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FREE online courses on Franchising Business and You - Franchising Distinguished - Reasons Franchisors Offer Franchises Vary

 

Franchisors' motives for franchising may be as varied as the forms of franchising they choose.  Understanding why a company franchises and its goals for its franchising program can provide critical insights into what franchise relationships will be for that company.  Franchising objectives also are usually like the type of franchise relationships that the franchisor develops and how the management of the franchising company may react to business challenges.

 

Some of the reasons franchising is selected by franchisors are:

 

Opportunistic Cloning

 

Under this model the owner of a successful business is persuaded that by teaching other people the formula for his success and licensing his trademarks, he and his franchisees can become successful.  Often lacking either the capital or the desire to continue investing in replicating the original successful business, the owners of the company are persuaded that they can seize upon the popularity of their businesses hoping to receive income from licensing fees, royalty fees and also obtain benefits of lower costs for inventory and supplies as the volume purchased by the franchise network grows.  These cloning franchisors may also see that they can derive benefits from increased advertising in a given market.  They see their mission as cloning an entire system of conducting a business.

 

The Sale and Franchise Back Approach

 

Some companies adopt franchising almost as a defensive mechanism.  Either strapped for cash or suffering from a less than acceptable return on assets invested, companies may decide to sell off operating units as franchises, sometimes to their managers, so that they can increase capital without diminishing the overall scope of their business network.  At least in the early stages, these franchisors will not see franchising as the principal focus of their business strategy.

 

The Major Market Company-Owned Minor Market Franchise Strategy

 

Some companies devote their capital and management resources to operations in major markets of a country, region or the world.  They recognize that their products or services are appealing and the returns they could achieve would be lower in these markets.  They may, therefore, offer franchises in the “secondary” markets, believing that with the entrepreneurial effort that often comes with locating the right owner-operator, that these franchisees can achieve a requisite level of success, and that the brand may benefit from the increased advertising, purchasing and distribution that the franchising program adds.

 

Licensors of Support Systems

 

Some companies have developed successful operating systems, vendor relationships and financing programs for use in their own businesses which can be adapted to provide support to independent business operators.  In these relationships, the franchisees are often primarily engaged in selling a product or service and sometimes providing the services to customers in their businesses or homes.  Especially when no major companies dominate the industry, franchising programs may succeed because the franchisors offer franchisees support services which are vital to any business, but which small business owners often lack.  For example, franchisors may provide accounting systems, order products or services for the franchisees, assist franchisees in preparing competitive bids, provide sourcing and beneficial pricing for inventory sold by franchisees, and sometimes actually enter into contracts with customers which will be carried out by the franchisees.  They also may provide promotional services, internet access, etc., thereby leaving the “franchisees” to focus on sales or operations. This division of labor between franchisee and franchisor may give franchisees competitive and well as operational advantages.

 

 

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