asi&e, &ague ans'ers to %our @uestions$E&asi&e, &ague ans'ers to %our @uestions$
(continued)(continued)
/etecting /ishonest Franchisers/etecting /ishonest Franchisers
In addition to the text
7/18/2019 Scarb Eesbm6e Ppt 06
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TheThe Right Right ;a% to;a% to
Bu% a FranchiseBu% a Franchise E&a!uate %ourse!f 4 ;hat do %ou !i1e andE&a!uate %ourse!f 4 ;hat do %ou !i1e and
dis!i1e<dis!i1e< Research %our mar1et$Research %our mar1et$
Consider %our franchise options$Consider %our franchise options$ .et a cop% of the Franchisors F// .et a cop% of the Franchisors F// andand
read it! read it!
Ta!1 to eisting franchisees$Ta!1 to eisting franchisees$ As1 the franchiser some tough @uestions$As1 the franchiser some tough @uestions$ Ma1e %our choice$Ma1e %our choice$
7/18/2019 Scarb Eesbm6e Ppt 06
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Factors That Ma1e aFactors That Ma1e a
Franchise Appea!ingFranchise Appea!ing
"ni@ue concept or mar1eting approach"ni@ue concept or mar1eting approach
Profita+i!it%Profita+i!it%
Registered trademar1Registered trademar1
Business s%stem that 'or1sBusiness s%stem that 'or1s
#o!id training program#o!id training program Afforda+i!it%Afforda+i!it%
Positi&e re!ationship 'ith franchiseesPositi&e re!ationship 'ith franchisees
In addition to the text
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - 2"Ch. 6 !ranchising and the Entrepreneur
Trends #haping FranchisingTrends #haping Franchising
Changing face of franchiseesChanging face of franchisees Better educated 'ith more +usinessBetter educated 'ith more +usiness
acumenacumen
Mu!tip!e4unit franchisingMu!tip!e4unit franchising - of franchisees operate mu!tip!e out!ets- of franchisees operate mu!tip!e out!ets
5and gro'ing5and gro'ing
8nternationa! opportunities8nternationa! opportunities 8FA #ur&e% - of "$#$ franchisors ha&e8FA #ur&e% - of "$#$ franchisors ha&e
an internationa! presencean internationa! presence
Master franchisingMaster franchising
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - 2#Ch. 6 !ranchising and the Entrepreneur
Trends #haping FranchisingTrends #haping Franchising
#ma!!er, nontraditiona! !ocations#ma!!er, nontraditiona! !ocations 8ntercept mar1eting8ntercept mar1eting
Con&ersion franchisingCon&ersion franchising
- of orth American franchisors use- of orth American franchisors useas a gro'th strateg%as a gro'th strateg%
Pigg%+ac1ing 5or com+ination orPigg%+ac1ing 5or com+ination or
mu!ti4+randed franchisingmu!ti4+randed franchising #er&ing dua!4career coup!es and#er&ing dua!4career coup!es and
+a+% +oomers+a+% +oomers
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6 - 2$Ch. 6 !ranchising and the Entrepreneur
Conc!usionConc!usion
FranchisingFranchising
8s a 1e% part of the sma!! +usiness8s a 1e% part of the sma!! +usiness
sector sector
8ncreases the chance of +usiness8ncreases the chance of +usiness
success for the entrepreneur success for the entrepreneur
.ro'th continues.ro'th continues
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6 26
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the publisher. Printed in the :nited tates o (erica.