Types of Organisations *****Profit Making*****

Franchise A business agreement which allows an individual or group to use an established business’s names, publicity material, décor, uniforms and sell the business’s products. The individual or group is called the Franchisee. A % of turnover or royalties are paid to the parent company for use of its name.

Examples McDonalds, McDonalds, Kentucky Fried Chicken and a Pizza Hut.

Advantages to the Franchiser (Parent Company) Allows the franchiser to increase its market share without investing heavily Provides a reliable revenue (the franchiser will receive a % of the profits or a set royalty payment each year) Risks and uncertainty are shared between the franchiser and the franchisee.

Franchisee Advantages Franchiser may advertise nationally, therefore little advertising needs to be done by the franchisee. The risk of business failure is reduced as the business already has a good trading record and is often already established in its market. The franchiser may carry out training and administration. Product innovation can be shared

Franchisee Disadvantages Products, selling prices and store layout may be dictated, stifling franchisee initiative. A royalty payment or % of profits had to be paid to franchiser. The franchiser might not renew the franchise after a certain time. Bad publicity may affect all branches

Three Legged Stool All need to work together to ensure effectiveness, productivity etc SUPPLIER FRANCHISER FRANCHISEE

Question Discuss the effects of becoming part of a franchise. (5)

Answer Becoming a franchise means using an established name/brand It reduces the risk of failure in the marketplace The franchiser will provide training The franchiser will advertise nationally The business idea is already successful Product innovation is shared Royalties will be paid to the franchiser from profits Franchiser can demand exactly how a business operates Bad publicity can affect the whole franchise   (Invites the use of positive and negative comments but full marks can be gained by only positive or negative comments.)

Question Explain the advantages and disadvantages of franchising

Answer Advantages More branches are opening all over the world therefore increased market share. Guaranteed income as the franchiser will receive a percentage share of the turnover taken by the franchisee. Shared risk as the franchiser will not be investing their money only their name and reputation. Whole brand benefits from collective ideas therefore if an individual franchise comes up with a new idea and it is agreed upon, it will be rolled out over all the branches.   Disadvantages Only receive a share of profits because the franchisee takes their share too. Reputation of whole franchise is dependent on individual franchisees therefore the whole organisation can be damaged by the problems of one branch.