Franchising


Franchising

Definition

•         is a method of doing business wherein a franchisor licenses trademarks and methods of doing business to a franchisee in exchange for a recurring royalty fee.

•         Unlike licensing which is basically an authorization to use a single IPR – franchising is a license to copy a whole business and hence includes a number of IP rights e.g. trademarks, patent, design rights etc

•         Entrepreneur chooses to exploit the success of his business model by cloning that model, e.g. Spar Supermarkets, Coca Cola

The franchisor or its affiliate holds title to all of the IP used throughout the franchise system, and for each franchisee to be a licensee of the franchisor with entitlement to “use” the IP as appropriate.

Through proper exercise of the rights granted under such license the full benefits of the franchise system accrue to the franchisee in the operation of the franchised business for so long as the franchise arrangement subsists and the franchisee maintains itself in good standing. Eg In Zimbabwe people will remember that Rainbow Tourism Group lost the franchise of Sheraton Hotels.

Advantages

Offers franchisee quick starting up of business based on proven trademark or formula

Franchisees benefit from marketing and training from the franchisor.

Franchisors- obtains rapid expansion of their brand internationally + enormous profits while franchisees do most of the hard work

Franchisor – builds a captive distributor network with little or no financial commitment

For customers – promise of consistent product or service from franchised establishment.

Franchises teach people the use of powerful business systems. You do not need to reinvent the wheel.

Disadvantages

Loss of control for the franchisee as approvals for changes are required. Reduces flexibility. Recently Pathfinder coaches used to park at Holiday Inn Harare and when some Holiday Inn clients complained African Sun was served with a seven day corrective order or lose the franchise. So Holiday Inn had to stop the strategic alliance with pathfinder and lost revenue.

Franchisor/franchisee relationship can easily give rise to litigation if either side is incompetent or not acting in good faith

An incompetent franchisee may cause brand dilution at the expense of the franchisor

An incompetent franchisor may destroy its franchisees by failing to promote the brand properly or by squeezing them too aggressively for profits e.g. Mobil Oil in Zimbabwe

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One thought on “Franchising”

  1. Another advantage is that the bank will lend you 60% plus to buy the franchise. For a novice this is a great platform to learn to fly before you launch into your dream idea.

    The implication for someone who has never been mentored by a positive business owner is that you get into a system which has all the success ingredients and it free’s up your time to network.

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