Understanding Franchises: Benefits, Drawbacks, and Communication

Posted on Jan 11, 2025 in Business Administration and Innovation Management

Understanding Franchises

A franchise is a contract between two parties: a company or professional (the franchisor) and another company (the franchisee). The franchisor grants the franchisee the right to operate their system of product marketing in exchange for payment. This can be summarized in three activities: developing a product, creating a brand, and establishing a method of exploiting the branded product.

Key Contributions and Considerations

The franchisor provides a product or service that is known, distinguished, and profitable, along with a brand (including company name, logo, and trade name). The know-how is the method and way to manage and run the business. The franchisee receives the product, brand, and expertise, and in return, pays an entrance fee, periodic royalties, and advertising fees.

Points to Consider Before Investing

When considering a franchise, evaluate the following:

  • Investment requirements
  • Local space (m²)
  • Location
  • Staffing needs
  • Product or service offered
  • Years the franchise has been operating
  • Number of operating establishments (both owned and franchised)
  • Number of franchisees who have left
  • Franchise evolution
  • Benefits and billing of recent years
  • Training and retraining provided by the franchisor

Advantages and Disadvantages

Advantages:

  1. Reduced risk due to a known and proven business model.
  2. Ability to start a business without prior experience.
  3. Predictable income and benefits.
  4. Participation in advertising and promotional campaigns.
  5. Access to a known brand with prestige.
  6. Exclusive territory rights.
  7. Potential for financial facilities from the franchisor or credit institutions.

Disadvantages:

  1. Payment of an entry fee, royalties, and advertising fees.
  2. Lack of ownership of the brand or trade name.
  3. Restrictions on creating similar businesses.
  4. Adherence to the franchisor’s guidelines.
  5. Dependence on the franchisor’s success.
  6. Periodic inspections by the franchisor to ensure compliance.

The Communication Process in Advertising

Advertising is a specific communication process where the issuer is the advertiser, the message is the ad (often created by an advertising agency), and the mass media (TV, radio) are used to reach the target audience.

Key Characteristics of Advertising:

  1. Impersonal: Advertising occurs through media without personal contact.
  2. Controlled and Paid: The advertiser pays for the message and controls its characteristics, timing, and frequency. Self-advertising is when a company uses its own channels without payment.
  3. Massive Media Use: Advertising aims to reach the largest number of people in the shortest time.
  4. Reports on Products, Services, Ideas, or Institutions: Advertising provides information to influence purchasing decisions.
  5. Influence on Purchase: A primary goal of advertising is to inform and influence the purchase decision.