Chapter 4 Packet Notes Flashcards Preview

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Flashcards in Chapter 4 Packet Notes Deck (32):
1

A marketing system involving a legal agreement whereby the franchisee conducts business according to the terms specified by the franchisor.

Franchising

2

Party in franchise contract that specifies methods to be followed and terms to be met by the other party.

Franchisor

3

An entrepreneur whose power is limited by a contractural agreement with a franchisor.

Franchisee

4

The legal agreement between franchisor and franchisee.

Franchise Contract

5

The privileges conveyed in the franchise contract.

Franchise

6

  • The economic significance of franscising is greater than indicated by the activity of franchised businesses alone.
  • Stimulates still more activity and supports the growth of many nonfrancised businesses 

Economic Activity Because of Franchised Businesses

7

  • Probability of success
    • proven line of business
    • pre-qualified of franchisee
  • Training
    • Franchisor-provided
  • Financial Assistance
    • franchisor assistance
  • Operating Benefits
    • Franchisor-aided

Advantages of Francising

8

  • Franchise costs
    • initial franchise fee
    • inventment costs
    • royalty payments
    • Advertising costs
  • Restrictions on business operations
  • Loss of independence
  • Lack of francisor support

Limitations of Franchising

9

  • Reduced risk of failure
  • Going into business for yourself, but not by yourself
  • Use of valuable trade name and trademark
  • Access to a proven business system
  • Management provided by the franchisor
  • Immediate economies of scale
  • A way for an existing business to diversify

Advantages of the Franchise Model

10

  • Misleading or exaggerated earnings claims by franchisors
  • Opportunity behavior by which the franchisor becomes a competitive threat to franchisees
  • Restrictions on franchisees who desire to liquidate their holdings in favor of alternative investment opportunities.
  • Conflicts of interest, such as when a franchisor forces franchisees to be captive outlets for their other suppliers own by the franchisor.
  • Churning
  • Encroachment
  • Imposing noncomplete clauses on franchisees
  • One-sided contracts devised by franchisors
  • The imposition of new restrictions as a requirement of contract renewal
  • Franchisor intimidation of franchisees who attempt to form franchisee associations, seek alternative sources for products, or make other efforts to create a more level playing field.

Government Concerns About Franchising

11

Terminating a successful franchise operation in order to resell and gain additional franchise fees.

Churning

12

Locating a new outlet or point of distribution too close to an existing franchisee, causing a material loss of sales.

Encroachment

13

  • Restricting of sales territory
  • Requiring site approval and imposing requirements on the outlet's appearance
  • Restricting the goods/services that can be sold.
  • Requiring specific operating hours.
  • Controlling advertising.

Franchisor Controls on Franchisees

14

  • Selecting a franchise
  • Investigating the potential franchise

Evaluating Franchise Opportunities

15

  • Personal Observation
  • Advertisements

Selecting a Franchise

16

Information sources:

  • Independent, third-party sources
  • Franchisors themselves
  • Existing and previous franchisees

Information Sources

17

  • Federal Trade Commission 
  • Internet
  • Franchise consultants

Independent, Third-Party Sources

18

Disclosure documents

Franchisors Themselves

19

  • Is the franchisor dedicated to a franchise system as its primary mechanism of product and service distribution?
  • Does the franchisor produce and market quality goods and services for which there is an established market demand?
  • Does the franchisor enjoy a favorable reputation and broad acceptance in the industry?
  • Will the franchisor offer an established, well-designed marketing and business plan and provide substantial and complete training to franchisees?
  • Does the franchisor have good relations with its franchisees, and doe the franchisees have a strong franchisee organization that has negotiating leverage with the franchisor?
  • Does the franchisor have a history of attractive earnings by its franchisees?

Evaluating Franchise Opportunities

20

  • The busines Model
  • Financial Considerations
  • requird assistance
  • Operations manual development
  • Governmental regulations
  • Adding long-term value

Franchisor Considerations

21

Is your business replicable?

The business model

22

How will you finance the growth of the company?

Financial Considerations

23

What expert assistance will you need to become a franchiser?

Required Assistance

24

What will go into your operations manual?

Operations Manual Development

25

Are you willing to satisfy the governments disclosure requirements?

Government Regulations

26

Can you add value for your franchisees year after year?

Adding Long-Term Value

27

  • Reduction of capital requirements
  • Increase in management motivation
  • Speed of expansion

Benefits- Becoming a franchisor

28

  • Reduction in control
  • Sharing of profits
  • Increase in operational support costs

Drawbacks-Becoming a Franchisor

29

  • The franchising contract
  • Rule 436 of the FTC

Legal Issues in Franchising

30

  • Signed with legal counsel present
  • Contains a termination and transfer provision
  • Contains statement of rights to renew contract
  • Franchise disclosure requirements

The Franchising Contract

31

A rule that prescribes that the franchisor must disclose certain information to prospective franchisees.

Rule 436 of the FTC

32

A document accepted by the FTC as satisfying its franchise disclosure requirements.

  • Investment requirements
  • Conditions that would affect renewal, termination, or sale of the franchise.

Franchise Disclosure Document (FDD)