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Franchising Chapter 11

Franchising Chapter 11. Dowling BA 560 Fall Term 2006. Franchising. An entrepreneurial alliance between two organizations, the franchisor and the franchisee Franchisor – the concept innovator who grows by seeking partners or franchisees to operate the concept in local markets

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Franchising Chapter 11

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  1. FranchisingChapter 11 Dowling BA 560 Fall Term 2006

  2. Franchising • An entrepreneurial alliance between two organizations, the franchisor and the franchisee • Franchisor – the concept innovator who grows by seeking partners or franchisees to operate the concept in local markets • A large-scale growth opportunity based on a partnership rather than an individual effort

  3. Exhibit 11.1

  4. Franchise Opportunity Recognition • Primary Target Audience (PTA) identification • Service delivery system (SDS) design • Training and operational support • Field support • Marketing, advertising, and promotion • Product purchase provision

  5. Primary Target Audience (PTA) • Three major areas of data collection integral to refining the Primary Target Audience • Demographic profiles • Psychographic profiles • Geographic profiles

  6. Demographic Profiles Demographic profiles are a compilation of personal characteristics that enables the company to define the “average” customer

  7. Demographic Profiles Include • Age • Gender • Income • Home address and Working Address • Marital and family status • Occupation • Race and ethnicity • Religion • Nationality

  8. Psychographic Profiles • Social class • Upper-upper, lower-upper, upper-middle, middle class, working class, upper-lowers, lower-lowers • Lifestyle • Health consciousness, fashion orientation • Personality variables • Self-confident, conservative, independent

  9. Geographic Profiles • Local, regional, national, or international • U.S. national market include: • Pacific • Mountain • West North Central • West South Central • East North Central • East South Central • South Atlantic • Middle Atlantic • New England

  10. Assessing a Franchise • Multiple market presence • Outlet pro forma disclosed or discerned • Market share • National marketing program • National purchasing program • Margin characteristics

  11. Accessing a Franchise • Business format • Term of the license agreement • Site development • Capital required per unit • Franchise fee and royalties

  12. Exhibit 11.2

  13. Exhibit 11.3

  14. Special Delivery System • The way resources are arrayed to meet consumer demand • Creates competitive advantage by examining the specific needs of the target customer • Wendy’s drive-through window • Jiffy Lube’s bi-level facilities

  15. Training and Operational Support • Promotes the standardized, consistent delivery of the product • Reinforces the brand’s value • Transfers knowledge of the service delivery system (SDS) to the franchisees, both managers and line workers

  16. Field Support • Two forms: • Franchisor’s representative visits the franchisee’s location in person • Resident experts available for consultation at the corporate headquarters

  17. Marketing, Advertising, and Promotion • Funded and implemented at three levels 1. National • Franchisee contributes a percentage of top-line sales to the fund • Typically controlled by the franchisor 2. Regional • Stores within a set area contribute a percentage of top-line sales to the fund • Controlled by an area of dominant influence (ADI) advertising cooperative

  18. Marketing, Advertising, and Promotion • Funded and implemented at three levels 3. Local • Franchisee makes direct expenditures on advertising • Controlled by franchisee but must be within guidelines set by franchisor

  19. Supply • Establishes quality standards of raw materials or goods used in the operation • Approves • Approves suppliers • Approves specific branded products

  20. Exhibit 11.4

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