FRANCHISING SYSTEM

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FRANCHISING

Franchising is one of the three business strategies a company may use in capturing a market share. The others are the company’s owned units or a combination of company owned and franchised units.
Ιt is a business strategy for getting and keeping customers. It is also a marketing system for creating an image in the minds of current and future customers regarding the way that the company’s products and services can help them. Finally, it is a method for distributing both products and services that satisfy customer needs.

Franchising is a network consisted of interdependent business relationships that allow a number of people to share:

•   A brand identification
•   A successful method of doing business
•   A proven market and distribution system


In short, franchising is a strategic alliance between groups of people who have specific relationships and responsibilities with a common goal to dominate markets, i.e., to get and keep more customers than their competitors.

Actually, you are investing your assets in a system that allows you to utilize the brand name and provides you both operating system and ongoing support. Everyone in the system is licensed to use the brand name and the operating system.


It is a way of developing a successful, already known or an innovator business, where the franchisor grants the franchisee the privilege to start a sale’s point (shop), in which the franchisee can use the franchisor’s name, his know-how, his products and service, his system of products circulation, his promoting etc.

In order to be successful in franchising you must understand the business and legal ramifications (consequences) of your relationship with the franchisor and all the franchisees. Your focus must be on working with other franchisees and the company managers to market the brand and fully use the operating system to get and keep customers.

THE RELATIONSHIP BETWEEN FRANCHISOR AND FRANCHISEE

The franchise, as an institution and a way of collaboration, “bonds” two parts: the mother company-franchisor and the retail unit-franchisee to a close co-operation which is based to mutual exclusiveness. The franchisor has created and operated efficiently a business idea that is applied in shops. In addition, he has taken care of his collaborators-franchisees’ support through all stages of their activation, the start of operation, the modification and space equipment, the feeding with the appropriate merchandise, the training, the merchandising, etc. The franchisee shoulders the investment of his new shop and with the guidance of the franchisor he starts to function it satisfactorily. Through this co-operation, scale economies are achieved and the entire shop’s network takes advantage of the advertising that the mother company does.

What are the main obligations for the franchisor?

•      To provide the necessary initial support to the franchisee, drawings of external and internal decoration, training of the franchisee and his staff, suggested suppliers and collaborators, e.g. a technical office, an architect, etc. In addition, he has to aim the operation of the franchise unit through a business plan, to supply the franchisee with the necessary manuals, to consult him regarding the initial order, the possible opening of the shop, etc.

•      To provide constant support in organizational, operational, legal, commercial and marketing matters. To co-ordinate and run an appropriate and efficient advertise program. To renew and improve continuously the range of the network’s products and service, to boost the network’s.


•      To often visit the franchise unit and to keep an appropriate potential of executives that will support the net.

•      To supply the franchisee with the orders on time and to maintain and improve the cost of the purchases.


•      To commit the area of the franchisee so that there cannot be a sale or a co-operation with third parties (except the franchisee) directly or indirectly.

What are the main obligations for the franchisee?

To form the franchise unit according to the franchisor’s directions, to attend the network’s training seminars, to fulfill his financial obligations, not to get products by third parties, to contact and update the appropriate franchisor executives on information for the market, etc. Usually, the franchisee takes over totally the amount of the necessary investment and participates in the general expenses of the shop’s net by paying a percentage of his turnover (royalties). In most systems, the franchisee pays additionally to the franchisor a lump sum of participation to the system (entry fees) as well as a percentage of the turnover for the common advertising of the chain (marketing fees).

Forms of Franchise

Investment Franchise

The Franchisee places the funds in order to invest in a Franchise system of high cost and despite the complete guarantee of the administration’s strategic, he engages other people to whom he assigns the entire management of the network’s shops on his behalf.


Direct Franchise

The Franchisor provides to each Franchisee the conventional possibility to operate the Franchise system through a particular one unit of exploitation that is located on a specific geographic region. It is a relation one-to-one.

Multi-unit Franchising

The Franchisor gives the Franchisee the right to take advantage of the franchise package aiming at the marketing of specific types of products or/and services. He achieves that by establishing more to one unit of exploitation inside the same or in other geographic region.


Mobile Franchise

The Franchisor gives the Franchisee the authorization to exploit the franchise package, through the supply of particular products or services to the final consumers outside his shop (usually with the use of moveable means – cars etc.) having always, however, the distinctive signs of the Franchisor.


Management Franchise

The franchisee controls several areas or even an entire region and he coordinates a team of employees.


Executive Franchise

The franchisee develops a private enterprise that is usually consisted of one and unique employee -himself- and which generally regards sectors like economic services, staff services, consultants’ offices or project management (administration of work). Such examples are the accountant offices and the consultants’ offices.


Retail Shop Franchise

The franchisor pays an important capital not only for the property/leasing of the shop and the equipment which is possibly a big part of the investment but also for the staff.


Production or Industrial Franchise

It is a contract according to which the franchisee manufactures products himself, following the franchisor’s suggestions, which are sold under the trademark of the franchisor.


Services Franchise

It is a form of franchising in which the franchisor gives the franchisee the authorization to exploit the franchise package by providing particular services to the final consumers.

 

Mixed Franchise

It is very common in the world of Franchising to combine in the same Network both the delivery of products and the rendering of services. This happens mostly when the sale of a product is accompanied by the rendering of a service.


Sales/Distribution Franchise

The franchisee operates effectively under the form of a salesman by selling or distributing products in his region. In this case, he could -if he wanted so- to hire other people for drivers/distributors which would cover also new regions.


Job Franchise

The franchisee with a low budget investment, buys the right to operate, formally, a business that will have an employee having his own means of transport and providing service/installation/repair to the door (home based).


Corner Franchise

This form of franchising consists in the franchisor’s use of a specific shop, owned by a third person, which will be used for selling the products of the franchisor’s business. The franchisor will follow his way of sales.

It should be noted that this shop must not belong in any franchising network. In the above mentioned shop there will be given special space, after an agreement between the owner and the franchisor, to several franchising enterprises so that they can sell their products. This technique is widely spread and it is called shop-in-shop.


Conversion Franchise

In this form of franchise, the franchisee operates already his enterprise before integrating in the network. The enterprise’s object is the same with the franchisor’s enterprise.

 

FRANCHISE SYSTEM

The responsibilities, the jurisdiction and the mutual relations of both the Franchisor and the Franchisees personnel -that manage, accomplish and confirm every work that affects the chain’s operation- should be defined.

The Franchisor has to determine the requirements for confirmation inside the chain, to provide satisfactory means and to assign in trained personnel the confirmation’s activities.

The activities of confirmation should include the inspection, the control and the constant follow-up of all procedures of chain’s operation that aim the guarantee of both the provided services/products and the way that these are provided.

All the sale points have to impart to the consumer a united image regarding the way of service and the visual image. For this reason, the Franchisor owes to plan and to standardize the architectural drawings, the internal decoration and the arrangements of the chain’s shops. The objective is the united and powerful chain’s image and the utilization of scale economies.

The Franchisor owes to undertake the central agreements on the supplies of both the basic products and the utility goods. During these agreements he has to achieve considerably decreased prices of the marked because of the existing and also the future size of the chain.

Each Franchisee has to ensure that the bought products comply with the determined requirements. The Franchisor is supposed to select the chain’s suppliers based to their possibilities for the compensation of the contracts, including the quality requirements.

The Franchisor owes to establish records of the acceptable suppliers. The choice of suppliers as well as the way and the extent of control that the chain exercises should depend on the type of the product -and where needed- on the supplier’s records which prove that in the past, this product had the corresponding possibility and performance.

The suppliers’ records should contain elements which describe with clarity the product which has been ordered. The Sales Forecast and the Management of Stocks should follow the modern logistics tendencies and should constantly be evaluated alternative scenarios, like the existence of a central storehouse per geographic areas, the common use of a delivery system, the agreement and collaboration with third party logistics, the completion of the shops’ needs from one to another, etc.

The objective is the lower possible average stock in the chain’s total and the bigger possible level of customers’ service.

For this reason, the Franchisor should determine and document the appropriate Distribution Plan which energies will be related to the geographic and the quantitative growth of the chain.