by Rodulf A. Kotek
Advantages
Franchising provides the Franchisor’s company with a package of commercial and financial means:
• An increased global financial capacity to support the commercial network;
• A reduced capacity to react for the competitors of:
-a most rapid conquest of the market
-the coverage of the territory with prime quality sites.
• A trademark considerably valorized and easily identified and an enhanced fidelity of the customers thanks to the concerted actions in advertising at the regional and national levels.
• Control of the distribution
• Business expansion as more people will be aware of the brand name, making it more valuable
• Buying power if the chain purchases centralized
• Operational convenience since the day-to-day operation is delegated to Franchisee
• Franchisee contribute valuable information on the operation, on development of new products and pricing.
• Motivation and Cooperation by good Franchisee can be very inspiring to Franchisors doing better and growing bigger
Drawbacks
• Financial demands
• The array of means and steps to take when a Franchisor exceeds the immediate needs of this single company. From the very beginning, the Franchisor must take the demands of his network into account before he has even launched it, when launching it and when the network has reached its maturity stage.
• Strategic demands: The Franchisor ought to develop a strategy of differentiation towards his competitors.
• The Franchisor gives up the exploitation of a part of the territory to the Franchisee(s).
• Lack of Freedom: Franchisor have to consider now in all their decision the operation of franchised facilities not only their own outlets.
• Franchisee selection and recruitment can become a difficult task and Franchisors have to be extremely careful in their selection. The glamour of franchising may attract several absentee investors who are not interested in the operations. Those people should invest in the Stock Exchange!
• Many Franchisor-Franchisee relationship problems can be traced to the communications between them. One common problem is the misunderstanding of quality standards of the reasoning behind them. Franchisees may not appreciate the methods used to maintain those standards or the inspection procedures used by the Franchisor.
• Franchisee may also develop a sense of independence and may not take advice of the Franchisors. They may feel that they are better qualified than staff the main office.
• Franchisees may be reluctant to disclose gross sales on which royalty fees are dependent or may not report accurately. Non-cooperation from Franchisees may require adequate policing or may end up in legal battles that may adversely affect an otherwise healthy business.
Rudolf Kotik is the founder of RK Franchise Consultancy Inc, which developed more than 350 Filipino Companies into Franchise Systems. Email: rk@rkfranchise.com; websites: www.rkfranchise.com, www.franchise.ph.
