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Franchising Chapter 11

This chapter explores the concept of franchising as a strategic partnership between franchisors and franchisees. It delves into critical elements such as identifying the Primary Target Audience (PTA), designing Service Delivery Systems (SDS), and providing essential training and operational support. The chapter emphasizes the importance of demographic, psychographic, and geographic profiles in refining marketing strategies. It also discusses franchise evaluation criteria, including business formats, terms of agreements, and necessary capital investment, providing insights into establishing effective marketing and operational frameworks.

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Franchising Chapter 11

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  1. FranchisingChapter 11 Dowling BA 560 Fall Term 2006

  2. Franchising • An entrepreneurial alliance between two organizations, the franchisor and the franchisee • Franchisor – the concept innovator who grows by seeking partners or franchisees to operate the concept in local markets • A large-scale growth opportunity based on a partnership rather than an individual effort

  3. Exhibit 11.1

  4. Franchise Opportunity Recognition • Primary Target Audience (PTA) identification • Service delivery system (SDS) design • Training and operational support • Field support • Marketing, advertising, and promotion • Product purchase provision

  5. Primary Target Audience (PTA) • Three major areas of data collection integral to refining the Primary Target Audience • Demographic profiles • Psychographic profiles • Geographic profiles

  6. Demographic Profiles Demographic profiles are a compilation of personal characteristics that enables the company to define the “average” customer

  7. Demographic Profiles Include • Age • Gender • Income • Home address and Working Address • Marital and family status • Occupation • Race and ethnicity • Religion • Nationality

  8. Psychographic Profiles • Social class • Upper-upper, lower-upper, upper-middle, middle class, working class, upper-lowers, lower-lowers • Lifestyle • Health consciousness, fashion orientation • Personality variables • Self-confident, conservative, independent

  9. Geographic Profiles • Local, regional, national, or international • U.S. national market include: • Pacific • Mountain • West North Central • West South Central • East North Central • East South Central • South Atlantic • Middle Atlantic • New England

  10. Assessing a Franchise • Multiple market presence • Outlet pro forma disclosed or discerned • Market share • National marketing program • National purchasing program • Margin characteristics

  11. Accessing a Franchise • Business format • Term of the license agreement • Site development • Capital required per unit • Franchise fee and royalties

  12. Exhibit 11.2

  13. Exhibit 11.3

  14. Special Delivery System • The way resources are arrayed to meet consumer demand • Creates competitive advantage by examining the specific needs of the target customer • Wendy’s drive-through window • Jiffy Lube’s bi-level facilities

  15. Training and Operational Support • Promotes the standardized, consistent delivery of the product • Reinforces the brand’s value • Transfers knowledge of the service delivery system (SDS) to the franchisees, both managers and line workers

  16. Field Support • Two forms: • Franchisor’s representative visits the franchisee’s location in person • Resident experts available for consultation at the corporate headquarters

  17. Marketing, Advertising, and Promotion • Funded and implemented at three levels 1. National • Franchisee contributes a percentage of top-line sales to the fund • Typically controlled by the franchisor 2. Regional • Stores within a set area contribute a percentage of top-line sales to the fund • Controlled by an area of dominant influence (ADI) advertising cooperative

  18. Marketing, Advertising, and Promotion • Funded and implemented at three levels 3. Local • Franchisee makes direct expenditures on advertising • Controlled by franchisee but must be within guidelines set by franchisor

  19. Supply • Establishes quality standards of raw materials or goods used in the operation • Approves • Approves suppliers • Approves specific branded products

  20. Exhibit 11.4

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