What Does Franchising Mean?
Franchising is a business system in which one party, referred to as the franchisor, grants the right to sell their products or services to another party. Franchising also involves the use of intellectual property rights. A franchisee grants another franchisee the right to use its brand name, technology, and other trade secrets in exchange for a fee or commission
For example, several fast food chains like Dominos and McDonalds operate in India through franchising.
How Franchising Works
An owner can grant ownership rights to one or more individuals or organizations. If only one person holds these rights, they will be the exclusive seller of the franchisee’s products in a specific market or geographic location. Franchisee provides its products, services, technical know-how, brand name and trade secrets to Franchisee. It may provide training and assistance in certain.
Advantages of Franchising
Franchising has many advantages for both franchisors and franchisees. For the owners, it gives a great advantage to expand their business without incurring additional costs in expansion. It helps to build a brand name, increase reputation, and reach more customers. For franchisees, it provides an opportunity to launch a business under the franchisee’s pre-established brand name. They predict their success and minimise the risks of failure. Also, the franchisee doesn’t need to spend money on training and assistance because the franchisee provides it. They also get exclusive rights to sell the franchisee’s products within a certain territory.
Disadvantages of Franchising
However, franchising has some disadvantages for both parties. For franchisees, the franchisee may not maintain quality standards, which negatively affects the franchisee’s goodwill. The owner may leak the owner’s secrets to competitors. Franchising also includes the ongoing costs of providing maintenance, support, and training to the franchisee. As for the franchisees, they have to agree to the franchisor’s terms and conditions, and they always have to pay some royalty to the franchisee on a regular basis. At some point, they may have to share their profits with the owner.
Finally, franchising is a business model that has advantages and disadvantages for both franchisees. It is a good way for businesses to develop and for entrepreneurs to start their own business with the support of an established brand and business model.
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