A franchise is considered to be both a marketing concept and an organization model aimed at expanding the market share of a business. Through franchising, a business entrusts its procedures, operations, and even intellectual property to a suitable franchisee. Through licensing, the franchisee is allowed to sell branded products and services on behalf of the franchiser.
Identifying Suitable Franchisees
A franchiser must not aim at recruiting as many franchisees as possible but rather at identifying and incorporating the most suitable ones. Businesses may rely on franchise consultants to identify those franchisees that best fit their business models. Usually, the consultants are a team of professionals that put potential franchisees through a rigorous test to establish their suitability for selection and inclusion. Potential franchisees must display satisfactory levels of commitment and determination to actualize both their objectives and those of the franchiser. Financial capability is also a vital factor that always comes into play. It is relative to the nature of the business to be undertaken by the franchisees.
This is very important for both the franchiser and the franchisees to be up-to-date with the current demographics of their target markets. Usually, market demographics change from time to time, depending on the political, social, and economic factors. It is nearly impossible for market demographics to change over a short time, such as five years, unless as there is an occurrence of extreme events. That poses both an advantage and a disadvantage to the involved businesses. With regard to the benefits, a business incurs product improvement expenses only once every few decades. That reduces the negative effects on its profits. However, businesses face the danger of being complacent, therefore forgetting or assuming the current demographics of a given market. That puts them at risk of continuously providing products that are a mismatch to the customers’ needs. The effect is a decline in the popularity of a product among its users.
This may be considered to be more beneficial to the franchisees than to the franchiser. However, both parties have a few benefits to reap, depending on the strength of a brand. On the part of the franchisor, the stronger a brand is, the higher the value of the franchise and the expected cash inflows to be experienced. It is expected that a global brand franchise will be more valuable than that from a company that is only known nationally. With regard to the franchisees, a stronger brand often translates into a quicker and easier market penetration. Obtaining a franchise from a global brand may mean lower marketing expenses since the brand is popular among people from all parts of the world. That may not be the case when dealing with a national brand that seeks to expand into a new market in a distant country.
The issue of franchising is often a complex process to all the parties involved. That may explain why many business and potential investors rely on consultants and brokers to provide a framework within which a successful franchise may be established. That is especially true for businesses venturing into the field for the first time.