EEE 2023 Final Chapters 11-15
questions to determine if buying a franchise is a good or effective decision
(1) Are you willing to take orders? (2) Are you willing to be part of a franchise system rather than to seek to operate primarily independently? (3) How will you react if you make a suggestion to your franchisor and your suggestion is rejected? (4) What are you looking for in a business? and (5) How willing are you to put your money at risk?
The six most common reasons that firms grow in an effort to increase their profitability and valuation
(1) capture economies of scale (which are generated when increasing production lowers the average cost of each unit produced); (2) capture economies of scope (similar to economies of scale, scope economies are advantages a firm generates through the range of its operations); (3) achieve market leadership (which happens when a firm holds the top or second position in its industry or the segment of an industry in which it competes); (4) maintain influence, power, and survivability (conditions through which a firm is able to affect the setting of an industry's standards as well as having the scale and scope that will allow it to make a mistake and continue operating); (5) accommodate the growth of key customers (which is the ability to serve an important customer's expanding demand for the firm's product or service); and (6) maintain an ability to attract and retain talented employees (the most desirable employees want to work for a firm in which learning and growth opportunities will be readily available to them).
9 steps to establish a franchise system
(1) develop a franchise business plan, (2) get professional advice, (3) conduct an intellectual property audit, (4) develop franchise documents, (5) prepare operating manuals, (6) plan an advertising strategy and a franchise training program, (7) put together a team for opening new franchise units, (8) plan a strategy for soliciting prospective franchisees, and (9) help franchisees with site selection and the grand opening of their franchise outlets.
3 steps to register a trademark
(1) select an appropriate trademark, (2) perform a trademark search, and (3) create rights in the trademark
to succeed in the early growth stage of the organization life cycle
(1) the founder or owner of the business must start transforming from his or her role as the hands-on supervisor of every aspect of the business to a more managerial role, and (2) increased formalization must take place
steps to purchase a franchise
(1) visit several of the franchisor's outlets, (2) meet with a franchise attorney, (3) meet with the franchisor and check the franchisor's references, (4) review all franchise documents with the attorney, (5) sign the franchise agreement, (6) attend training, and (7) open the franchise business unit.
What are the 7 steps of the sales process?
1. Prospect for (or gather) sales leads. 2. Make initial contact. 3. Qualify the lead. 4. Make the sales presentation (pitch). 5. Meet objections and concerns. 6. Close the sale. 7. Follow up.
How does a new firm develop a brand?
1. a firm must have meaning in its customers' lives, it must create value 2. brands are built through a number of techniques, including advertising, public relations, sponsorships, support of social causes, social media, and good performance 3. a firm's name, logo, website design, Facebook page, Instagram account, and even its letterhead are part of its brand 4. have a polished image immediately so that they have credibility when they approach their potential customers
In 2016, the United States Patent & Trademark Office (USPTO) received more than ___ patent applications.
600,000
Which of the following is NOT a physical measure to protect trade secrets? A. Maintaining low-cost overall security measures B. Labeling documents C. Restricting access D. Maintaining logbooks for access to sensitive material E. Maintaining logbooks for visitors
A. Maintaining low-cost overall security measures
A brand is a set of _____, positive or negative, that people associate with a company.
Attributes.
Which of the following CAN be trademarked? A. Deceptive matter B. Sounds C. Surnames D. Descriptive marks E. Immoral or scandalous matter
B. Sounds
Which of the following is NOT a question to ask a franchisor before buying a franchise? A. In what ways do you work with a franchisee who is struggling? B. How do you train and mentor your franchisees? C. How often will I be able to take a vacation? D. What is the company's current financial status? E. What are the names, addresses, and phone numbers of existing franchisees in my trade area?
C. How often will I be able to take a vacation?
Which of the following is NOT a way franchisors can develop the potential of their franchisees? A. Keep operating manuals up-to-date. B. Keep product, services, and business systems up-to-date. C. Reduce the royalty rate. D. Maintain the franchise system's integrity. E. Provide mentoring that supersedes routine training.
C. Reduce the royalty rate.
Which of the following is NOT an industry where business format franchising predominates?
Computer software
Which of the following is NOT a step in the sales process? A. Meeting objections and concerns B. Qualifying the lead C. Prospecting D. Follow-up E. Bartering
E. Bartering
The offer and sale of a franchise is regulated by the ______.
Federal Trade Commission (FTC)
two rules of thumb for determining whether intellectual property is worth the time and expense of protecting
First, a firm should determine whether the intellectual property in question is directly related to its current competitive advantage or could facilitate developing future competitive advantages. Second, it's important to know whether the intellectual property has independent value in the marketplace.
two primary reasons for conducting an intellectual property audit
First, it is prudent for a company to periodically assess the intellectual property it owns to determine whether it is being properly protected. Second, a firm should conduct a periodic intellectual property audit to remain prepared to justify its value in the event of a merger or acquisition.
Franchisors are required by law to disclose all their costs in a document called the ______.
Franchise Disclose Document
things that cannot be trademarked
Immoral or scandalous matter, deceptive matter, descriptive marks, and surnames
additional internal product growth strategies
Improving an existing product or service, increasing the market penetration of an existing product or service, extending product lines, and geographic expansion
___, trademarks, copyrights, and trade secrets are the four key forms of intellectual property.
Patents
What are the four P's of the marketing mix?
Product, Price, Place, Promotion.
"Because you're worth it," is an example of a(n) _________.
Tagline.
why is brand important to an firm's marketing efforts?
The customer loyalty a company creates through its brand is one of its most valuable assets.
the four types of trademarks
Trademarks, service marks, collective marks, and certification marks
True or False? A patent can be sold or licensed.
True.
The Franchise Disclosure Document (FDD)
a document with 23 categories of information that provides a prospective franchisee a broad base of information about a franchisor's background and financial health, must be provided by the franchisor to a prospective franchisee at least 14 business days before a franchise contract can be signed or the franchisee pays the franchisor any money
Copyright
a form of intellectual property protection that grants to the owner of a work of authorship the legal right to determine how the work is used and to obtain the economic benefits associated with using the work
patent
a grant from the federal government conferring the right to exclude others from making, selling, or using an invention
guerrilla marketing
a low-budget approach to marketing that relies on ingenuity, cleverness, and surprise rather than traditional techniques to create awareness of a firm and its products, often in unconventional and memorable ways
product attribute map
a map that illustrates firm's positioning strategy relative to its major rivals
strategic alliance
a partnership between two or more firms that is developed to achieve a specific objective or goal.
niche market
a place within a market segment that represents a narrow group of customers with similar interests.
brand management
a program used to protect the image and value of an organization's brand in consumers' minds
The faster a firm grows, the less time managers have to evaluate the suitability of job candidates and the higher the chances are that unsuitable candidates will be chosen. This problem is called ____.
adverse selection
Managers, because they are usually paid a salary, may not be as committed to the success of their individual units as franchisees, who are in effect the owners of the units they manage. This concept gave birth to ____ theory.
agency
Franchise
an agreement between a franchisor (the parent company, such as McDonald's) and a franchisee (an individual or firm that is willing to pay the franchisor a fee for the right to sell its product or service).
product trademark franchise
an arrangement under which the franchisor grants to the franchisee the right to buy its products and use its trade name
reference account
an early user of a firm's product who is willing to give a testimonial regarding his or her experience with the product.
joint venture
an entity that is created when two or more firms pool a portion of their resources to create a separate, jointly owned organization.
reasons that new products fail
an inadequate feasibility analysis, overestimation of market potential, bad timing (i.e., introducing a product at the wrong time), inadequate advertising and promotion, and poor service.
trade secret
any formula, pattern, physical device, idea, process, or other information that provides the owner with a competitive advantage in the marketplace
intellectual property
any product of human intellect that is intangible but has value in the marketplace
what are the major forms of intellectual property?
any product of human intellect that is intangible but has value in the marketplace
trademark
any word, name, symbol, or device that is used to identify the source or origin of products or services and to distinguish those items from others
3 things a business can do to prepare for growth
appreciating the nature of business growth, staying committed to a core strategy, and planning for growth
Anton's Bakery made an outright purchase of Meg's Cakes. Anton's Bakery was involved in a(n) __________.
aquisition
When, Angie Carmicheal, a former middle school math teacher buys the rights to open five Kumon franchises within the city limits of Jacksonville, Florida, this is an example of a(n) ________ franchise agreement.
area
Why is market segmentation important?
because a new firm typically has only enough resources to target one market segment initially.
The owners of Flip It Burgers, a potential franchisor, realized that in fast food, it is important for the franchisor to provide a formula for doing business to the franchisee along with training, advertising, and other forms of assistance. The right type of franchise system for Flip It Burgers is a __________ franchise.
business format
Lofty Ambitions has patented its method for matching loft owners with loft renters. This is an example of a _______ patent.
business method
international new ventures
businesses that, from inception, seek to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries.
A business can literally have $1 million in accounts receivable but not be able to meet a $25,000 payroll. This is called the ____ problem.
cash flow management
the day-to-day growth-related challenges that firms encounter
cash flow management (the challenge of continuously verifying that the firm has sufficient cash on hand to meet its needs), price stability (this challenge surfaces when a firm competes successfully against larger competitors who respond by making the new venture compete on the basis of price, a competitive dimension on which it is at a disadvantage compared to large, established competitors), quality control (with growth, the entrepreneurial venture may find it increasingly difficult to maintain the quality of its product or service as demanded by customers), and capital constraints (here the challenge is to find the financial capital needed to support early and hopefully continuous firm growth).
the early growth stage of the organization life cycle
characterized by increasing sales and heightened complexity
A firm's core strategy is largely determined by its _______.
core competencies
The federal Economic Espionage Act
criminalizes the theft of trade secrets
brand equity
denotes the set of assets and liabilities that are linked to a brand and enable it to raise a firm's valuation.
While a utility patent protects the way an invention is used and works, a ___ patent protects the way it looks.
design
second most common type of patent
design
Public Relations (PR)
efforts to establish and maintain a company's image with the public.
A firm's administrative framework consists of two kinds of services that are important to a firm's growth, ________ and managerial services.
entrepreneurial
Acme Toys produces all its educational toys in its Canton, Ohio plant and ships them all over Europe for sale. Acme Toys is using __________.
exporting
As a book reviewer, Charlie Smuckers often quotes short passages from the book he is reviewing. He is protected because ____ allows the limited use of copyrighted material for purposes such as criticism, comment, news reporting, teaching, or scholarship.
fair use
The keys to effective new product development, which is the core internal growth strategy
find a need and fill it, develop products that add value, get quality and pricing right, focus on a specific target market, and conduct an ongoing feasibility analysis.
Angie's Bakery pays a rent of $2,000 per month whether it sells something or not. For Angie's Bakery, rental costs are ________.
fixed
Pete Marsella entered into a franchising agreement where he was to pay an ongoing royalty. Pete Marsella is the _________.
franchisee
sustained growth
growth in both revenues and profits over a sustained period of time
Which of the following is NOT an advantage of emphasizing external growth strategies?
increased business complexity
The __________ stage of the organizational life cycle is a very "hands-on" phase for the founder(s), who are normally involved in every aspect of the day-to-day life of the business.
introduction
stages in the organization life cycle
introduction, early growth, continuous growth, maturity, and decline
what determines a firm's market position?
its products and services
A ____ agreement is an arrangement whereby a firm with the proprietary rights to a product grants permission to another firm to manufacture that product for specified royalties or other payments.
licensing
Advertising
making people aware of a product in hopes of persuading them to buy it
first step selecting a target market
market segmentation
A franchisee buys the rights to open five Jiffy Lube franchises in Grand Rapids, Michigan, and also the rights to sell the rights to open 15 additional Jiffy Lube locations in the same area to other individuals. This is an example of a(n) ___ franchise agreement.
master
_____, acquisitions, strategic alliances, joint ventures, licensing, and franchising are examples of external growth strategies.
mergers
____ means that as a firm grows and adds personnel, the new hires typically do not have the same ownership incentives as the original founders, so the new hires may not be as motivated as the founders to put in long hours or may even try to avoid hard work.
moral hazard
the introduction stage of the organization life cycle
occurs when a business determines what its strengths and core capabilities are and starts selling its initial product or service
A promising acquisition candidate has the following characteristics:
operates in a growing industry, has proprietary products and/or processes, has a well-defined and established market position, has a good reputation, is involved in very little, if any, litigation, is open to the idea of being acquired by another firm, is positioned to readily obtain key third-party consent to an acquisition, and is located in a geographic area that is easily accessible from the acquiring firm's headquarters' location
The Art Shoppe grew over the years by developing new products and attracting new customers. The Art Shoppe's growth is called ___________.
organic
To free up factory space to increase production of its basic product, Parris Metals that used to package its products internally decides to use the services of an outside packer. Parris Metals has ___________ packaging.
outsourced
Judy's Home Care Products engaged in the unauthorized use of The Casey Corporation's patent. This is an example of _________.
patent infringement
least common type of patent
plant
A(n) ____ strategy involves making additional versions of a product so that it will appeal to different clientele or making related products to sell to the same clientele.
product line extension
advantages of setting up a franchise system
rapid, low-cost market expansion; income from franchise fees and royalties; franchisee motivation; access to ideas and suggestions; cost savings; and increased buying power.
Internal Growth Strategies
rely on efforts generated within the firm itself, such as new product development, other product-related strategies, international expansion, and Internet-driven strategies.
external growth strategies
rely on establishing relationships with third parties, such as mergers, acquisitions, licensing, strategic alliances, joint ventures, and franchising.
Ways to Protect Trade Secrets
restricting access, labeling documents, password protecting computer files, maintaining logbooks for visitors, and maintaining adequate overall security measures
Market leadership occurs when a firm holds the number one or two position in an industry or niche market in terms of ____.
sales volume
Acme Corp., a producer of safety blades, produces the highest volume of products annually in the industry that results in it having the lowest average cost. Acme Corp benefits from economies of ___________.
scale
When Starbucks uses the same feature to advertise Starbucks coffee along with Starbucks music and Starbucks apparel, it is benefitting from economies of ________.
scope
There are four types of trademarks: trademarks, ____, collective marks, and certification marks.
service marks
disadvantages of setting up a franchise system
sharing profits with franchisees, loss of control, friction with franchisees, managing growth, differences in required business skills, and legal expenses.
Describe obtaining a patent.
six-step process that usually requires the help of a patent attorney
the managerial capacity problem
suggests that firm growth is limited by the managerial capacity (i.e., personnel, expertise, and intellectual resources) that firms have available to implement new business ideas
the maturity stage of the organization life cycle
the firm's growth slows and eventually comes to a halt, as does its ability to generate product or service innovations
the decline stage of the organization life cycle
the firm's sales begin falling rather dramatically and the quality of the firm's relationships with stakeholders such as customers, suppliers, employees, and financial institutions begin to suffer
business format franchise
the franchisor provides a formula for doing business to the franchisee along with training, advertising, and other forms of assistance.
Liscensing
the granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions.
target market
the limited group of individuals or businesses to which it attempts to appeal
cost-based pricing
the list price is determined by adding a markup percentage to a product's cost, markup percentage may be standard for the industry or may be arbitrarily determined by the entrepreneur
value-based pricing
the list price is determined by estimating what consumers are willing to pay for a product and then backing off a bit to provide a cushion, determined by the perceived value of the product and by the number of choices available in the marketplace
Which of the following is NOT a top reason why new products fail?
the potential market was underestimated
Two Types of Franchise Systems
the product trademark franchise and the business format franchise.
distribution channel
the route a product takes from the place where it is made to the customer who is the end-user.
the sales process
the steps a firm goes through to identify prospects and close sales
promotion
the firm's activities to communicate the merits of its product to its target market.
Disintermediation
to sell directly to customers
market segmentation
to study the industry in which the firm intends to compete and determine the different potential target markets in that industry.
The name "McDonald's" is an example of a ____.
trademark
most common type of patent
utility
three types of patents
utility patents, design patents, and plant patents
Which foreign market entry strategy gives a firm total control over its foreign operations?
wholly-owned subsidiary
things that can be trademarked
words, numbers and letters, designs and logos, sounds, fragrances, shapes, and colors