Franchising – GCSE Business Studies Revision

Franchising

  • A franchise is a chain of shops or restaurants, etc, which is licensed out so that people can copy it
  • A franchisee can make an agreement with a franchisor to pay the franchisor for the right to use their business method in a particular location
  • The franchisee is the person who pays the franchisor to use the franchise
  • The franchisor is the owner of the franchise
  • The franchise is the brand and business method the franchisee is asking to copy

Why Make that Deal?

  • It is often easier for a person starting a business to create a franchise rather than start something of their own
  • The franchisor provides them with help and assistance when running their business
  • The business model is well-known and proven to work
  • The brand name is recognised, so there are already customers available
  • The franchisee gets to use the franchise’s brands and trademarks
  • The franchisor already knows suppliers for the franchisee to buy from
  • The franchisee gets exclusive rights to use the franchise in that location – there won’t be an identical shop across the street (although there will still be competition!)
  • The franchisor takes care of all the advertising, to keep the customers coming!

What’s the Catch?

  • You have to pay to use the franchise in the first place… and it can cost quite a bit!
  • The franchisor is your boss. They will apply restrictions and tell you what you can and can’t do…
  • If the franchisor goes out of business that’s not very good for you…
  • The recruitment process has to be thorough, because you can’t give the franchise a bad name!
  • You have to share your profits with the franchisor :(
  • You have to buy your supplies from where the franchisor says, which might not be cheap
  • You can’t sell your shop without the franchisor’s permission, so it can be hard to move on

What’s in it for the Franchisor?

  • (Apart from being a control freak)
  • More money! Franchisees pay to use the business idea, then share their profits
  • Less work! More stores are opened, but the franchisor doesn’t have to worry about running them because there are franchisees to do that
  • They get to work on other things, like introducing new products, whilst other people take care of selling them

On the Other Hand…

  • Stupid franchisees could ruin the business symbol
  • The franchisor may have to give away his private business information to the franchisees, such as the recipe for his chicken poo… erm, chicken wings
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About Matt

I like writing, filmmaking, programming and gaming, and prefer creating media to consuming it. On the topic of consumption, I'm also a big fan of eating.
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