Franchising is the process in which the owner of a brand gives his product or service to a businessman to sell the same in a particular region. The trademark of the brand is given to the franchisee by the franchisor. Franchising has helped most brands to reach worldwide because it is a quick and efficient way to build and spread a business. There are equal advantages and disadvantages of franchising.
India has a good market for the franchising concept. We have seen many brands emerge by using this method to their use. With all the advantages and disadvantages, franchising is still the best for expanding a business and at the same time to start a business. With the right study and knowledge franchising, you can be the next business tycoon.
Franchising examples in India:
- Café coffee day
- Pizza Hut
- Mad Over Donuts
- Taco Bell
There are advantages and also disadvantages of franchising. Let’s go through them and see if this is the answer to your business.
Advantages for Franchisees
Franchising can prove an easier option for a newbie to start a business because he/she will be working with a brand that already has a good brand name.
The target audience and the market strategies have been planned and worked on. However, this will prove beneficial for both the franchisor and the franchisee.
Above all when establishing a good brand name than the banks are supportive to give loans for the necessary setup. This is again a very good plus point for one to start a business even if there is a capital crunch.
There is a low risk of business failure because the company has already won over the hearts of the people Firstly if people like the product, they will buy it without any second thoughts.
The franchisor also gives exclusive rights to each franchisee so that only they can sell the product in a specific region. Moreover, this gives the franchisee a better chance for profit margins.
Most importantly there is no necessity for prior experience in the field because the franchisor gives you the correct guidance. The franchisor will provide you with everything, to begin with from training, interiors, advice, suggestion about business, etc.
Business relations have already been established. For instance, the franchisee does not visit any buyers because the market already knows about the product.
Furthermore, the franchisee will get a proper insight into the business techniques and business model of the franchisor.
Advantages to Franchisors
Franchising is the best way to expand the business because all the selling capital is borne by the franchisors. Moreover, this will help reach the product to a wider range of people in the market.
Certainly, if the franchisees set up good work for the product it will increase the goodwill and the brand image of the product.
Most importantly the sales of the product will rise in addition to providing services to people.
Meanwhile, there is a great geographical presence of the brand. This is extremely important for a product to do well in the market that it is available without obstructions in the market.
Disadvantages for Franchisees
Costs might get higher than expected because the franchisee has to abide by the rules and regulations of the franchisor.
Firstly, the franchisee has to pay a certain amount of royalty to the franchisor every month. Sometimes the franchisee has to pay a part of the profit revenue because of certain terms and conditions.
Secondly, running a franchisee business becomes difficult because there is a certain restriction by the franchisor. One cannot run a franchisee business according to his/her terms.
The franchisor may run out of the built business. This is directly proportional to the business of the franchisees.
The quality of the products matters the most. If the franchisor fails to deliver quality products due to some issues than it will affect each penny put by the franchisee.
The process of building a franchisee is very time consuming, in addition, there is also a need for staff for the franchisee has to bear the expenses.
Disadvantages for the franchisor
The franchisor will never have direct control over the sales of the product by the franchisees. For instance, if the franchisee does not maintain quality products and services it will affect the goodwill and the brand image of the franchisor.
Since the franchisor has to reveal the secret business plans and strategies to each franchisee. There is always room for betrayal by the franchisee. They can use these secrets against the franchisor which is not in the favour of the franchisor.
The franchisor and the franchisee will be on different pages on each topic. So consequently there will be disagreements and arguments which the franchisor will have to face with each franchisee he approves of.
Merger and acquisitions prove to be a better option for some businesses. As a result, there is quite a lot of study and analysis that goes into setting us franchising business.
To sum up, franchising can still go wrong if the franchisees are put into wrong hands. As a result, the franchisors have to be very smart while doing so.
Being a franchisor and a franchisee has fair points of advantages and disadvantages. I hope after reading this article you have gotten a clear idea about franchising. With all the analysis you can decide to a franchisee or a franchisor.
Best of luck!