MGMT 3348 SMALL BA Chapter 8

Franchises total annual sales represent more than _____ and employ nearly_____ workers in the United States in more than 300 industries

$710 billion; 7.8 million

Trends Shaping Franchising

-changing the face of franchisees -international opportunities -mobile franchises -smaller, nontraditional locations -refranchising -multi-unit franchising -area development and master franchising -cobranding

The right way to buy a franchise

-evaluate yourself -Research the market -Consider your franchise option -Get a copy of the FDD and study it -Talk to existing franchisees -Ask the franchisor some tough questions -Make your choice

The drawbacks of buying a franchise

-franchise fees and ongoing royalties -strict adherence to standardize operations -restrictions on purchasing and prices -limited product line -contract terms:termination, renewal, and sale or buyback -unsatisfactory training programs -market saturation -less freedom -

The benefits of buying a franchise

-multitude of options -a business system -managements training and support -brand-name appeal -standardize quality of goods and services -national advertising programs and marketing assistance -financial assistance -proves products, processes, and business formats -centralized buying power -site selection and territorial protection -greater chance for success

Franchise royality fees typically range from _____ to ________ percent with an average of 6.7 percent

1:11

A study by the International Franchises Association reports that minorities own more than ________ percent of all franchises and women own ________ percent of franchises.

31;26

Trade-name franchising

A system of franchising in which a franchisee purchases the right to use the franchisor's trade name without distributing particular products exclusively under the franchisor's name.

_______ is the top international market for U.S. franchisors

Canada

Chris Jaffe, the owner of a small independent doughnut shop, is worried that a large doughnut franchise will open an outlet near her location and take away business. Taking a proactive approach, Jaffe contacts the franchise, and after a few months of negotiations, becomes a franchisee. Jaffe is an example of which trend in franchising?

Conversion

Which of the following is not a potential advantage of franchising for the franchisee?

Limited product line

Before entering a franchise contract, a potential investor should ask, "What can a franchise do for me that I cannot do for myself?"

True

Franchisees in fast-growing systems reap the benefits of the franchisor's expanding reach, but they also may encounter the downside of a franchisor's aggressive growth strategy - market saturation.

True

Pure franchising involves the right to use all the elements of a fully integrated business operation.

True

Franchise Disclosure Document (FDD)

a document that every franchisor is required by law to give prospective franchisees before any offer or sale of a franchise; it outlines 23 important pieces of information

Cobranding (or piggyback or combination) franchising

a method of franchising in which two or more franchises team up to sell complementary products or services under one roof

Master franchise

a method of franchising that gives a franchisee the right to create a semi-independent organization in a particular territory to recruit, sell, and support other franchisees

Franchising

a system of distribution in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchisor) in return for the right to become identified with its trademark, to sell its products or services, and often to use its business format and system

Product distribution franchising

a system of franchising in which a franchisor licenses a franchisee to sell its products under the franchisor's brand name and trademark through a selective, limited distribution network

Pure franchising

a system of franchising in which a franchisor sells a franchisee a complete business format and system

Refranchsing

a technique in which franchisors sell their company-owned outlets to franchisees

Benefits of involvement in a franchise experience include______

all of the above

Which of the following is not a potential disadvantage of a franchise?

all of the above are potential disadvantages of a franchise

Franchisors generally do which of the following regarding financial assistance to franchisees

assist in finding financing and occasionally provide direct assistance in a specific area

When it comes to purchasing products, equipment, and incurring other expenses, the franchisor ________.

can set prices franchisees pay for the products but cannot set the retail price the franchisees charge

A franchise trend in which owners of independent businesses become franchisees to gain the advantage of name recognition is called ______

conversion franchising

It is illegal for a franchisor to require franchisees to purchase products only from "approved suppliers"

false

McDonald's recently set up several small franchises in nontraditional locations such as a hospital, a college campus, an airport, a subway station, and a sports arena. These locations are based on the principle of ________.

intercept marketing

One of the major trends in franchising is the ________ of American franchise systems.

internationalization

The failure rate for franchises is _____

lower than the average rate for new businesses.

A method of franchising that gives the right to create a semi-independent organization in a particular territory is a ________ franchise

master

In a _____ franchise, a franchisee has the right to create a semi-independent organization in a particular territory to recruit, sell, and support other franchisees

master cobranding

A franchise myth is that ________

once the franchise is open, the franchisee has autonomy to run the business in what ever way (s)he sees fit.

The FTC's philosophy regarding the Franchise Disclosure Document (FDD) focuses on ______

providing information to prospective franchisees and helping them make a wise decision

Intercept marketing

the principle of putting a franchise's products or services directly in the paths of potential customers, wherever they may be

A franchise is an arrangement in which semi-independent business owners pay fees and royalties to a parent company in return for the right to sell its product or services and offers to use its business format and system

true

A good method for evaluating a franchisor's reputation is to interview existing franchise owners about the operations

true

Examples of some benefits franchise systems offer include management training, brand appeal, standardization of goods and services, national advertising, proven business formals, centralized buying power, and site selection assistance

true

Most franchisees are better educated, more sophisticated, have more business acumen, and are more financially secure than those of just 20 years ago

true

Pure franchising involves a system of franchising in which a franchisor sells a franchisee a complete business format and system

true

The Franchise Disclosure Document (FDD) is a document that every franchisor is required by law to give prospective franchisees before any offer or sale of a franchise

true

The failure rate for franchises is below that for other types of new businesses

true

The franchise contract defines the rights and the obligations of both parties and sets the guidelines that govern the franchise relationship

true

The franchise turnover rate is the rate at which franchisees leave a franchise system

true

The principle of placing smaller franchise units directly in the paths of potential customers is referred to as intercept marketing

true