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What is a Franchise

We have all heard of the term “franchise”, but what does it actually mean? Google dictionary says that it is, “An authorization granted by a government or company to an individual or group enabling them to carry out specified commercial activities,” but this franchise does not do franchises justice. You see, there are three different types of franchises.

The first is a distributorship. Distributorships are given the right to sell their parent company’s product. An example of this would be a car dealership.

Another type of franchise is trademark or brand name licensing. This gives others the right to use trademarks or brand names, such as sports franchises (t-shirts, sweatshirts, jerseys with the team trademark on them).

The last type of franchise is a business format franchise. This is the one that most people know about. They let their franchisees sell their goods and use their business techniques. Some of the most well-known franchises of this kind are Subway and Dunkin Donuts. The franchisees usually pay an initial fee and a percent of the sales for this right. They often also get training and ongoing support.

So, why go to franchises in the first place? Companies do this because it gives them an edge over non-franchises. Franchisees have the right to use the franchisor’s brand name, trademark, copyright, trade secret, and patent, uniform logo, storefront, and interior. They also generally have a very high success rate in comparison to other start up companies.

By following the franchisor’s business practices and offering products that meet the company’s standards, franchisees can consistently provide customers with quality goods and services. This also lets parent companies increase their profit, market size, and brand recognition without spending as much money on building a whole new store. People looking to start a business also have a better chance of succeeding if they go with franchises. Of course, more franchises mean less room in the market for small mom and pop businesses. In short, franchises are marketing tools that allow large companies to reach more people, less expensively.

Citations:

http://www.franchise.com/franchise-news/Basic_What_Is_Franchise.cfm