Choosing Franchising as a method of distribution

1. PLANNING A DISTRIBUTION
PROGRAM
CHOOSING FRANCHISING
AS A METHOD OF
DISTRIBUTION

2. Every business faces core
structural decisions: form of
business organization, definition
of strategic business goals,
capital structure, and basic tax
planning. Equally critical to any
business or service organization
is the choice of a method of
distribution. Often subordinated
to other issues, this decision has
significant implications for the
organization’s allocation of
resources, staffing needs,
regulatory burdens, and ultimate
success or failure. The need for
careful analysis applies equally
to product and service providers.
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3. The characteristics, resources, and
strategic objectives of a business
sometimes dictate its method of
distribution. Firms with ample capital
resources may choose a vertically
integrated system. Firms with sharply
constrained capital often cannot
afford vertically integrated systems or
the regulatory and managerial costs
of highly structured, regulated
methods such as franchising. Firms
with highly bureaucratic or autocratic
decision making systems should not
rely upon a distribution method that
uses delegated entrepreneurial
centers such as franchising or
independent dealers.

4. For most business organizations, the
selection of a method of distribution turns
on an analysis of the entity’s goals and
resources, and cost-benefit-burden trade-
offs of the available alternatives. In some
cases, the analysis may lead to a
particular method only because other
alternatives are less feasible or desirable.
Franchising may be especially attractive if
the business calls for rapid expansion, a
structured or highly integrated distribution
system, or expansion into a foreign or
geographically remote area. Other
choices that meet the same goals within
the same resources (such as a “business
opportunity” program, or costly debt
financing for a vertically integrated
approach) often appear decidedly less
attractive than franchising.
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5. If the choice is to use
franchising, based on the
factors outlined below, an
enormous number of structures
are available to establish a
franchise program, affording a
great deal of flexibility in
tailoring a franchise distribution
program to the exact goals and
resources of that business. The
more commonly used franchise
structures include:

6. • Single unit
franchises for a
single location, or
defined market
area.
• Multiple unit
franchises to
develop a series of
individual retail
locations, usually in
a defined market
area, over a
prescribed period of
time.
• An area franchise
in which a
franchisor grants
another the right to
carry on the
licensed business
within a defined
geographic market
area.
• A franchise sales
agent relationship,
where a licensee
solicits sales of
franchises to
others, but the
resulting franchise
runs directly from
the franchisor to
the retail operator.
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7. • An area
subfranchise
relationship
granting the right,
within a specified
geographic territory,
to grant
subfranchises to
others to establish
individual retail
operations.
• Dual distribution
systems in which the
franchisor itself
engages in
distribution and retail
sale of the goods or
services that are also
being offered by
franchisees, either in
adjacent market
areas or sometimes
even in the same
market areas, but
usually through a
separate channel of
distribution. 7
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8. THANKYOU FOR
LISTENING!
PREPARED BY:
EUNICE SAGADAL