1. In franchising, _________ pay fees and royalties to a ________ in return for the right to
sell its products or services under the franchiser’s trade name and often to use its business
format and system.
a.
b.
c.
d.
Franchiser, franchisee
Franchisee, franchiser
Franchise, business owner
Business owner, parent company
2. Franchises account for about _______% of all retail sales.
a. 74
b. 34
c. 63
d. 50
3. The word “franchising” is derived from the French word that means:
a) Free from independent business
b) Free from standardization
c) Free from servitude
d) Free from government
4. Franchising is currently dominated by:
a. auto dealers.
b. service-oriented franchises.
c. retail outlets.
d. fast food restaurants.
5. ________ franchising exists when a franchisee is licensed to sell specific products under the
franchisor's brand name through a selective distribution system.
a. Trade name
b. Pure
c. Conversion
d. Product distribution
6. In ________ franchising, a franchisee purchases only the right to become identified with the
franchisor's trade name.
a. trade name
b. pure
c. conversion
d. product distribution
7. __________ franchising involves providing the franchisee with a complete business system--the
established name, the building layout and design, accounting systems, etc.
a. Product distribution
b. Trade name
c. Pure
d. Conversion
8. Most gasoline products are sold through the _________ system of franchising.
a.
b.
c.
d.
product distribution
trade name
pure
conversion
9. McDonald’s is an example of a _____ franchise.
a. conversion
b. trade name
c. product distribution
d. pure
10. Most new franchise outlets don’t break even for at least _______ months.
a) Two to four
b) Three to six
c) Six to ten
d) Six to eight
11. Before beginning operations, _______ franchisees take a 55 hour course and then spend an
additional 34 hours in on-the-job training.
a) McDonald
b) Radio Shack
c) Subway
d) Dunkin Donuts
12. The success of franchising is largely due to:
a. the economic growth of the United States and other developed nations, economies.
b. more college students choosing to go to work for themselves rather than for corporations.
c. the mutual benefits it provides to the franchisor and franchisee.
d. all of these factors.
13. Nearly ____ of the International Franchise Association’s member indicate that they offer some
type of financial assistance to its franchises.
a) Half
b) Three-forth
c) One-forth
d) 90%
14. McDonald's worldwide success as a franchise can be attributed to a few simple strategies,
including:
a. complete customization of the menu to fit local tastes.
b. Ability to obtain prime locations in high-traffic areas.
c. using U.S. managers and employees whenever possible.
d. standardizing processes and closely managing workers.
15. A significant advantage a franchisee has over the independent small business owner is
participation in the franchiser's___________.
a) centralized and large-volume buying power
b) social gatherings
c) profits
d) policies
16. The typical franchise company averages sales of less than ____ outlets in the first year.
a. three
b. seven
c. ten
d. one
17. In view of the cause of most new business failures, probably the most valuable service provided
franchisees by the franchisor is:
a. management training and experience.
b. national advertising.
c. financial assistance.
d. territorial protection.
18. The franchising boom spearheaded by _____ in the late 1950s brought with it many prime
investment opportunities.
a) Dunkin Donuts
b) McDonalds
c) Burger King
d) Subway
19. In franchising, the reputation of the franchisor is dependent on:
a. their locations and popularity with the local customer.
b. the brand name recognition and appeal.
c. the rate of growth and the number of national outlets.
d. the quality of the goods and services provided.
20. Franchise advertising programs:
a. are organized by the franchisor but controlled locally by the franchisee.
b. are an expense borne by the franchisor.
c. require franchisees to spend a minimum amount on local advertising.
d. allow voluntary participation.
21. When it comes to financial assistance for franchisees, the franchisor often:
a. provides direct financing.
b. assists in finding financing and occasionally provides direct assistance in a specific area.
c. waives royalty fees for franchisees not making an adequate profit.
d. generally does nothing, as finding financing is a requirement for qualifying for a
franchise.
22. The primary advantage of buying a franchise over starting your own company is:
a. in the purchase of the franchisor's experience, expertise, and products.
b. the fact it is much less expensive than doing your own business start-up.
c. the extensive assistance offered in finding start-up capital.
d. the absolute territory protection offered by all franchisors.
23. Most franchise experts consider the most important factor in the success of a franchise to be:
a. the simplicity of the idea.
b. location.
c. territorial protection.
d. financing.
24. Territorial protection in franchising:
a. varies according to industry.
b. is basically every franchisee for him/herself.
c. is absolute and uniform across industries.
d. is no longer an issue for most franchisees.
25. The failure rate for franchises is:
a. higher than the rate for all new businesses.
b. no different from the rate for all new businesses.
c. lower than the rate for all new businesses.
d. indeterminable because of the Right to Privacy Act.
26. Approximately ____% of new businesses fail by the second year of operation, while ____% of all
franchises fail in any given year.
a. 2; 17
b. 12; 15
c. 14; 22
d. 24; 7
27. There are two main risks in purchasing a franchise. First, that of the franchisor's experience and
business system, and second:
a. the brand name recognition of the franchise.
b. the entrepreneur’s managerial skills and motivation.
c. the franchisor’s financing.
d. the economy trends in the country at the time the franchisee begins operation.
28. The first, second and third growth wave in franchising respectively, are:
a) Low-cost franchises that focus on niche markets; shift to service sector; fast-food
restaurant using the concept of rapid growth
b) Fast-food restaurant using the concept of rapid growth; shift to service sector; low-cost
franchises that focus on niche markets
c) Low-cost franchises that focus on niche markets; fast-food restaurant using the
concept of rapid growth; shift to service sector
d) Shift to service sector; low-cost franchises that focus on niche markets; fast-food
restaurant using the concept of rapid growth
29. Despite all the benefits, there are a number of disadvantages to franchises, such as:
a. the time consumed by the management training and support the franchisor provides.
b. the cost of national advertising.
c. strict adherence to standardized operations.
d. territory limitations.
30. The commerce department reports that the most expensive franchises in terms of total investment
are:
a. retail franchises.
b. business service franchises.
c. McDonald’s franchises.
d. hotel and motel franchises.
QUIZZ 2 QUESTIONS
1. Which one of the following is NOT an advantage of franchising for the franchisee?
A. established product or service
B. technical and managerial assistance
C. quality control standards
D. expansion
2. Which of the following is a disadvantage for the franchisor?
A. franchisee motivation
B. bulk purchasing
C. loss of freedom and control as franchise system grows
D. use of capital for reasons other than expansion
3. All of the following are disadvantages of franchising for the franchisee, except for:
A. service costs imposed by the franchisor
B. franchisor failure to meet support expectations of the franchisee
C. typically operate as a non-unionize business establishment
D. restrictions on freedom of ownership
4. A number of major questions should be addressed by a potential franchisor before
choosing to expand through franchising. Which one of the following is not a major
question at the onset?
A. do I have a prototype store or unit that can be replicated?
B. can my product/service meet the test of distance?
C. should I have right of first-refusal on site selection?
D. what skills will be needed by a franchisee to run my business successfully?
5. There are several ways to protect a trademark, as indicated below. Which descriptive
statement is NOT one of the legal ways of protecting a trademark?
A. coined trademark
B. descriptive trademark
C. suggestive trademark
D. trouble-free trademark
6. Reasons a franchise system would have corporate locations, as well as franchisee
locations are shown below, except for:
A. investors believe corporate ownership demonstrates that the franchise concept
works.
B. franchisor avoids potential conflict with franchisees that may rise based upon
market and site locations.
C. by having some corporate locations, the franchisor could take over, if a troubled or
failing franchisee’s location, if necessary.
D. by having corporate location, the franchisor remains close to the ultimate customer.
7. Business situations that are appropriate to consider when looking for growth through
franchising include all but which one of the following?
A. firms in market niches that have broad product appeal and known consumer
acceptance as long as the trends support long-term market viability and growth.
B. firms in stable and growing industries, where the industry itself is unburdened by
significant regulation.
C. firms that have complex internal systems to execute, that draw from a limited pool
of qualified employees, or require significant amounts for training to assure
franchisee competence in delivery of the system’s products or services.
D. firms whose operating margins allow for franchisee fees to be charged and still
leave an adequate r.o.i. for both franchisor and franchisee.
8. If a franchise system is struggling, not achieving long-term success. The first step for
the franchisor to do is:
A. revisit and maybe change the franchisee business model
B. contact and listen to each franchisee as possible, to determine what are the problems
to be addressed.
C. change the corporate business model, reduce corporate costs and reduce contact
with franchisees.
D. study what the competition is doing and change the franchise model to fit the
models of its primary competitors.
9. Capital requirements that a potential franchisee must consider prior to becoming part of
a franchise system include each of the following except for:
A. franchising fee
B. startup expanses and inventory
C. personal entertainment expenses
D. working capital
10. A primary consideration for a potential franchisee is that the capital required to become
a franchisee will likely be:
A. much greater than it would be for starting an independent business in the same field.
B. much less than it would be for starting an independent business in the same field
C. the amount of capital required is not of great concern to franchisor or franchisee.
other factors are more important.
D. about the same or potential more for starting a franchise business compared to
starting an independent business in the same field.