Advantages of Franchising
Under franchising, the service provider develops the business format and licenses it to others. A franchisor expands his business through franchising as it offers certain advantages. Franchising is advantageous to both franchisee and franchisor in the following ways.
1. Business Expansion: Franchisee helps to leverage business format for greater expansion and revenue. Most service companies want to franchise their business concept in order to achieve wider distribution of services. Wider distribution of services leads to increased revenue, market share, brand recognition and economies of scale.
The service provider can minimize investment and financial risks by sharing them with the franchisees.
2. Franchising helps to maintain quality of service: Maintaining consistent quality is another big advantages of franchising. Franchisors give clear instructions to the franchisee with regard to the distribution of services. Franchisees are required to follow their unique business formats and deliver services strictly according to the specifications of the service provider.
The franchisor closely monitors all the activities of the franchisee with respect to hiring and training of employees, layout and design of the premises, etc. As the franchisor exercises a strict control over the operations of the franchisees, maintaining a consistent quality of service is possible.
3. Franchising helps to gain knowledge of local market: When the franchisor operates at a national level, he may not have a thorough knowledge of the local market. Franchising enables the service provider to understand the prevailing trends in the local market. But national chains are unlikely to understand local markets and the franchisee who hails from the same area.
With franchising, the company obtains a connection to the local market.
4. Franchising helps to minimize financial risk: Franchisee contribute their own capital needed for the purchase of capital equipment and for the maintenance of personnel. So, the service principals are relieved from the botheration of investing a huge capital while operating nationally.
Rather than investing in distribution, they can fruitfully invest in core service production. Franchisees certainly bear part of the risks involved in business.
5. The franchisee can participate in an established business that has strong roots across the market.
6. The franchisee has no risk of initiating a new business. The established business that he is undertaking also minimizes the advertising and marketing expenditure.
7. The franchisee can utilize the expertise of the franchisor in promoting the local business. As the brand name is already established, the franchisee need not take any special efforts.
8. The franchisee can base his business on an established business format.