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Questions and Answers
Franchise agreements in some industries are often of long duration.
False
Royalties paid by franchisees are usually based on their net profits.
False
Franchisors encourage extensive involvement of franchisees in the strategic planning process.
False
Franchisors benefit from receiving money immediately upon the sale of goods to franchisees.
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Franchisees' status as owners rather than employees can result in them having less motivation to work hard.
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Intra-franchise competition is considered advantageous for franchisors.
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Franchisees may benefit from cooperative marketing efforts such as regional or national advertising.
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Franchisees in retail franchising do not have the opportunity to acquire well-known names and goods/service lines.
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Oversaturation is not a disadvantage that franchisees may face in retail franchising.
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Franchisors may incorrectly state franchisees' income potential, required managerial ability, and investment.
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Franchisees in service sponsor-retailer systems do not have exclusive selling rights for specified geographical territories.
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Retail franchising does not require any standard operating procedures to be taught to franchisees.
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Leased departments in retail stores are usually owned by the host retailer.
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Franchisees are increasingly looking to expand franchisors' rules and regulations.
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One of the competitive advantages of leased departments for stores is that lessees undertake personnel management.
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Regular store personnel must always be involved in managing leased departments.
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Leased department operators do not contribute to reducing store costs.
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A percentage of revenues from leased departments is not received regularly by the host retailer.
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Study Notes
- Franchisees may face disadvantages such as cancellation clauses allowing franchisors to void agreements, short agreement durations, and royalties based on gross sales rather than profits, limiting decision-making involvement.
- Franchisors benefit from competitive advantages like rapidly developing a national or global presence with less investment, enforcing qualifications for franchise ownership, and receiving money upon goods delivery.
- Disadvantages for franchisors include potential harm to overall reputation from non-compliant franchisees, lack of uniformity affecting customer loyalty, intra-franchise competition issues, and decreased resale value of poorly performing units.
- Different structural arrangements in retail franchising include manufacturer-retailer, wholesaler-retailer (voluntary and cooperative), and service sponsor-retailer models.
- Competitive advantages for franchisees encompass owning a retail business with low capital, acquiring well-known brands, learning standard operating procedures, participating in cooperative marketing efforts, obtaining exclusive selling rights, and benefiting from cost-effective purchases.
- Franchisees may face disadvantages like oversaturation in geographic areas, misleading income potential and managerial requirements by overzealous franchisors, and being locked into contracts mandating purchases from specific suppliers.
- Leased departments in retail stores offer benefits to both the host retailer and lessees, with the host earning income from renting out space and lessees gaining market access at lower costs in smaller footprints.
- Advantages of leased departments for stores include expanding the market for one-stop shopping, lessees managing personnel and displays independently, reduced store costs due to lessee expenses coverage, and regular revenue percentage.
- Potential drawbacks of leased departments for stores involve conflicts in operating procedures between the store and lessees.
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Description
Test your knowledge on the disadvantages faced by franchisees and the competitive advantages enjoyed by franchisors in business arrangements. Explore topics like cancellation clauses, short-duration agreements, royalties, and decision-making constraints.
