Various Franchise Structures Demystified: Understanding the Dynamics
In the world of business, franchising offers a unique opportunity for individuals to join established brands and reap the benefits of a proven business model. This article explores various franchise models and their key features, providing insights for potential franchisees.
Franchising is a business model where a company (the franchisor) grants an individual or group (the franchisee) the right to operate a business using the franchisor's established brand, trademark, and business model. There are several types of franchise models, each with its own advantages and requirements.
The Product Distribution Franchise model is one such type. In this model, the franchisee sells the franchisor’s products but does not operate a full business system. For example, Coca-Cola bottlers fall under this category. The focus is on distribution and sales of products, with the franchisee mainly selling the franchisor's branded products.
On the other hand, the Business Format Franchise model provides the franchisee with the entire business system, including brand, operations, training, and marketing. Subway, McDonald’s, and Domino’s are examples of businesses operating under this model. The franchisee operates the whole business using the franchisor’s proven system, brand, and support.
The Manufacturing Franchise model is another option, where the franchisee produces and markets goods under the franchisor’s brand. Soft drink manufacturers, for instance, operate under this model, manufacturing products under the franchisor’s brand and guidelines.
Hybrid Franchise Models combine elements from different franchise models to create a unique and flexible business structure. For example, the Franchise-owned, Company-operated (FOCO) model, where franchisees own the units but day-to-day operations fall into the franchisor's hands, can be considered a hybrid model. This approach is often adopted by franchisors who want to maintain complete control over their brand image, operational consistency, and customer experience.
Additionally, franchise structures in terms of territory and extent of operation include Single-unit franchise, Multi-unit franchise, Area development franchise, and Master franchise. The Master franchise model enables franchisees to become "master franchisees" or sub-franchisors, who own the rights to develop and manage sub-franchisees within a specific territory.
Conversion franchise models allow existing independent businesses within the same industry as a franchise to join the franchise's network. Franchisees in this model often retain some degree of autonomy over day-to-day operations and marketing activities within their respective markets.
The Investment franchise model involves capital investors providing the necessary financial resources to set up or buy a franchise unit with the goal of making a return. The manufacturing franchise model grants franchisees exclusive rights to manufacture and distribute the franchisor's products using the franchisor's established processes and intellectual property.
The Combination of Business Format Franchise Model + Product Distribution Franchise Model offers franchisees comprehensive support and operational efficiency while managing the distribution and sales of products.
This layered structure allows franchisors and franchisees to choose models and scales that best fit their goals and investment capacity. The business format franchise is the most common for small businesses because it offers a complete blueprint including brand, operations, training, and marketing support, making it easier for entrepreneurs to start and succeed.
[1] Franchise Direct. (2021). Franchise Models. Retrieved from https://www.franchisedirect.co.uk/franchise-models [5] Franchise.org. (2021). Types of Franchises. Retrieved from https://www.franchise.org/types-of-franchises/
Customer service plays a crucial role in the Business Format Franchise model, as franchisees operate the whole business using the franchisor's proven system, brand, and support, and customer satisfaction can lead to higher conversion rates.
The financial aspects of franchising are addressed in various models, such as the Investment franchise model, where capital investors provide necessary funds, and the Manufacturing Franchise model, which grants franchisees exclusive rights to manufacture and distribute the franchisor's products using the franchisor's established processes and intellectual property, thereby impacting the business's financial outlook.
