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Marketing Channels- Franchising


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Marketing Channels- Franchising

  1. 1. Chapter 12 Franchising Presented by : Mohammed Salem 17-May-2011
  2. 2. Objectives <ul><li>Define franchising and distinguish the two major formats </li></ul><ul><li>Describe why an individual would become a franchisee rather than founding a new business </li></ul><ul><li>Explain why a firm with a business model would opt for franchising </li></ul><ul><li>Describe the essential elements of a franchise contract </li></ul><ul><li>Explain why franchise systems include company outlets and describe the multiunit franchising </li></ul><ul><li>Describe the ongoing challenges facing the franchisor </li></ul>
  3. 3. Franchising definition <ul><li>Franchising is a marketing channel structure made to appear as a corporate chain </li></ul><ul><li>Independent businesses </li></ul><ul><li>Franchisor </li></ul><ul><li>Franchisee </li></ul>
  4. 4. Basic Types of Franchises <ul><li>Business format franchising </li></ul><ul><ul><li>Licensing of an entire way of doing business </li></ul></ul><ul><ul><li>Common name or sign </li></ul></ul><ul><ul><li>Uniform presentation of the premises </li></ul></ul><ul><ul><li>Expertise shared by franchisor </li></ul></ul><ul><ul><li>Continuing business and technical assistance </li></ul></ul><ul><li>Authorized franchise systems </li></ul><ul><ul><li>Minimal requirements to be an “authorized dealer” </li></ul></ul>
  5. 5. Becoming a Franchisee <ul><li>Have capital to invest </li></ul><ul><li>Desire to own a business </li></ul><ul><li>Want proven model and assistance </li></ul><ul><li>Willing to give up some independence in exchange for assistance </li></ul>
  6. 6. Benefits to Franchisees <ul><li>Brand name and equity </li></ul><ul><li>Economies of scale </li></ul><ul><li>Market survey and site selection </li></ul><ul><li>Facility design </li></ul><ul><li>Lease negotiations advise </li></ul><ul><li>Financing advice </li></ul><ul><li>Operating manuals </li></ul><ul><li>Management training programs </li></ul><ul><li>Training of franchisee’s employees </li></ul>
  7. 7. Benefits to Franchisees (cont.) <ul><li>Field supervision of operations </li></ul><ul><li>Merchandising and promotion materials </li></ul><ul><li>National advertising </li></ul><ul><li>Market data and guidance </li></ul><ul><li>Auditing and record keeping </li></ul><ul><li>Group insurance plans </li></ul>
  8. 8. Becoming a Franchisor <ul><li>Want fast growth </li></ul><ul><li>Need a source of capital </li></ul><ul><li>Need a source of good managers </li></ul><ul><li>Want to minimize monitoring costs </li></ul><ul><li>Want a source of new ideas </li></ul><ul><li>Want consultants in specific markets </li></ul><ul><li>Want control </li></ul>
  9. 9. Franchise Contract <ul><li>A standard Franchise contract consists of the following parts : </li></ul><ul><ul><li>The payment system : Lump-sum fee, royalty fee, initial investment </li></ul></ul><ul><ul><li>The real estate : who holds the lease and how it may be transferred </li></ul></ul><ul><ul><li>Termination : arrangement for a possible ending of contract </li></ul></ul><ul><li>Sometimes adjustment is made to contract (royalties – fixed fees). </li></ul>
  10. 10. Company Outlets in Franchise Systems <ul><li>Franchisor’s won outlet (permanent – temporary) </li></ul><ul><li>Franchisee’s outlet. </li></ul><ul><li>The plural form (having both company and franchisee outlets) </li></ul><ul><li>Synergy from the plural form </li></ul><ul><ul><li>Control system </li></ul></ul><ul><ul><li>Benchmarks </li></ul></ul><ul><ul><li>Career paths </li></ul></ul><ul><ul><li>Mutual strategy (teaching each others) </li></ul></ul>
  11. 11. Multi-Unit Franchising <ul><li>Dealing with the same individual for multiple locations </li></ul><ul><li>From franchisor's perspective : </li></ul><ul><li>Faster growth </li></ul><ul><li>Deal with unknown markets </li></ul><ul><li>Reduce managing hundreds of relationships to reasonable level. (KFC has more than 3500 U.S. restaurants. More than half of them are owned by 17 people.) </li></ul><ul><li>A vehicle for preserving and spreading knowledge </li></ul>
  12. 12. Challenges for Franchisors <ul><li>Survival (very high failure rates) </li></ul><ul><li>Gaining and keeping cooperative atmosphere </li></ul><ul><li>Encouraging to innovate </li></ul><ul><li>Cooperation among franchisees </li></ul><ul><li>Good performance is recognized by franchisor </li></ul><ul><li>Feeling the franchisor is fair </li></ul><ul><li>Controlling their own business </li></ul><ul><li>No goal conflict between franchisor and franchisee </li></ul>
  13. 13. Franchising in Saudi Arabia <ul><li>experts peg the annual growth in franchising in Middle East region at 27% </li></ul><ul><li>American firms have more than 70% of all franchised operations in Saudi Arabia </li></ul><ul><li>Brands such as McDonald's, KFC, Pizza Hut, Hertz, Avis, DHL </li></ul><ul><li>The import of food and foodstuffs are estimated to exceed $7 billion annually </li></ul>
  14. 14. Fawaz Alhokair Franchising <ul><li>Interests in fashion, hotels and restaurants </li></ul><ul><li>Over 72 fashion franchise partners </li></ul><ul><li>Sales in excess of $2.2bn </li></ul><ul><li>Over 1000 stores </li></ul><ul><li>48% mainstream fashion market share in KSA </li></ul>
  15. 15. Fawaz Alhokair Franchising <ul><li>Some of franchisors </li></ul>
  16. 16. Thank you