Franchising is a way of organizing a business in which a large company (the owner of a brand name – the franchisor) transfers the right to conduct business on its own behalf, technology, know-how, tools and business model for a certain reward to another company (franchisee). Both companies operate in one bundle for the benefit of their own business. A franchise is interested in supporting a major partner and its trademark, which consumers already know and love, therefore, it ensures the turn of customers immediately after the opening of the enterprise. The franchisor will find it difficult to independently develop the network and enter other markets, so franchising helps franchisees provide consumers of other regions with their goods and services.
In the world classification, the following forms of franchising are distinguished: direct franchising, sequential, territory development, sub-franchising, master franchising. The forms of franchising are determined by the terms of the franchise and are distinguished by the responsibilities of the franchisor and the franchise.
BASIC FORMS OF FRANCHISING:
Involves the transfer of rights franchisor to one enterprise (person). The downside of direct franchising is the slow development of the territory. To sell the rights to conduct business to a third party franchisee is prohibited, as well as the franchise cannot develop the territory.
An example of direct franchising is the network of popular coffee shops “Chocolate”, which is one of the most popular franchises in the market of public catering. The franchise allows opening institutions of different formats from small cafes to large establishments with 200 sq.
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Differs from the direct one in that the franchisor transfers the right to conduct business for several franchises to one partner (franchisee). Subsequent franchises are transferred to the franchise gradually when the franchisor is convinced that the previous enterprise’s work is established. Consecutive franchising is typical for companies, between which there are trusting relationships and franchisees can open several franchise points of one franchise.
In fact, successive franchising involves selling one entrepreneur at once several franchises of one brand. Forms of franchising regulate the relationship between the parties (the franchisor and the franchise) their duties in relation to each other.
Consecutive franchising shines through the relationships between partners for the simple reason that if one point of the franchise is successfully functioning and the business brings a stable income, this means that the franchise system of this network is properly built. In addition, if the franchisor sells another franchise to his franchise, this is demonstrated by the fact that the parties have mutually beneficial and trusting relationships.
The development of the territory
Assumes that the franchise (developer of the territory) receives from the franchisor the right to sell franchises to other enterprises within a certain territory. That is, the franchise concludes contracts on behalf of the parent company with the entrepreneurs acquiring the franchise.
Examples of regional franchising are the franchise of the fashion store MEXX, the network of fast food establishments Subway. Under the terms of cooperation, a regional company can sell franchises of its franchisor and build its own regional network within a certain territory.
The conditions for acquiring a franchise on a separate territory depend on the total area of the territory on which the franchise plans to develop its network.
Is a form of cooperation in which the franchisor has the right to develop the territory on behalf of the parent company, as well as its franchise points, in other words, the subphrase generator acts as a deputy franchisor? The revenue from the sale of franchises is distributed between the franchise and the franchisor. Responsibility for the development of the territory goes to the sub-franchise.
The advantages of sub-franchising for a franchise is that the latter has more opportunities to receive additional income and not only from the sale of franchises but also from additional commissions from the sale of goods. In addition, the franchise has the right to collect not only a part of the lump-sum contribution for each franchise sold but also royalties.
But, despite financial advantages, the sub-franchisor is seriously at risk, since the investments to start a business are quite large. Among other things, the sub-franchisor is responsible for the contract with the franchise and in the future, in the event of the improper fulfillment of the terms of the contract, this may result in legal proceedings.
An example of sub-franchising is the company World Gym Group – a network of fitness clubs around the world. The company was founded in the United States in 1977, on the international market was released in 2005. In the sub-franchising scheme, there is a parent company that is located in California, there is a sub-franchisor – a company selling franchises in Russia and there is a franchise – a concrete fitness room operating under the brand name World Gym.
Inform is close to sub -franchising and is used in the activities of international companies. Master franchising implies a full delegation of the franchisor’s activity to his master franchisee. In the sub-franchise, only a part of the rights and duties are delegated, as the franchise master franchisee has unlimited rights to open new points and their enterprises.
An example of a master franchise is the network of food stores Pyaterochka. The cost of the master franchise in the undeveloped regions ranges from 300 to 600 thousand dollars.
The last two forms are the most active and aggressive ways of developing business in terms of the development of the territory and are often found in the practice of doing business.
Thus, the basic forms of franchising are distinguished by the duties that the franchisor and the franchisee perform. The most common form of franchising is direct franchising and development of the territory.