MKT 450

CHANNEL MARKETING

An Emerging Global
Trend
Nazmin Sultana Nima
0910062030

Contractual vertical marketing system

Known as Franchising
Franchisor

Franchisee

Franchising:
a licensed privilege to do business in a specified geographic area, along with assistance in
organizing,training,merchandising and management.
A business organization in which a firm which already has a successful product or service(Franchisor)
enters into a continuing contractual relation ship with other businesses (franchisee)operating under the
franchisors trade name in exchange for a fee.

Franchising relationship
Differ from channel relationship
3 types of franchising relationships:
Legal relationship
Business relationship
Non business relationship

Legal
Legal
Relationship
Relationship
Contract is the backbone
Each party must adhere to
certain responsibilities and
obligations

Business relationship

Franchisee operates the business under franchisors trade name

Dynamic relationship
Can vary or change depending on market circumstances
May lead to confliction between franchisor and franchisee
Share commitments to satisfy market needs
Rely on each other

Non business
relationship

Cooperative association
Exist between two independent channel
members
Each act individually for its own interests
Both are interrelated intrinsically
Success related to each other

Benefits of Franchising
Benefits of franchisor
Rapid market penetration at a lower cost

Market expansion financed trough franchisee funds

Increased cash flows(from franchising fees)

Benefits of franchisee

Extensive assistance from the franchisor

Established products or service to do business

Create credibility
Allow to buy expertise and knowledge in their respective
industries

Types of franchising
Tied house franchising:
Contract to sell product to the
customers exclusively

Product/tradena
me franchising:
Involves franchisees
to distribute product
under franchisors
trademark

Business format
franchising:
Seek to have
franchisees replicate
a complete business
concept

Concerns for franchisees

o
o

Franchising does not guarantee profits

Business should be done under acceptable
guidelines
o
Their business can revert to the franchisor
o
Or transferred to another franchisee when
contract expires
o
outlets generally must look alike
o
Per contract franchisor can terminate relationship
o
Franchisees are required to buy supplies from
franchisor
o
Franchisors collect monies from franchisees to
launch promotional campaigns. Ex: Burger king
ENCROACHMENT:
Franchisor opens another outlet near an existing
franchise

Concerns for franchisor

Franchisee are unwilling to share market with anyone else
Want to buy supplies from other individual
Payment of royalty fees to franchisor
Honest and exact report of gross sales
Understatement of sell to avoid royalties
Having their own franchisees to compete against that franchisee
under another name

n the
i
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d
n
t Tre
ent
n
a
m
v
n
e
o
l
r
Re
Envi
g
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i
Franch
Social, Cultural and Demographic trends:
Socio cultural issues are influencing franchising business
Ex: Future kids computer education franchisor in Los Angeles
Ex: We bag it
Demographic:
Business ownership by women is growing day by day, door to door products, decorating,
health care etc
Economic trends:
Particularly prominent in beauty saloon, tax preparation, real state, lodging, lawn care,
etc
International trends:
McDonalds providing facilities to everyone with a globally known brand, a proven menu,
specialized equipments standardized store location

Master
franchisor
Local entrepreneur
Assumes the
responsibilities of
establishing
franchise throughout
a country or large
territory
Within a country
Operate
domestically
Ex: Ely's and
Shoney's big boy
restaurant

n ds
e
r
t
stry
u
d
In

Doing multiple units in franchising

Lead to more power sharing within
franchising
Ex: Computer lands European
franchisees united to secure reduced
royalty payments
More control on pricing and
promotions
Reduce adverse effect
Burger king ,Arbys etc
Bigger stronger franchisee band
together to have their rights properly

Intern
a

Self evaluation
Investigating the
franchise
Studying the disclosure
documents
Checking out the
disclosures
Questioning earnings
claims
Obtaining professional
advice
Knowing your legal
rights

l envi
ronme
ntal fa
ctors

ising
h
c
n
in fra
t
c
i
fl
Con

Upfront fees

West coast video enterprise

Tying agreements

Forcing to agree to purchase most supplies from

franchisor

Ex:
Capricious Termination: Termination usually result
from one of these three causes:
1. Expiration of the term of the contract
2. Franchisee bankruptcy
3. Default in franchisees performance
Encroachment:
Lack of cooperation:
Little casers: 2 trade secret

n
ards i
d
n
a
t
egal s ng
l
t
n
e
isi
Curr
franch

Disclosure

Franchise execution legal procedure regarding franchising

To prevent fraud and misrepresentation

Mandatory purchase from the franchisor:

Franchisor is the independent marketer and suppliers

EX:Move n pick
Termination and renewal:

5 to 13 yers with a 5 year renewal option

Advertising and promotions:
Expansion or Encroachment:

Making franchise relationships work

Methods of fostering relationship between the franchisor and franchisee
CARE:
Communication: ask about new products, advertisements, operation decision
Awareness: provide performance award
Rapport: birthday gifts, flowers on special day newsletter for promotion
Expertise: product or service research and development
INTELLIGENT CONTRACTS:
Explicitly addresses how all concerns of franchisors franchisees will be addressed if arise.
Conflicts can be avoid by this step
Maintaining Unique roles
Precise procedure
Revision of performance standards
Criteria must be met before market or product expansion
Reasonable cause of termination should be clear

STRATEGIC FRANCHISING PARTNERSHIPS:

1. Mutual responsibility: cooperation, work

together
2. Communicating up and down: both
franchisor to franchisee
3. Franchisees as customers: who sell the
product
4. Leadership and attitude: training,
positive response to phone calls from
franchisee

Whats in franchising
future?
In future we will see four predominant trend in the future:
o
Diversity: franchisee will be diverted culturally educationally, economically and so on . Buskin
Robbins in Alaska
o
Flexibility:changing economy and competieive markets will demand flexibility
o
Conversion franchising :
o
small business owner trade in their autonomy
o
Popular in international business
o
Multiple unit franchising:
o
Function as area representative