Francising and the
Entrepreneur
Chapter 6
Franchising
A system of distribution in which semiindependent business owners (franchisees)
pay fees and royalties to a parent company
(franchisor) in return for the right to become
identified with its trademark, to sell its
products or services, and often to use its
business format and system.
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3 Types of Franchising
Trade-Name Franchising
A system of franchising in which a franchisee purchases the right to
use the franchisor’s trade name without distributing particular
products under the franchisor’s name.
Product Distribution Franchising
A system of franchising in which a franchisor licenses a franchisee
to sell its products under the franchisor’s brand name and
trademark through a selective, limited distribution network.
Pure Franchising
A system of franchising in which a franchisor sells a franchisee a
complete business format and system.
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Benefits of Buying a
Franchise
Management Training
and Support
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Brand Name Appeal
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Standardized Quality of Goods and Services
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National Advertising Programs
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Financial Assistance
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A Business System
Proven Products, Processes, and Business
Formats
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Centralized Buying Power
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Site Selection and Territorial Protection
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Drawbacks of Buying a
Franchise FeesFranchise
and Ongoing Royalties
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Strict Adherence to Standardized Operations
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Restrictions on Purchasing
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Limited Product Line
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Contract Terms and Renewal
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Unsatisfactory Training Programs
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Market Saturation
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Less Freedom
Uniform Franchise Disclosure
Document
Uniform Franchise Disclosure Document (UFDD)
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A document that every franchisor is required by
law to give prospective franchisees before any
offer or sale of a franchise; it outlines 23
important pieces of information.
Franchise Turnover Rate
The rate at which franchisees leave a franchise
system.
Intercept Marketing
The principal of putting a franchise’s products or
services directly in the paths of potential
customers, wherever they may be.
Conversion Franchising
A franchising trend in which owners of
independent businesses become franchisees
to gain the advantage of name recognition.
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Area Development
A method of franchising in which a franchisee
earns the exclusive right to open multiple units in
a specific territory within a specified time.
Master Franchise
A method of franchising that gives a franchisee the
right to create a semi-independent organization in
a particular territory to recruit, sell, and support
other franchisees.
CoBranding
A method of franchising in which two or more
franchises team up to sell complementary products
or services under one roof.