WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF OWNING A

FRANCHISE?
ADVANTAGES
Owning a franchise allows you to go into business for yourself, but not by yourself. A franchise provides
franchisees with a certain level of independence where they can operate their business. A franchise
provides an established product or service which may already enjoy widespread brand-name recognition.
This gives the franchisee the benefits of a pre-sold customer base which would ordinarily takes years to
establish. A franchise increases your chances of business success because you are associating with
proven products and methods. Franchises may offer consumers the attraction of a certain level of quality
and consistency because it is mandated by the franchise agreement. Franchises offer important preopening support:
site selection design and construction financing training grand-opening program
Franchises offer ongoing support: training national and regional advertising operating procedures and
operational assistance ongoing supervision and management support increased spending power and
access to bulk purchasing
DISADVANTAGES
The franchisee is not completely independent. Franchisees are required to operate their businesses
according to the procedures and restrictions set forth by the franchisor in the franchisee agreement.
These restrictions usually include the products or services which can be offered, pricing and geographic
territory. For some people, this is the most serious disadvantage to becoming a franchisee. In addition to
the initial franchise fee, franchisees must pay ongoing royalties and advertising fees. Franchisees must
be careful to balance restrictions and support provided by the franchisor with their own ability to manage
their business. A damaged, system-wide image can result if other franchisees are performing poorly or the
franchisor runs into an unforeseen problem. The term (duration) of a franchise agreement is usually
limited and the franchisee may have little or no say about the terms of a termination.

Business format franchise

This is the most common form of franchising. A true business format franchise occurs when the owner of
a business (the franchisor) grants a licence to another person or business (the franchisee) to use their
business idea - often in a specific geographical area.

The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade
name and benefits from the franchisor's help and support.
In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales
revenue.
The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed
and sold and how their business idea is used.
Well-known businesses that offer franchises of this kind include Prontaprint, Dyno-Rod, McDonald's and
Coffee Republic.
Other types of arrangement

Different types of sales relationships are also sometimes referred to as franchises. For example:
Distributorship and dealership - you sell the product but don't usually trade under the franchise

name. You have more freedom over how you run the business.
Agency - you sell goods or services on behalf of the supplier.
Licensee - you have a license giving you the right to make and sell the licensor's product. There
are usually no extra restrictions on how you run your business.

Multi-level marketing
Some businesses offer franchises that are really multi-level marketing. Self-employed distributors sell
goods on a manufacturer's behalf. You get commission on any sales you make, and also on sales made
by other distributors you recruit.

Advantages and
disadvantages of franchising
Buying a franchise can be a quick way to set up your own business without starting from scratch. But
there are also a number of drawbacks.

Advantages

Your business is based on a proven idea. You can check how successful other franchises are
before committing yourself.

You can use a recognised brand name and trade marks. You benefit from any advertising or
promotion by the owner of the franchise - the "franchisor".

The franchisor gives you support - usually including training, help setting up the business, a
manual telling you how to run the business and ongoing advice.

You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in
the same region.

Financing the business may be easier. Banks are sometimes more likely to lend money to buy a
franchise with a good reputation.

Risk is reduced and is shared by the franchisor.

If you have an existing customer base you will not have to invest time looking to set one up.

Relationships with suppliers have already been established.

Disadvantages

Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay
continuing royalties and you may have to agree to buy products from the franchisor.

The franchise agreement usually includes restrictions on how you run the business. You might not
be able to make changes to suit your local marke.

The franchisor might go out of business, or change the way they do things.

Other franchisees could give the brand a bad reputation.

You may find it difficult to sell your franchise - you can only sell it to someone approved by the
franchisor.

Reduced risk means you might not generate large profits

Franchise is a local representative of any organization who markets and conducts the entire marketing activity under
complete guideline and support of franchisor in the area allotted to the franchisee. It is a kind of authorization granted
to an individual or corporation by a franchisor to sell its goods or services in a defined way. The concept of a
franchise was originated in USA.

Image Credits Franchise India.

Franchise is a system of distribution through which the owner of product approaches independent businessmen in
selected territories, appoint them as sole franchisee for particular areas and encourage them to distribute the product
within the area assigned. The owner called as franchisor retains control over the technique or style with which the
product is merchandised. The franchisees are given certain areas and as per the contract the franchisees are
expected to promote the sale in a specific manner. The franchisor provides equipment, gives his brand name,
undertakes publicity, provide managerial and technical assistance. The franchisee has to adopt selling techniques
and see that maximum sale is promoted through his local network.
In simple words, franchise is nothing but a license allowing a person or company to use or sell specific products in
certain areas as per agreement.

Definition of Franchise
Franchise means expanding the business in the new market by transferring trademark and goodwill to franchisee by
charging fees.

Features of Franchise
The characteristics or features of a franchise are mentioned as follows:-

1. Well established business

A franchise is a readymade and well established business that needs expansion. It is a ready form of business
seeking expansion in new market areas with the help of a local representative.

2. Needs limited investment

As franchise business is already set up by the franchisor, the initial investmentrequired by the franchisee to enter and
establish is relatively low.

3. Easy entry in new markets

As the goodwill and reputation is already set up in other countries, franchisor does not require more efforts to enter in
new markets. He is easily accepted in the new markets.

4. Business has large establishments

Franchise has large establishments around the world and operates through a network of local representatives in
different market areas.

5. Helps in diverting business risks

By establishing outlets in different parts of the world franchise helps the owner of the firm to diversify his business
risks.

6. Results in a large turnover

Franchise results in large volume of sales. Society is benefited by the management of franchisor and service skills of
franchisee. Brand name and bumper publicity results in a large turnover.

7. Separates labour and specialisation

Franchise results in division of labour and specialisation. The franchisor concentrates on production, whereas
franchisee looks after distribution and service at a unit level. The advantages of division of labour and specialization
benefits both.

8. Allows use of brand name and trademark

In franchise selling the franchisor allows the franchisee to use his brand name, trademark, service mark and
management skills for developing and expanding franchise business.

9. Business is based on mutual agreement

Franchise business is based on mutual agreement or contract setting out terms and conditions for franchising.
Agreement is based on the understanding between franchisor and franchisee. To avoid disputes, agreement should
be drafted in a detailed manner.

10. Success needs a long-term relationship

For the successful functioning of a franchise business, both franchisor and franchisee have to remain committed in
their long-term relationship, only then business will be mutually rewarding. Strong franchisee relationship enables the
franchisor to sell a franchise more effectively, introduce needed changes into the system very easily and motivate
franchisee and their managers to provide a consistent level of products and services to their customers.

Achievement depends on how badly one wants to achieve. The need

for achievement, therefore, plays an important role in making an
entrepreneur as successful. It is an inner spirit that activates an
entrepreneur to strive for success. In simple terms, need for
achievement is the desire to do well. The empirical evidences support
the hypotheses that need for achievement contributes to
entrepreneurial success. Hence, there is the need for developing
achievement motivation for developing entrepreneurship in an
economy.
Then, the question is how to develop achievement motivation? David
C. McClelland, a well-known Behavioural scientist of USA holds the
view that achievement motivation can be developed through training
and experience. For this, McClelland conducted his experiments with
groups of businessmen in three countries, i.e. Malawi, India, and
Ecuador.
He carried out a separate full-fledged training programme in India to
instill achievement motivation in the minds of entrepreneurs. His
successful experiment is popularly known as Kakinada Experiment
Following is a brief description of this experiment.
Kakinada Experiment:
Kakinada is an industrial town in Andhra Pradesh. The experiment
started in January 1964. The main objective of the experiment was to

break the barrier of limited aspirations by inducing achievement

motivation. A total of fifty two persons were selected from business
and industrial community of the town. They were given an orientation
programme at Small Industry Extension Training Institute (SIET),
now NIESIET, and Hyderabad.
The participants were grouped into three batches. They were put
under training for 3 months. The training programme was designed in
such a way that it could help the trainees improve imagination and
enable them to have introspection of their motivation.
Accordingly, the programme included the following items in
its syllabi:
1. The individuals strived to attain concrete and regular feedback.
2. The participants sought models of achievement to emulate.
3. The participants thought of success and accordingly set plans and
goals.
4. The participants were encouraged to think and talk to themselves in
a positive manner.
The impact of this training programme on the participants behaviour
was observed after a period of two years. The observations were quite
encouraging. It was found that those attended the programme
performed better than those did not.
The participants need for achievement was assessed by using
Thematic Apperception Test (TAT). In this TAT, ambition related

pictures were displayed to the trainees and then they were asked to
interpret the pictures and what is happening in the picture.
Thereafter, all the themes related to achievement were counted and,
thus, the final score represented ones need for achievement.
McClelland reached to this conclusion that the training programme
positively influenced the entrepreneurial behaviour of the participants.
As regards caste, the traditional beliefs and imitation of western
culture, they did not determine ones behaviour as an entrepreneur.
That the need for achievement motivation can be developed more
especially in younger minds is well supported by the cross-country
experiments. For example, Junior Achievement Programme is started
in the United States of America with a view to instill achievement
motivation in the minds of younger generation. Similarly, in United
Kingdom, Young Enterprise programme has been started in the
same objective of inducing achievement motivation in younger minds.
The above said experiments/programmes have made us realize that
entrepreneurship is to be developed from a very young age.
Accordingly, efforts have been made to develop a school curriculum
that would result in a high need for achievement among the students.
For this purpose, the success stories drawn from history and legends
of the indigenous culture are introduced in course curriculum to
induce in young minds the need for achievement and strong desire to
do something good/ great they grow up. This is because the younger
minds are more susceptible to change.
The Kakinada Experiment Conducted by McClelland in America, Mexico and Mumbai Under this
experiment, young adults were selected and put through a three month training programme The

training aimed at inducing the achievement motivation The course contents were - Trainees were
asked to control their thinking and talk to themselves, positively - They imagined themselves in need
of challenges and success for which they had to set planned and achievable goals - They strived to
get concrete and frequent feedback - They tried to imitate their role models/those who performed
well
Entrepreneurship Management
Conclusions of the experiment: - Traditional beliefs do not inhibit an entrepreneur - Suitable training
can provide necessary motivation to an entrepreneur - The achievement motivation had a positive
impact on the performance of the participants It was the Kakinada experiment that made people
realise the importance of EDP (Entrepreneurial Development Programme) to induce motivation and
competence in young, prospective entrepreneurs