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3920_Lecture 2.docx

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York University
Administrative Studies
ADMS 3920
Cameron Johnston

ADMS 3920 Lecture 2_Chapter 4: Franchising Franchising  Definition: A marketing system revolving around a two-party legal agreement, whereby the franchisee conducts business according to terms specified by the franchisor  Popular means for entrepreneur to start and operate a business with great odds of success  Canada is the most franchise-dense economy  E.g. Tim Hortons, Pizzaville, Keg Restaurant, Montana’s Cookhouse, First Choice Haircutters, Kwik-Copy Printing, Oxford Learning Centre Franchisee: an entrepreneur whose power is limited by a contractual relationship with a franchising organization Franchisor: the party in a franchise contract who specifies the methods to be followed and the terms to be met by the other party. The Language of Franchising Franchise contract The legal agreement between franchisor and franchisee Franchise The privileges in a franchise contract Product and trade name franchising A franchise relationship granting the right to use a widely recognized product or name Business-format franchising An agreement whereby the franchisee obtains a entire marketing system and ongoing guidance from the franchisor Multiple-unit ownership a situation in which a franchisee owns more than one franchise from the same company e.g. Second Cup, Country Style Donuts, Booster Juice Master licensee A firm or individual acting as a sales agent with the responsibility for finding new franchises within a specified territory e.g. Arby’s and Harvey’s Area developers Individuals or firms that obtain the legal right to open several franchised outlets in a given area Piggyback franchising The operation of a retail franchise within the physical facilities of a host store e.g. McDonald’s restaurant doing business inside a Wal-Mart store Franchising Pros Cons - Formalized training - Franchise fees - Financial assistance - Royalties - Proven marketing methods - Restrictions on growth - Managerial assistance - Less independence in operations - Quicker start-up time - Franchisor may be sole supplier of some supplies - Overall lower failure rates - Termination/renewal clause Advantages Limitations - Business has high probability of success - Franchise costs (pg.87)  Proven marketing concept &  Initial franchise fee customer base  Cash investment  Use of an established, nation-  Royalty payments wide brand  Advertising costs  Careful franchisee selection - Restrictions - Training support  Sales territory  Helps alleviate any managerial  Site approval required weaknesses  Outlet appearance - Financial assistance  Goods/services to be sold  While start-up costs are high,  Resale of franchise ADMS 3920 teaming up with a franchise,  Adverting and hours of operation helps individual increase chances  Limited scope of independent action of getting financing - Loss of independence - Operating assistance  Franchisor provides operating services including site selection, bulk purchasing of equipment, and inventory Evaluating franchise opportunities - Selecting a potential franchise candidate - Global franchising opportunities - Investigating the franchise candidate  The evaluation process is a two-way effort - The franchisor wishes to investigate the franchisee - The franchisee obviously wishes to evaluate the franchisor and the type of opportunity being offered  The prospective entrepreneur’s step in evaluating a franchising opportunity should be to tap into sources of information 1. The franchisors themselves 2. Independent, third-party sources 3. Existing and former franchisees Cost explanation  Franchise fee  First and last month’s rent  Leasehold improvements  Equipment  Furniture and fixtures  Signage  Insurance, licenses and permits  Training  Initial inventory  Working capital  Royalty and Ads/Promo Disclosure document: a detailed statement of information such as the franchisor’s finances, experience, size, and involvement in litigation. Third-Party Sources of information  The International Franchise Associate (IFA)  Franchise Annual  Magazines  The Canadian Franchise Association (CFA) Franchisees pre-deal checklist 1. Complete information package received & reviewed? 2. Better Business Bureau: check franchisor’s standing? 3. Local chamber of commerce: what is reputation? 4. Comprehensive system for evaluating the perfor
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