Franchising is a marketing term for a system of distribution of goods or provision of services. It is a provision of the right to use the trade mark and the knowledge owned by one entity (the franchisor) to another business entity (the franchisee). The basic principle of franchising is that the franchisee operates the business under franchise agreements (licensed) for a fee under the brand (company) of the franchisor in accordance with his corporate identity and policies.
There are several types of franchising:
- Distribution franchising
- Services franchising
- Manufacturing franchising
- Master franchising
Franchising in practice: Typical applications for franchise is a local representation of a strong brand by an entrepreneur or more entrepreneurs in given region. Petrol (gas) stations, supermarkets, shops of international fashion brands work under franchise. The most obvious example of the franchise is food chain McDonald’s. Through franchising products or services are usually distributed protected by the mark, and strong international brand.
Franchising enables quick expansion of the distribution chain without owning the distribution network (from the perspective of the franchisor). From the perspective of the franchisee (entrepreneur) is an advantage in the enclosure of an already established brand and the transfer of know-how of the sales. A disadvantage might be draining a share of the profits for the franchisor and bondage to the rules and corporate identity.