FRANCHISING REVIEWER

What is Strategy?

Strategy (from Greek στρατηγία stratēgia, "art of troop leader; office of general, command, generalship"[1]) is a
general plan to achieve one or more long-term or overall goals under conditions of uncertainty. In the sense of
the "art of the general", which included several subsets of skills including tactics, siege craft, logistics etc., the
term came into use in the 6th century C.E. in East Roman terminology, and was translated into Western
vernacular languages only in the 18th century. From then until the 20th century, the word "strategy" came to
denote "a comprehensive way to try to pursue political ends, including the threat or actual use of force, in a
dialectic of wills" in a military conflict, in which both adversaries interact.

Retailing and Vertical Marketing System

A vertical marketing system is a form of cooperation between multiple levels of a distribution channel.The
members work together to promote efficiency and economies of scale in the way products are promoted to
customers.

What is distribution channel?

-A distribution channel is the network of individuals and organization involved in getting a product or services
from the producers to the customer.

-Distribution channel are also known as marketing channels or marketing distribution channels.

Three components of vertical marketing system

1.The Producer – the manufacturer who physically makes a product.

2.The Wholesaler – purchases products from the producer and manage the distribution to retailers.

3.Retailers – in turn mark up the price and sell products to consumers.

Corporate vertical system

-A corporate vertical system involves the ownership of all levels of the production or distribution chain by a single
company.

oAn example would be Apple who designs and manufactures its own products and they are sold in the retailer
shops of the company itself.

Contractual Vertical System

-A contractual vertical system involves a formal agreement between the various levels of the distribution or
production channel to coordinate the overall process.

oFranchising is a common form of a contractual vertical system.

Administered Vertical System

-Is one in which one member of the productions and distribution chain – due to its sheer size – is dominant and
organizes the nature of the vertical marketing system.

oAn example of this type of system could include a large retailer such as Wal-Mart establishing standards for
makers of smaller products.

5 Steps Franchise Application

 1. Submit your documents to the franchisor via email.
2. Wait for the franchisor to contact you for a meeting and/or site inspection schedule.
3. Meet with the franchisor on the scheduled date. A franchise manager or representative will interview you
and orient you on the franchising details. Make sure to ask the crucial questions listed in the previous
section.
4. After several meetings and evaluations, the franchisor will contact you again to inform you if you’ve been
chosen as a franchisee. You’ll be given a copy of the franchise agreement or contract—review it
thoroughly.
5. Sign the contract if you’re okay with all the terms and conditions.

MOTIVATION FOR BUYING A FRANCHISE

Some motivations for opting to develop or join a franchise business.

 Franchisor

To develop and roll out a business format/system which will be sold for a regular fee to independent operators.

To develop the business with the added input of franchisee capital which increases the possibilities for the
franchiser of rapid expansion of the system.

To develop the business in locations beyond the franchiser’s natural boundaries of business (new and
international markets)

To develop a business in which the franchiser has his specific duties and obligations and the franchisees their own.

Franchisee

To be able to start a business without having to start from scratch alone while being an independent
entrepreneur; being in the business “for yourself but not by yourself”.

To buy into a system which, in principle, has been tested; proven successful in the given circumstances;

To gain immediate access to a market via the right to use the franchiser’s brand or trademark and to benefit from
customers attracted to the brand.

To benefit from the transfer of know-how and assistance during the term of the contract

Buying into an existing and branded business can enhance the survivability of a new franchised business in the
first crucial years after start-up.

But most are also strongly motivated by other psychological factors, such as the following:

 Flexibility
 Independence
 Achievement
 Contribution
 Respect

Elements of a Custom-designed Franchise System

1. Organizational Competency -Check management bandwidth and execution capability on the ground.
2. Competitor Benchmarking - Study strength and weaknesses of each player to differentiate and have a
clear USP.
3. Business Policy - Have well defined policies in all aspects to reduce ambiguities or vagueness which may
hamper execution.
 4. Business Development Strategy - Along with manpower capability have a properly documented
franchisee recruiting criteria, operational strategy and franchisee location management approach.
5. Commercial Impact - All possible business scenarios and the impact it may have on business must be
considered.
6. Financing option - Investment required at initial stage and also till break even and further for expansion.
Adequate tie-ups must be made with institutions.
7. Marketing Strategy - Have a clear product management strategy with segmentation, targeting and
positioning and also pre-launch and post-launch marketing strategy with vendor tie-ups and backend
readiness to deliver.
8. Management Information System - Identify business levers that need to be reviewed and controlled,
have clear recording and reporting mechanism, use computerized software for business reporting and
meeting financial accounting needs.
9. Training Calendar - A well defined policy pertaining to
Have proper training schedule to address the functional as well as the competency development needs of
the team.
10. Monitoring and Review Mechanism - Discuss and review the business performance jointly with the
franchisees with clear action plan, responsibility and timelines along with the regular follow-up for status
update and support.
11. Support Mechanism - Provide initial hand holding with regular support with management visit and
guidance, organizational communication, feedback mechanism and support, market research report and
competition information etc.
12. Conflict Management - Identify all sources of conflicts and devise strategies to avoid the conflicts in first
place or have mechanism in place to address to resolve such conflicts as and when they happen.
13. Exit Strategy - Have an exit clause in the franchise agreement for an amicable settlement done. In case of
major dispute, the agreement must also mention the legal resources that either party can take to protect
its interests.

Which laws and government agencies regulate the offer and sale of franchises?

The Intellectual Property Code (IPC) has provisions that regulate Technology transfer arrangements (TTAs),
including franchises. The primary agency which implements them is the Intellectual Property Office of the
Philippines (IPOPHL), Documentation Information and Technology Transfer Bureau (DITTB).can take to protect its
interests.

ASSESSING A POTENTIAL FRANCHISE

1.Ability to perform without supervision

A franchisee has nobody to supervise in a day-to-day running of a business. One should be able to cope with such
isolation and be able to perform better.

2.Being self-disciplined

A franchisee should be self-disciplined with regard to time management and should be able to allocate time to
paperwork, meetings, and moving in the market.

3.Ability to work under pressure

No franchise guarantees income and profit without putting any efforts. Initial years of setting up a business may
be very difficult and full of teething problems. A franchise should be able to work under such pressure.

4.Attitude to learn from failure

Business is a continuous cycle of ups and downs. A franchisee should, rather than getting frustrated by failure, be
able to learn from failures and apply them to improve the business.

5.Ability to meet standards

A franchise should be able to create standards and continuously strive to achieve them.

6.Ability to take difficult decisions

Not everything would be smooth while running a franchise. Sometimes a franchise is required to take difficult
decisions for the smooth functioning of the franchise.

7.Ability to take a balanced view

A franchisee should be able to take a holistic perspective of any business issues that may emerge during the
currency of the franchise. A biased or a narrow view may greatly hamper the business prospects

8.Tolerance to ambiguity

Business is a very complex system and clarity may prevail at all the aspects of business.

9.Receptivenes

A franchisee should be receptive and have an open mind in interaction with the franchisor. Franchisor offers a
great deal of support to the franchisee for an effective franchise operation.

10.Growth orientation

A franchisee should have a long term growth orientation rather than a short term profit orientation. This helps in
maintaining a long term relation with the franchisor.

11.Ability to delegate

It is not possible to do everything on one’s own. A franchisee therefore should be able to delegate tasks to others
and get many things done rather than doing things oneself. It is however, not easy to delegate.

12.Internal locus of control

A franchisee should be able to put in adequate efforts to be successful. A tendency to attribute external factors
for success – including luck – could be unfavorable for effective functioning of a franchise. A franchisee should
have an internal locus of control.

Criteria for Overall Evaluation

1. Satisfy an enduring need with suitable reward

The product or service offered must have long-term market potential. Franchisees will have been advised to look
for business opportunities that take advantage of coming trends and avoid those based on passing attractions or
fads.

2. Possess a clear identity

Potential franchisees will evaluate the clarity and distinctiveness of the franchisor's identity, name and image.
They will be looking for a franchise operation that has the potential to develop sales through its brand and
reputation.

3. Display a proven track record

As with any good investment an investor will need to be able to evaluate the past success of the franchise.
Potential franchisees, and those from whom they may be borrowing, will want to be assured that the franchise is
proven, both financially and operationally.

4. Possess easily transferable operational methods

Successful franchises are based on operations that do not require a potential franchisee to have any experience of
the particular business. Regardless of the franchisee's experience, the methods of conducting the business must
be transferable, allowing the franchisee to run it as successfully as the franchisor.

5. Have capable management to provide adequate support

For the franchisor, franchising means decentralization, with greater power being handed down to unit level. It
also means the franchisor will have to deal with a new type of workforce whose motivation is very different to
that of the company's own staff. While franchisees can be highly motivated, they can also be very demanding on
the franchisor's staff. As the franchise develops the franchisor will be expected to invest in research and
development to ensure that the business methods, products and services continue to meet changing consumer
needs.