Franchise

NAMA: Indira Rahma

KELAS: 2 SA 01
NPM: 13615346

1. Definition of Franchise

Franchising is a method of distributing goods or services. A franchise is a type of business in which someone (the franchisee) agrees to pay certain fees and obey certain rules for the right to sell the goods or services of an established company (the franchisor) and benefit from its business methods, trade secrets, goodwill, professional training, and operating assistance. ( Eric C. Perkins, 2008 )

Barbara Beshel (2001) stated that franchise is the agreement or license between two legally independent parties which gives: (1) a person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business (franchisor), (2) the franchisee the right to market a product or serice using the operating methods of the franchisor, (3) the franchisee the obligation to pay the franchisor fees for these rights, and (4) the franchisor the obligation to provide rights and support to franchisees.

2. Types of Franchise

Franchising includes three basic types of systems: tradename franchising, product distribution franchising, and pure franchising. Each of these forms of franchising allows fanchisees to benefit from the parent company's identity.

• Tradename Franchising involves being associated with a brand name, such as True Value Hardware or Western Auto.  In tradename franchising, a franchisee purchases the right to become identified with the franchisor's trade name without distributing particular products exclusively under the manufacturer's name

• Product Distribution Franchising involves licensing the franchisee to sell specific products under the manufacturer's brand name and trademark though a selective, limited distribution network. This system is commonly used to market automobiles (General Motors and Toyata), gasoline products (Exxon and Chervron), soft drink (Pepsi Cola and Coca-Cola), bicycles, appliances, cosmetics, and other products).

• Pure Franchising (or comprehensive or business format franchising) involves providing the franchisee with a complete business format. This highly structured relationship includes a license for a trade name, the products or services to be sold, the physical plant, the methods of operation, a marketing strategy plan, a quality control process, a two-way communications system, and the necessary business services. The franchisee purchases the right to use all of the elements of a fully integrated business operation. Business format franchising is the most common and the fastest growing of the three types of franchising, accounting for 85.1 percent of all franchise outlets in the United States.7 It is common among fast-food restaurants, hotels, business service firms, car rental agencies, educational institutions, and many other types of businesses. ( IFA Educational Foundation, 2004 )

3. Risks of Franchising

Obviously there are many risks that arise when vending a fanchise. 

The first risk for the franchisee can be the rules from the franchisor, such as the restriction to do the marketing, the inventory or in changing the program hours. This is one of the reasons why the contract between the parties must be read through all the rules and regulations.

A second risk is the reduced profit, because the franchisers take a considerable amount of the franchisee incomes. It is recommended to do a heavy research on how much money are expected to make and if the investment in worth.

The last and the most important risk is the success of the franchise, which can be a big risk if the franchisee depends on the franchise support. Location, service, and the economy all play into whether the franchise will succeed, and no one can predict the outcome of any of these.

( Miles D. Anthony, 2011 )

Bibliography

Anthony, Miles D., Risk Factors and Business Models: Understanding the Five Forces of Enteprenurial Risk and the Causes of Business Failure, Paperback, 2011, Froida.

Bashel, Barbara, An Introduction to Franchising, The IFA Educational Foundation, 2001, Washington, DC.

Perkins, Eric C., & Laughter, Justin M., Fundementals Of Franchising Your Business, Hirschler Fleischer Corp., 2008.