The origins of franchising appeared in the 3rd Century, from the Germanic tribe known as the Franks; (Frank=Free so Franchise=‘Freeness'). The Franks used franchising as a method of collecting taxes and tolls and etc. Over the years, in the 18th century, franchise evolved and certain industries formed ‘tied' houses, in which had gave license towards public houses and paying a percentage to the landowner. Moving towards 1977, the UK majors franchisors set up a trade association to promote franchising, naming it the British Franchise Association, which promotes the ethical franchising. Reaching the 20th Century franchising made a huge progress changing everything within the industry environment. How is someone defining franchising although? This method can be defined as when the ‘franchisor' allows the ‘franchisee' to use the products, process, services even the name in exchange for an initial and on-going payment. (WEBBER, R., 2013) An additional definition stated by HSBC UK is, “Franchising is a ‘joint venture' between an independent person (the franchise owner) and a business owner (the franchisor) who wants to expand their business activities'”. (HSBC UK) This essay analyses the various common characteristics of franchise systems and gives a discussion for how and why they affect the prospective franchisee's decision making process.
The three characteristics that this essay will focus on are; a) real ambitions to grow a business, b) committed to the power of a brand and an c) excellent location.
Ambitions to grow a business
The CEO of pizza hut in the UK and Ireland, Miolane Raphael gives an explanation why the company needed the ambition to grow and managed to success. Pizza Hut had one franchisee delivery store opened in 2001 and after 15 years the franchising is operating around 700 stores (270 are restaurant form and the other 430 are balanced between delivery and express units) across the UK and Ireland. (WHAT FRANCHISE, 2016) Pizza Hut's 2012 incentive scheme helped to open new locations, having the ambitious targets expand. The franchise succeeded developing the growth of their industry and building long-term relationships with other partnerships. Lastly that the CEO mentioned is that reaching the ambitious targets that they set, new and innovated targets have been set for the up-coming years. (WHAT FRANCHISE, 2016) The advantages of having an ambition to grow are the following: money, time, people. Franchise gives the opportunity to use other people's money in order to grow. This provides a quickly method to grow in foreign, geographically or even culturally. Less time is actually a huge advantages to start off the business as there is already the brand, gaining competitive advantage. (PRICE, A., 2012)
Nevertheless, points of disadvantages may make someone to rethink if they actually are ready to do it. Shortage of money, can easily be a lack to proceed since borrowing money from others to meet expansions costs are a highly risk. Another factor might be the loss of control; believing at the fact the the business needs to grow might change everything and delegations can split from the workloads to different areas. Increased staff turnover can be a critical factor too that the business needs to maintain for not happening. (NIBUSINESSINFO.CO.UK)
Commitment to the power of a brand
Having a commitment means that a promise it to keep towards your clients. It is a comprehensive and flexible tool measuring the psychological links between clients and brand. This model describes the brand's market position. An example from a company that keeps its brand promise is SONY. SONY has achieved from day one to keep up the brand promise, challenging itself now to do much more products and services than others. The promises that SONY made are the following; for clients / customers to say that the company is a ‘ground-breaking' company, inspiring, entertaining and fill their curiosities. “Kando” concept, was one of the most interesting things that Sony created. This concept connects their clients with the social media and word of mouth marketing by delivering throughout videos, shares and articles. (HARVEY, S., 2018) The advantages of this characteristics are; a) preventing the exit from the brand to the users, b) optimising their marketing costs and c) recognise the strengths and weaknesses between their brand with others. (PPM-FACTUM) On the other hand, branding commitment power can lead with false methods to a bad reputation, in which that case is very difficult to regain what it was original. Adding up, another disadvantage involves the huge costs of advertising and publicising the brand in order to get the consumers to know it. (ZAFIROSKI, A., 2017)
An excellent location
According to Webber, “location is critical, as (general speaking) the majority of customers will be passers-by”. (WEBBER, R., 2013)
A franchise business must always have in mind, were is the best location for the store to be located. The franchisor must write down various questions in which will seek to find if the actually location can be beneficial; this questions are such as, is the store going to be visible to the clients who pass from this road?; is there a lot of parking space here for the customers?; or is it easy to access the business?. In order to succeed an excellent location with the franchise is to locate High Street premises (ex. Shopping centre). Gaining
an excellent location has its advantages, as a store can gain a brand recognition right away without spending time to promote their business or feeding with a lot information their community about the business. Furthermore, a huge advantage is that, the bank manager can be persuade to give the loan for the franchise much easier undertaking the minimum risk is alright. (WEBBER, R., 2013) On the other hand, a franchisor must have in mind the disadvantages for choosing one location. Few of them are that it might be with limited employment opportunities for that particular type of franchise, adding up with that another factor is the dependence for its requirements of the products manufactured there if something dangerous is happening. Last but not least, be careful not creating social problems with the area, accidents etc. because it affects the labour and the productive ability of the company.
The affect of franchisee's decision making process
As stated by Fernández and Bayón, “The delegation of a decision rights is an essential component of the organisational design of franchise chains. Nevertheless, the degree of delegation is not fully developed in the research agenda for the field of
franchising.” (FERNANDEZ, L. B. & BAYON, L. S.) Decision-making process is analysed in seven steps.
1. Identify the decision.
2. Gather relevant informations.
3. Identify the alternatives.
4. Measure the evidence.
5. Choose among alternatives.
6. Take action.
7. Review & feedback.
For the first characteristic, decision making process needs to emphasis in three principles. First principle is the scalability; understanding if the business can have a feasible path to grow and how could that effect. The second principle is skepticism; anyone can approach a business and suggest a proposition believing that this might actual be good for the business too however it might not be in their best interest for the company to accept the offer and thirdly, cash flow; how the growth will affect the cash flow is one decision process anyone must question itself. (PALA, S., 2017) On the next characteristic, the power of a brand, Claessens Maximilian explains four brand strategy decisions. The brand positioning; target customers' minds. Brand name selection; it's an obvious however a difficult task. Brand sponsorship; there are four sponsorship options taking into place and
these are the a) manufacturer's brand, b) private brand, c) licensed brand, d) co-brand. The fourth decision making is brand development in which a company has four choices: line, extensions, brand extensions, multi-brands or new brands. (CLAESSENS, M., 2015) Coming to the last characteristic which is a critical factor as well for the decision making process, is location. One decision-making to consider is were exactly is the best location for the type of brand someone is trying to do with the right audience to show up. Additionally, another factor is the process, considering how long it might actually take to find the potential team and place that will deliver the location that the brand needs. Last but not least is checking with the areas skill base, finding out what is the employment rates, what talents do they have and are they fit for the business that will be build in that area.
Concluding with what this essay showed, there is no doubt that franchise is one of the biggest evolvement from the ancient time until the present. Having creating and developed its' characteristics and having its' own identity from the businesses. Despite that, am important factor in order to see a franchise to succeed and that has a critical role in this is the decision-making process that must be worked and examine in every aspect until reviewing it and learning the feedback from it. As we can see in a wider picture, franchise benefits with the use of the brand (trusted and good reputation towards customers), it can save resources for learning, teaching, advertising etc., have an increased in competitive advantage and considered more reliable. (KOLESOVA, A.A., 2015, PG. 479)
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