The franchising concept
by
Norton Rose
This very broad definition covers almost every conceivable type of franchise and branded distribution arrangement. When the term ‘franchise’ is used in common parlance it is normally used to describe hat is called business format franchising, where the franchisor specifies much of the business format under which the franchisee must operate. However, the broad definition is useful as it highlights that franchising comes in many and varied forms, and franchising techniques can be used selectively if desired.
Some of the more common types of franchising arrangements are as follows:
Master franchising:
Master franchising concerns the relationship whereby a franchisor grants to another person (master franchisee or sub-franchisor) the right to sub-franchise the franchisor’s system within a particular region or territory and, in some cases, to use the name and system itself.
Area development franchising:
Area development franchising involves the franchisor granting exclusive rights to another party, described as a “developer” to develop an exclusive territory by opening a number of franchise outlets itself in accordance with an agreed schedule. The developer does not have the right to sub-franchise others to open franchise outlets.
Multiple unit franchise:
Multiple unit franchising refers to a franchisee operating a number of outlets. Multiple unit franchising may be adopted by a franchise system on an ad hoc basis (to recruit a high performing franchisee) or as a matter of system policy.
Combination franchising:
Combination franchising refers to the marketing of several franchise products or services in the same location. It is an integrated retail concept which has been developed to strengthen and expand a business.
In-store franchising:
In-store franchising refers to the practice of a department store leasing space or granting a concession of space within the store to a franchise system which will establish franchise outlets in that space.
Conversion franchising:
This term describes the practice of recruiting franchisees from independent small business proprietors operating in the same industry sector as the franchisor.
Essentially franchising is a way of carrying on business that enables independent business owners to be part of a network that works together in a defined way to supply goods or services to customers. The fact that the franchisees are independent business operators, not employees, is probably the key commercial element that gives franchising its competitive advantage. Although there are savings in employee on-costs such as payroll tax, superannuation and worker’s compensation, the main advantage is that the owner operator will work harder and is more committed than an employee.
Anecdotally, franchisors and industry experts consistently claim an uplift factor of 20-33 percent in sales from franchised outlets compared to company owned outlets, and report substantial operational savings as a result of direct in-business involvement of the franchisee.
Franchising techniques are used by different companies in different ways, and franchise formats vary widely in levels of sophistication. Some businesses, such as the major fast food systems, mandate processes for almost every aspect of the franchisee’s business. Other franchisors are less prescriptive in terms of operating format. The key to franchising is the creation of a synergistic business relationship between independent business proprietors that enables each party to focus on their strengths to provide a superior offer to consumers.
See the running a franchise and buying a franchise pages for further assistance.
This article was created by Deacons and appears courtesy of Austrade . 26.06.2007
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