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Franchise
Definition:
A franchise is a business model that licenses the rights to operate a business under an existing trademark or service mark. Franchisors grant licenses to franchisees, who pay royalty fees and follow the franchisor’s guidelines.
Key Features:
- Licenses: Franchises grant licenses to franchisees, typically for a fee.
- Trademarks: Franchisors protect their trademarks and brand identity.
- Brand Recognition: Franchises leverage the franchisor’s brand recognition and reputation.
- Centralized Control: Franchisors maintain control over the overall brand and operations.
- Franchise Fees: Franchisees pay royalties and other fees to the franchisor.
- Training and Support: Franchisors provide training and support to franchisees.
- Ongoing Relationship: Franchises and franchisees have an ongoing relationship.
Types of Franchises:
- Traditional Franchises: Licensees operate under the franchisor’s trade name and follow its business model.
- Master Franchises: Grants licenses to other franchisors to operate franchise businesses.
- Area Franchises: Limits the number of franchises in a specific geographical area.
- Home-Based Franchises: Allows franchisees to operate from their homes.
Advantages:
- Brand Recognition: Benefits from the franchisor’s reputation.
- Established Business Model: Provides a proven business model and operational guidelines.
- Marketing and Advertising: Franchisors handle marketing and advertising.
- Potential for Growth: Access to a larger customer base and potential for expansion.
Disadvantages:
- Royalties and Fees: Ongoing fees and royalties can be significant.
- Limited Autonomy: Franchisees have less autonomy in decision-making.
- Brand Dilution: Potential dilution of the franchisor’s brand if franchisees do not adhere to standards.
- Competition: Franchises compete with other businesses in the same industry.
Examples:
McDonald’s, Starbucks, Hilton Hotels, Burger King, and KFC are all examples of franchises.