FRANCHISING:

Examples: The Wimpy, Kentucky Fried Chicken, Body Shop, and MacDonald’s.

Features:

• This is a process whereby the owners of a business allow others to run branches in return for certain payments.
• The owner of the business is called a franchiser and the people who operate the retail outlets are called franchisees.
• The franchisee has to rent or buy his business premises.
• The franchisee has to pay the franchiser a certain sum of money for the permission to run the retail outlet.
• The franchisee also has to pay royalty to the franchiser for the purpose of using his name.
• All the shops selling the particular franchised products are decorated in the same style and use the same name.

Advantages to the Franchiser:

• The franchiser has the advantage of attracting more capital from the franchisees.
• The franchiser also receives a share of the franchisee’s profit (royalty).
• As the number of retail outlets increase, the franchiser’s name spreads more.

Advantages to the Franchisee:

·         The franchisee has the advantage of selling a product that is well established in the market.

·         Franchisees benefit by having an easily recognizable shop, which is well advertised.

Advantages to the Customer:

·         The customer knows he is buying a known product whose quality is guaranteed when he buys from a franchised outlet.

·         It is very easy for a customer to identify a franchised outlet.

Disadvantages to Franchiser:

·         The franchiser loses his customers who go away to the franchised outlets for their convenience.

Disadvantages to Franchisee:

·         It is very expensive to buy a franchise.

·         The franchisee has to pay the franchiser royalty.

·         The franchisee has no freedom regarding decorating his shop, etc.