Question

Would you want to own a franchise? Fully explain what you feel would be the top 3 benefits, and top three downsides and why. Do you feel there is a trend towards customer preference for franchise chains vs. individual concepts and why?

Answer 1

Many organizations do opt for franchising when they plan to enter a new market. Franchising is one the simplest and safest option for companies to enter the global market. In franchising, the organization, called the franchisee, plans to conduct business of the parent company i.e. an established organization, called the franchisor, in the new market. An agreement is used to bind the franchisee to the franchisor. The franchisee company needs to pay fee to the franchisor.

• Advantages of Franchising are:

• Franchisee company has greater control over the business operation: After paying the operational fee, the franchisor company does not interfere in the operations of the franchise, thus leaving the whole control in the hands of the franchisee company.
• Easy mode of entry in international market: Entering a new market gets comparatively easy. The new company can become a franchisee of an established one
• Low cost, low risk entry mode: There is very less capital involved in developing a franchisee. Also the risk associated is quite less as the company is replicating the business model of an established brand

• Disadvantages of Franchising are:
  • Searching for a franchisee can be time consuming: This can be a complex and time consuming process
  • Higher risk to the franchisor’s brand image and company reputation: The parent company may be choosy as its brand image and goodwill are at stake
  • Pressure of maintaining standards is quite high: The franchisee is pressurized by the franchisor company to maintain its quality standards

Customers do have an inclination towards the franchise chains. This is so because the franchise chains are tried and tested. They are the business replica of an established brand. Customers usually tend to invest their money at a risk-free transaction. So they prefer franchise over a newly established individual company.