TOPIC I: FINDING THE RIGHT OPPORTUNITY
There are 8 Steps in Finding the Right Franchise
1. Define your goals.
You can apply the following three goal rules to increase your success:
✓ Goal must be realistic and attainable.
✓ A goal must be specific and measurable.
✓ A goal must be something that you want.
2. Identify some franchise options.
Do your homework to identify an initial group of franchise opportunities that meet some
or all of your criteria. It’s good to have at least a few options to compare. Look into
franchises that interest you and ones that you can see yourself running.
3. Make initial contact.
See how the franchisor handles your inquiries.
4. Identify their processes.
This will help you stay on track and ensure progress.
5. Speak to the Franchisees
The best source of information for any franchise system is the existing franchisees. This
is a good tool for evaluating how well a franchisor supports its franchisees, whether the
start-up cost projections are realistic and how effective the provided marketing materials
are.
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6. Conduct On-Site Due Diligence on the Franchise Opportunity
This gives you a chance to visit their headquarters and meet their team. These events are
opportunities for both the franchisor and you to really size up the potential business
relationship.
7. Attend discovery day.
Most franchisors hold regular discovery or decision day events. These events are
opportunities for both the franchisor and you to really size up the potential business
relationship.
8. 8.Execute the franchise agreement
The very last step is to execute the franchise agreement and related documents attached to
it. Be sure to file your copy of the executed documents for future reference.
TOPIC II: FRANCHISING STRATEGY
What Is Strategy?
English word “Strategy” means the plans and tactics developing armed forces and to
deceive enemy forces on the war fronts. In business means, it refers to the plans and
techniques to increase and allocate firms resources in order to win the patronization of the
costumers in the market front.
The Ansoff’s Product Market Growth Matrix
The Ansoff Product-Market Growth Matrix, as originated by Russian-American
mathematician Igor Ansoff, first saw print in 1957 in the Harvard Business Review
In the matrix, product refers to the items or services a company sells and market refers to
its customers.
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Four Franchising Strategies
1. MARKET PENETRATION
The purpose of this strategy is to get in quickly with your product or service and capture a
large share of the market. It is also measuring the percentage of the market that your product
or service is able to capture. This can be accomplished by:
a) Price reduction – one of the most frequently used to market penetration strategy. When
a firm aims to increase sales, lowering prices is an effective tactics to attract potential
customers.
b) Increase in promotion and distribution support – through promoting a product can
increase the sales distribution in the market.
c) Acquisition of rival in the same market - gathering information to the other
competitors can acquire new strategies in order to improve the existing products.
d) Modest product refinements - avoiding unnecessary things in the products it reduces
manufacturing costs, improve function, gain efficiency, or simply increase its marketing
appeal.
2. PRODUCT DEVELOPMENT
Product development is needed when the company has a good customer base and knows that
the market for its existing product has reached saturation.
The 6 components product development strategies
✓ The range of merchandise ✓ Communication
✓ The pricing ✓ Costumer Service
✓ Location of the store ✓ Design and display
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New format development could be in response to certain environment changes.
✓ Changing buying habits of the consumers- consumer wanted service as quick as vending
machine could provide.
✓ Buying most under the single roof (one step buying)- shoppers expect the convenience of
Shopping under the single roof.
✓ Technological change- this technological advancement known as ICT compelled retailers to
develop an electronic front via internet to transact with their customers.
✓ Competitive pressure- retailers are compelled to adopt multiple formats in response to the
competitors move to the customers with the help of the innovative format.
Product Development Strategy
Is a process of bringing a new product into an existing or new market by doing continuous
market research, thorough testing, and careful product concept planning.
Permanent Product Strategy
After the initial development, these items remain on the menu for extended periods of time
without undergoing significant changes.
Temporary Product Strategy
The purpose of this product development strategy is to give customers something new to
experience on each visit and to experiment with new items that may become permanent.
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Local Product Development Strategy
A strategy where your company plans and develops new products, or upgrades current
products, and introduces them to an existing market.
Local Adaptation Strategy
The ability to react in an appropriate timescale to events, opportunities and threats in order
to be or maintain a competitive advantage.
3. MARKET DEVELOPMENT
A growth strategy that involves selling your existing products or services to a new group of
customers. Also, the process of entering new markets to expand revenue and reduce
concentration risk. This involves identifying a target and finding a way to sell to them.
a. New Geographical Market
This could be involved expanding outside of your region or selling to a new country or a new
continent.
b. New Product Dimension or Packaging
Your organization may simply want to package your product so that it can open up a whole new
market.
c. New Distribution Channel
Many companies have transformed themselves from high street retailer into internet retailers.
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4. DIVERSIFICATION
Is a technique that reduces risk by allocating investments across various financial instrument,
industries and other categories. The different types of diversification are:
a. Horizontal Diversification
➢ Acquiring or developing new products or offering new services that could appeal to the
company’s current customer groups. In this case the company relies on sales and technological
relations to the existing product line.
b. Vertical Diversification
➢ Occurs when the company goes back to previous stages of its production
cycle or moves forward to subsequent stages of the same cycle, production of raw materials or
distribution of the final product.
c. Concentrix Diversification
➢ Enlarging the production portfolio by adding new products with the aim of fully utilizing the
potential of the existing technologies and marketing system.
d. Conglomerate Diversification
➢ Is moving to new products or services that have no technological or commercial relation with
current products, equipment, distribution channels, but which may appeal to new groups of
customers.
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e. Corporate Diversification
➢ Involves production of unrelated but definitely profitable goods. It is often tied to large
investments where there may also be high returns.
f. Defensive Diversification
➢ Defensive diversification refers to companies who diversify in order to remain competitive, as
their market segment has become saturated, their existing products have matured and are in
decline, or they’re losing out to their competitors.
g. Offensive Diversification
➢ Offensive diversification, on the other hand, occurs when a company is aggressively seeking
to grow its profits and market share through diversifying its product or service line in order to
enter new markets and capture more customers.
SPORTING GOODS
The sporting goods market encompasses a customer base with diverse sports and
recreational interest.
RETAILING AND VERTICAL MARKETING SYSTEM
A vertical marketing system (VMS) is one in which the main members of a distribution
channel—producer, wholesaler, and retailer—work together as a unified group in order to
meet consumer needs.
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PLACE
One of the most vital elements of the 4-marketing mix that determine success of
marketing. Placement also serves an important role in the marketing of a brand.
a. Manufacturers – Manufacturing is the making of goods by hand or by machine that
upon completion the business sells to a customer.
b. Wholesalers - A wholesaler is a person whose business is buying large quantities of
goods and selling them in smaller amounts.
c. Retailers – A retailer is a company that buys products from a manufacturer or
wholesaler and sells them to end users or customers. Retailers are the final link in the
vertical marketing system (UMS).
INDEPENDENT VERTICAL SYSTEM
In an independent VMS, all the channel member operates as an independent entity. Retailer
who ultimately help the firms serve their customers are also independent in terms of what to
retail from their store.
PARTIALLY INTEGRATED VERTICAL MARKETING SYSTEM
In a partially integrated marketing system is a form of vertical marketing system design to
control a line or classification of merchandise as opposed to an entire operation the most
common form of the systems is when a supplier or producer and retailer manage complete
transactions and shopping, storing, and other channel functions in the absence of any
independently owned intermediary (wholesaler or distributor).
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a. Wholesaler – a group of independent owner retailers, who together would offer a well-
orchestrated programmed of merchandising and retailing to achieve an efficiency that of a
corporate chain of stores.
b. Retailer – owned cooperatives – owned and organize by the member retailers and offer
various services to the member’s retailers in order to help them complete better with the
corporate chain of stores by harnessing competitiveness through scale economies.
c. Franchises – unique type of licensing arrangement where the firm willing to expand in
multiple geographic markets enters into a contractual agreement with the local retailers/
businessmen and transfer them the right to do business under the firm’s banner.
Licensing - the licensor grants the licensee the right to produce and sell goods, apply a brand
name or trademark, or use patented technology owned by licensor.
Franchising - is seen by many as a simple way to go into business for the first time.
COOPERATIVE STRATEGY
In marketing is adopted by firms who wish to realize their objective in cooperation with the
other firms through strategy alliances and partnerships rather than by competing with them.
BENEFITS OF COOPERATIVE MARKETING
➢ Economies of scale – placing a bulk order of supplies for a group of firms is cheaper than
placing individual supply orders.
➢ Bargaining power – cooperative marketing can ensure more bargaining power through
bulk purchasing agreement with retailers
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➢ Continuous flow of products – a group of forms engaged in cooperative marketing can
ensure a continuous flow of a large number of products to a retailer.
CORPORATE LEVEL STRATEGIES
1. Alliance - this helps the allying partner’s joint economies of scope between two or more
companies.
2. Diversifying strategic alliance – this allows firms to expand into new products or new
market areas without completing merger or an acquisition.
Franchising – a cooperative strategic arrangement of spreading the risks and using the
resources, capabilities and competencies without completing a merger or an acquisition. It is a
contractual agreement executive between two parties – franchisor and franchisee.
MODES OF FRANCHISING
1. Direct Franchising - franchisor will grant franchises through execution of international
which contains the identity of the franchises.
2. Subsidiary or Branch Office - The franchisor will be the one who will assign the
member/workers in the market, branch office could be a marketing office or simply an
extended arm for the franchise to be well organize.
3. Area Development Agreement - (also referred to as Multi-Unit Development
Agreement) is a type of agreement made with a franchisor which states that a franchisee
must open a certain number of franchise units in a particular area within a set timeframe.
4. Master Franchise Agreements - The franchisor will file an agreement to another country
to open a franchise outlet within a certain territory.
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5. Joint Ventures - A firm has to cooperate with a partner enable to create or developed a
high-quality franchise.
Other forms of franchising
➢ Multi-unit franchising – is when a franchisor awards a franchisee the right to operate more
than one outlet within a defined territory.
➢ Affiliation or conversation franchising – independent businesses are converted into
franchises. Conversion franchising or affiliation franchising has been commonly used in the
real estate brokerage and the lodging industries, among others.
➢ Franchise within franchise – another way of franchises licenses its trade name.
➢ Subordinated equity arrangements – is a legal agreement which establishes one debt as
ranking behind another debt in the priority for collecting repayment from a debtor.
➢ Management agreement – Are used by providers of management services.
➢ Franchise buy-ins – buying franchise offers many other advantages that aren’t available to
the entrepreneur starting a business.
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TOPIC III: INVESTIGATING AND EVALUATING A FRANCHISE
“10 Key Things to Consider When Investigating a Franchise Opportunity”
1. The Market
Understanding with complete certainty who you will serve helps to determine the
viability, and ultimately the profitability, of the franchise.
2. Company History
Researching the officers and management of the franchise should provide you with some
insight on the franchise’s culture. Articles 1-4 of the FDD will give you the company’s
history, a list of the management team, litigations, and bankruptcy.
Franchise Disclosure Document, also referred to as FDD is a legal document and prospectus
that FTC requires franchisors to disclose to prospective franchise buyers 14 days before selling
franchise or receiving any fees.
Article 1: The Franchisor and any parents, predecessors, and Affiliates
Within FDD Item 1 franchisors must disclose corporate information, including
Information about affiliated and parent companies of the franchisor.
Article 2: Business Experience
Item 2 FDD disclosures are designed to provide franchise buyers with information about
franchisor management, franchise sales, and franchisee support team members 5 years
employment history.
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Article 3: Litigation
Within FDD Item 3 franchisors must disclose certain types of litigation that currently
involves or previously involved the franchisor, the franchisor’s affiliates, predecessors,
and/or individual management team members identified in Item 2.
Article 4: Bankruptcy
Within FDD Item 4 franchisors must disclose whether or not the franchisor’s affiliates,
predecessors, and/or individual management team members identified in Item 2
previously filed for bankruptcy.
3. Statements
Within FDD Item 21 franchisors must disclose and include copies of the Franchisor’s
Financial Statements. Review, question, and consider having a CPA to look over the
financial statements.
4. Level of Investment
Begin with a personal inventory of how much you can comfortably invest.
5. Training and Support
Look for a support and training system that is comprehensive and has done away with
any outdated procedures.
6. Territory
Under Item 12 of the FDD, the franchisor must disclose whether the franchisee is given
an exclusive territory.
7. Royalties
The franchise should be making money on its royalties, not by providing Owners with
“other” services.
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8. Restrictions
There have to be some restrictions in order to protect brand identity and consistency
across the franchise system.
9. Suitability
Suitability encompasses a personal inventory of your core strengths and skills, and
whether or not you will fit with the franchise culture you will be partnering with.
10. Exit Strategy
Plan on how you would exit, whether that would be selling or transferring the business.
Keep in mind there are costs to both so ask about those costs upfront.
The four ‘’R” of franchising
1. Realism – the franchisee should be very realistic in assessment of his business strength and
weaknesses.
2. Resources – the franchising agreement clearly indicates system, procedures and method of
managing the resources
3. Research - the prospective franchisee has to build a comprehensive information on the
franchisor, the products or service of offer, competing and substitute products and services
before he makes only move committing financial resources on long-term basis.
4. Resolve – either to stay within the system and fully learn the nuances of the business and
prosper or to try one’s entrepreneurial talent to start a new business.
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