Franchising
Business Management: IB Diploma, topic 1.2.4
Franchising
Franchising is where a business gives someone the right to sell its products and use its trademarks. The ‘franchisee’ usually pays the business an upfront fee and a percentage of the profits.
KFC
- Kentucky Fried Chicken (KFC), which is part of the TacoBell Group is an example of this.
- Many KFC’s all over the world are not owned by KFC but instead owned by individuals who pay a fee and percentage of the profits to KFC. This lets them use the KFC brand name and the “original recipe”.
Advantages of franchising
- The business can expand without needing large amounts of investment. The firm does not incur the costs involved with opening new stores.
- The business also does not have to be concerned about some of the risks of becoming a larger corporation, for example, diseconomies of scale (which may be caused by the growth from opening and operating new stores themselves).
- Franchising increases brand awareness of the firm’s products or services.
Disadvantages of franchising
- A disadvantage of franchising is that the franchiser does not have complete control over how they operate.
- If a franchise is run badly, then a single franchise or store can negatively affect the brand image.
Test yourself on Franchising
Which of these businesses uses franchising?
Which of the following are true of franchising?
What do we call it when a company gives someone the right to to sell its products and use its trademarks?