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What is a Franchise?
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FRANCHISE DEFINED
The International Franchise Association defines a franchising system as "a continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organizing, training, merchandising, and management in return for a consideration from the franchisee."
In general franchising is a method of rapid sales expansion by a successful company using the money and talent of others, in this case, its franchisees. The successful company allows these independently owned retail outlets to use its trade name, trademarks, or marketing techniques, with defined controls, for payment of fees.
There are three commonly recognized types of franchising:
Product franchising, sometimes called distributor franchising, gives the franchisee the right to sell the products of the company, usually on an exclusive basis. Examples include automobile dealerships and gasoline service stations.
License franchising deals with trademark or trade name licensing in which the parent company gives licensees the right to use the company trademark or trade name in the business operation. Examples are soft drink bottlers.
Business format franchising is the newest and fastest growing segment of franchising, while the two older methods are in decline. Business format means simply that the franchise replicates its business format for a fee to the franchisee. Business format franchising programs include three key elements: (1) An identity or trade name used by everyone in the system, (2) A business format that is followed closely by each outlet, and (3) A continuous financial arrangement in the form of royalties in exchange for ongoing support.
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