What Is Franchising?
Franchising is one of three business strategies a company may use in
capturing market share. The others are company owned units or a
combination of company owned and franchised units.
Franchising is a business strategy for getting and keeping customers.
It is a marketing system for creating an image in the minds of current
and future customers about how the company�s products and services can
help them. It is a method for distributing products and services that
satisfy customer needs.
Franchising is a network of interdependent business relationships that allows a number of people to share:
- A brand identification
- A successful method of doing business
- A proven marketing 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.
There are many misconceptions about franchising, but probably the most
widely held is that you as a franchisee are �buying a franchise.� In
reality you are investing your assets in a system to utilize the brand
name, operating system and ongoing support. You and everyone in the
system are licensed to use the brand name and operating system.
The business relationship is a joint commitment by all franchisees to
get and keep customers. Legally you are bound to get and keep them
using the prescribed marketing and operating systems of the franchisor.
To be successful in franchising you must understand the business and
legal ramifications of your relationship with the franchisor and all
the franchisees. Your focus must be on working with other franchisees
and company managers to market the brand, and fully use the operating
system to get and keep customers.
Throughout this article we will discuss in detail some of the benefits of conducting business as part of a larger group.
Other franchisees and company operated units are not your competition.
The opposite is true. They and you share the task of establishing the
brand as the dominant brand in all markets entered and reinforcing the
customers� familiarity with and trust in the brand. So in this respect
you are working as a team with others in the system. Other franchisees
share with you the responsibility for quality, consistency,
convenience, and other factors that define your franchise and insures
repeat business for everyone. Increasing the value of the brand name is
a shared responsibility of the franchisor and franchisee.
An �ownership mentality� destroys the reason franchised and
company-operated units are successful. Think about it. If you think you
�bought� a franchise, you become an �owner� and begin to think and act
like an owner. You will want to change the system because of your
needs, you will wonder what you are paying the royalty for, and you
will begin thinking of other franchisees as your competitors. For these
and many other reasons you do not want to think of yourself as an
�independent owner.�
As a franchisee you own the assets of your company, which you have
chosen to invest in someone else�s brand and operating system and
ongoing support. You own the assets of your company, but you are
licensed to operate someone else�s business system.
Finally, your desire to become a franchisee must be grounded in your
belief that you can be more successful using someone else�s brand and
operating according to their systems and methods, than you could if you
opened up your own independent business and competed against them. You
want to look for a franchisor who is building a system of
interdependent franchisees who are committed to getting and keeping
customers, to growing faster than the market, to growing faster than
the competitors, and to do all of that with high margins. When you
discover a franchisor who understands this relationship, you have a
franchisor worth your consideration.
The Strength of Franchising
Franchising is the most popular system for growing a business in the
United States today. According to every government survey, franchising
has experienced explosive growth since the mid-70s and is expected to
be the leading method of doing business in the new century.
In the United States, there are over 2,500 franchise systems. These
systems have in excess of 534,000 franchise units, which represent 3.2%
of the total businesses. This 3.2% of all businesses controls over 35%
of all retail and service revenue in the U.S. economy.
Franchising�s advantages over going into business for yourself include;
opening quicker, experiencing success sooner, developing a customer
base faster, having less risk and being more profitable.
Your success as a franchisee is based on the proven success of the
franchisor to operate company units and upon the success of existing
franchisees. [It should be able to show that the business can be
successful in various markets and in different conditions.]
A company franchises because it wants to quickly and in great numbers
replicate its successful company operations without significantly
increasing its debt. Because it has been successful at teaching its own
employees to operate the business, the company believes it can repeat
the same success by teaching others to do it.
In franchising, the operating system becomes identified with the brand
or trade name that you license as a franchisee. Each franchise system
uses precise methods to service and satisfy the customer. By
documenting these practices, the franchisor institutionalizes the
buying experience. Because customers don�t like surprises this
consistency in operations, unit to unit, builds customer loyalty to the
brand.
Franchising is successful because we Americans are people of habit and
are brand-driven when we purchase goods and services. We trust brands
that we see everywhere, every day. We tend to be loyal to a product or
service delivered to us the same way all the time.
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