Franchises are legal businesses that operate independently of the franchiser, rather than under the supervision of a third party. The term “franchise” was first used in the United States Patent and Trademark Office dictionary in January of 1970. From there, the meaning of franchise literally expanded to include all types of arrangements involving the sale of goods or services and the giving up of rights. In recent years, the meaning of the franchise has become a bit more specific, encompassing the giving up of royalty rights to the brand name or trademark and the giving up of exclusive use of certain processes, equipment, processes, and materials by the franchiser.
As a strategic business planning concept, the franchising concept is highly useful in the expansion of strategic business practices. Franchises allow a company to vertically expand without the additional cost and time normally required when looking at new business development. Franchises can easily adapt to changing market conditions, because they give a company the opportunity to replace its older, less successful procedures with more cost effective ones. The reason as to why the definition of a franchise is so widely accepted is because it supports the expansion of multiple streams of revenue. For example, what franchises are an excellent way to achieve an indirect increase in sales by providing customers with a new type of product, while effectively using the existing products or services.
What is also clear is that the expansion of a franchisor’s brand name or trademark is very cost effective and lends a tremendous amount of credibility to the company in terms of trust and loyalty from existing customers. The franchisor is able to significantly increase sales because the increased number of outlets or locations that carry the brand name can provide a significant increase in the number of sales. This leads to significant returns on investment (ROI) for the franchisor and a strong strategic position for the franchisee company.
There are a number of reasons that support the growth of franchises, but perhaps one of the most important is the level of security and credibility that the franchisor can provide. From a legal perspective, franchising has been viewed as a strategic activity, whereby a business gives another company access to its protected territories in exchange for a share of the future revenues and profits. This process allows the franchisor to protect its intellectual property (IP) and maintain control and influence over the distribution of its brands. This level of control is essential to ensuring long term success.
Another major benefit of franchises is the ability to diversify into new product categories and markets. A major factor in the success of a franchise operation relates to developing a brand name or a specific service that can be offered to customers that have not previously used or experienced the company’s product or service. This allows a company to generate higher profit margins and lower operating costs. Furthermore, franchises offer a unique opportunity to work with customers in new and different ways. Many franchisees have reported increased sales, job satisfaction, and an increase in customer loyalty.
The most well-known aspect of franchises is the opportunity to use the leverage of brand names and proven sales models to drive sales to a new level. However, it is important to note that just because a franchise opportunity provides a unique opportunity to implement a proven strategy, this does not mean that all will work equally. A key decision point in the development of any franchise is whether to develop the brand name or design on its own. This decision is often made based on limited resources and financing options. Whether the company develops the brand name on its own or through the assistance of a professional, the key is in ensuring that a consistent strategy is implemented.
The key to the success of franchises is their ability to attract the right types of customers. In many instances, this means working with current customers to create a loyal base and then developing a marketing campaign that attracts new ones. One example of developing a marketing campaign that targets the right customer is with a business that sells construction equipment. If the company only offers a franchisee the option to purchase the equipment when it is first purchased, the franchisee may be forced to obtain financing even though they do not plan to purchase the equipment.
What is franchises is an important issue for many business owners, but the benefits are fairly clear. The potential for growth is great, and the chance to use a tried-and-true strategic planning process is appealing. However, for all these reasons, it is vital to develop the right strategic plans in the early stages of development. The best time to start developing a strategic plan for a franchise is before the franchisee has signed a lease for any space, as the strategic plans for such ventures are much more flexible and can be changed as circumstances arise. It is also important to consider the right time to sell franchises, as franchise buyers will often wait until the later stages of the business.