What are Franchises? – How to Work, Classification, and More
What is Franchises?
Franchises are commercial associations between the owners of a prefabricated brand, a service, or a retail company.
Individuals are interested in investing in the franchisor’s business system to acquire financial compensation.
That is, at the time you start a specific business implementing the commercial system of a brand, you must reach an agreement with the franchisor so that it assigns you the rights of the business model as a retail strategy.
How do Franchises Work in the Market?
- In general, for you to understand what a franchise is and how it works, both parties must fulfill their role.
- The franchisor is in charge of directing its business and marketing goods and services, while the franchisee stands out. the brand’s experience as well as its benefits
- Likewise, the franchisor and the franchisee must have a business connection to gain profitability from the business.
- Another unique function is that the franchise correctly meets its needs since competitive corporations meet ample resources that generate greater market flow.
- There is an alignment in the corporation’s focus and vision, the greater your chances of success.
- Likewise, when you know that it is a franchise, you must understand that the franchisor owns the commercial name’s rights that it sells to the franchisee.
- Said function is known as a product franchise or personal brand.
- The other franchise model is the business format that consists of a close relationship between both traders and including a selection of services such as location, training, the supply of products, and marketing strategies.
Classification of Franchises
1. Industrial Franchise
- It is a business collaboration between manufacturers, in which both the franchisee and the franchisor are industrialists.
- Through the contract and the business’s know-how, the franchisor assigns the right to manufacture a set of products under a brand name.
- And to market them according to a previously defined and patented formula and strategy.
2. Commercial Franchise
- It is the most common franchise because it allows you to quickly and efficiently replicate a type of business that has been proven and is a successful business model.
- In the commercial franchise, the essential elements for the sale of the transfer of the product.
3. Distribution Franchise
- It consists of a model in which the franchisee is merely a distributor.
4. Production Franchises
- In this case, the franchisor is in charge of manufacturing each product, and the franchisee sells them.
- The exciting thing about this type of company is that the manufacturer ensures a large part of its sale since it forces the franchisees to exclusively buy its products.
5. Services Franchise
- This business model focuses on selling a particular service. The know-how and the formula to do it correctly transmit through the franchisor.
- It is one of the classes of franchises that have had the most projection in recent years.
6. Mixed Franchises
- In this business model, it is a mix between the service and product franchise.
- We can also differentiate, according to the expansion strategy, new franchises, or reconversion franchises.
- The latter are those franchises that acquire new entrepreneurs who already own a location and a business in the sector.
7. Representative Area Franchise
- It is the franchise model in which the franchisee, in addition to giving away the Know.
- It is involved searching for employees, is involved in training, and supervises the company’s activity in exchange for a previously agreed remuneration.
8. Individual Franchise
- It is the usual way to buy a franchise to start it up, regardless of whether you want to open more franchises of the same type or area.
9. Multiple Franchise
- It calls multiple franchises when a person owns several franchises of the same brand.
10. Regional Franchise
- Also called franchise “area developer” consists of promoting an area by giving an established number of franchises in a specific area of geography.
- Usually, franchisors opt for this type of franchise when the territory is vast.
11. Online Store Franchise
- This type of modality allows for endless possibilities. It is about starting from the hand of an Internet franchise.
- It is a very profitable type of franchise that can consider the low cost because they generally do not need large premises to develop their activity.
12. Corner Franchise
- These are very specific. It carries out its activity in a location with another complimentary business so that synergies are worked on because the training is closely related.
- Under this typology, both parties obtain benefits.
6 Marketing Ideas for Franchises
The brand is essential in a franchise, so ensuring the corporate image’s protection throughout the entire network is vital as it is complicated.
It can do effectively with the help of the following key factors and tools:
1. Coordination of Advertising and Promotion Campaigns
- A traditional characteristic of franchises is the coordination of advertising and promotional actions whose geographic scope exceeds a business unit’s only limits.
- These campaigns carry out with the marketing funds that franchisors generally charge.
2. Design or Image Standards
- Franchisors can dictate design or appearance to ensure that customers receive the same quality of products and services at each location.
- Sometimes they require periodic renovations or seasonal design changes.
3. Corporate Image Manual
- The corporate image must have a franchise be exact and designed in such a way as to avoid a dispersion of impacts.
- The design of all the elements that compose it must think from a central perspective to avoid isolated actions and, above all, lack coordination that confuses the viewer.
- The image acquires much more importance in franchises since it is one of the system’s strong points.
- With the transfer of technology, the brand, and the product, the global corporate image gives the group its differentiating personality than other commercial distribution businesses.
- An image as a whole include in the identity manual that arranges for later use.
- This manual includes measurements, colors, sizes, and all those supports that may contain or carry the business’s image: points of sale, products in printed material, packaging, etc.
4. Strengthens the Brand Concept
- For this aim, it is vital that the franchisor make consultancy visits and continuously train its franchisees.
- You must take them by the hand and clarify that if there are guidelines for the franchise’s operation, they are not to harm those who participate in the business but to join forces and achieve benefits in general.
- It is not only about creating a defined brand image, but about taking it to its maximum expression, involving each of the franchise sectors in the process, both the external appearance and the management.
6. The Undercover Client
- Maintaining and maintaining uniform quality in all associated branches is essential for the brand’s image.
- It controls the own and franchised premises and determines the level of quality offered by the franchise. It is essential to have the Mystery Client.
- And also, it is an essential technique to know first-hand the impressions of a client. It is possible to reduce complaints and claims, control the internal regulations of the company.
Advantages for the Franchises
Minimize the risks involved in starting a new business unknown to the market. Start working with a consolidated company whose brand well know in the market.
Disadvantages for the Franchises
It does not have ownership of the brand, so it does not have full control.
It is a widespread form of contract that strengthens competition for small and medium-sized companies compared to large companies.
With the franchise, companies are growing and expanding without having to contribute a large investment.
On the other hand, the franchising company must maintain some permanent control over the franchise.
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