services through intermediaries
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Service Provider Participants
Service Principal (Originator)
creates the service concept
(like a manufacturer)
Service Deliverer (Intermediary)
entity that interacts with the customer in the
execution of the service
(like a distributor/wholesaler)
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Services Intermediaries
Franchisees
-e.g., Jiffy Lube, H&R Block, McDonalds
Agents and Brokers
e.g., travel agents, independent insuranceagents
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FRANCHISING
Franchising is a type of contractual vertical
marketing system that involves a continuing
relationship in which a franchisor provide theright to use a trade mark plus various forms
of management assistance in return from
payments from franchisee
The FRANCHISE system is the combination
of franchisor and franchisee.
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Types OfFranchising
Product Or Trade Name Franchising
focuses on what is sold
Business Format Franchising
focuses on how the business is run
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14-7How can franchising be used to develop abusiness?
There are four basic ways in which franchising can
be used:
Creation of a new business specifically for
franchising
Development of an existing business
Conversion of an existing business to a franchiseformat
International Expansion
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Basic Rules ForFranchising
Expectation ofFranchisee
Transfer of know how by
franchisor
Promotional support for the
products/services
Credit for the supplies
Advisory services for
managerial and financial areas
Expectation OfFranchisor
No trading of other product
Optimum standards of sale and
services
The inventory and lead time
standards as agreed byfranchise
Ambience, maintenance of
premises and equipment to
agreed operational standards
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Expectation ofFranchisee
Identification with
franchisee services
Exclusiveness of right
geographically.
Recruitment and training
standards and risk
Expectation ofFranchisor
Pricing as per agreed terms of
contract. Financial commitment
and information on franchiseesoperation
Display of franchisors
identification and equipment
Right to purchase of franchisee
business in the event of his
disposing it
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PAYMENT
Upfront lump sum
Franchise fee and which is paid to obtain the
license or franchise.
Royalty PaymentsAmounts based on a percentage of turnover
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Benefits and Challenges forFranchisors ofService
Leverages the businessformat to gain expansionand revenues
Maintains consistency inoutlets
Gains knowledge of local
markets
Shared financial risk andmore working capital
Difficulty in maintainingand motivatingfranchisees
Highly publicized disputes
and conflict
Possibility of inconsistentquality that canundermine the companyname
Control of customerrelationship byintermediary
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Benefits and Challenges forFranchiseesof Service
Obtaining an established
business format on which
to base a business
Receiving national or
regional brand marketing
Minimizing the risks of
starting a business
Disappointing profits
and revenues
Encroachment andfranchise saturation
Lack of perceived
control
Benefits Challenges
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Advantages OfBuying AFranchisee
LowerFailure Rate
Help with Start Up and Beyond
Buying Power
Star Power
Profits
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Disadvantages OfBuying AF
ranchisee
Their Way orThe Highway
Ongoing Costs
Ongoing Support
Cost
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Agent
One person (the agent) has authority, express or
implied, to act on behalf of another (the principal) and
consents so to act.
The agent may contract with third parties on behalf of
the principal without itself incurring any liability. In
other words, although an agent may negotiate an
agreement with a third party, it does so, on behalf of itsprincipal, and it is the principal that becomes liable for
the acts, omissions and defaults of the agent.
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Duties of an agent:
An agent owes the principal a number of duties. Theseinclude:
a duty to undertake the task or tasks specified by the
terms of the agency which means the agent must notdo things that he has not been authorised by theprincipal to do
a duty to discharge his duties with care and duediligence
a duty to avoid conflict of interest between the interestsof the principal and his own which means the agentcannot engage in conduct where stands to gain abenefit for himself to the detriment of the principal.
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Liability of agent to principal
If the agent has acted without actual authority, but
the principal is nevertheless bound because the
agent had apparent authority, the agent is liable to
indemnify the principal for any resulting loss or
damage.
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Liability of principal to agent
If the agent has acted within the scope of theactual authority given, the principal must indemnify
the agent for payments made during the course of
the relationship whether the expenditure was
expressly authorized or merely necessary inpromoting the principal's business.
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Liability of agent to third party
If the agent has actual or apparent authority, the agentwill not be liable for acts performed within the scope ofsuch authority, so long as the relationship of the
agency and the identity of the principal have beendisclosed.
When the agency is undisclosed or partially disclosed,however, both the agent and the principal are liable.
Where the principal is not bound because the agenthas no actual or apparent authority, the agent is liableto the third party for breach of the implied warranty ofauthority.
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Broker
A broker is a party that arranges transactions
between a buyer and a seller, and gets a
commission when the deal is executed.
In general a broker is an independent agent used
extensively in some industries
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The prime responsibility of a broker is to bring sellers
and buyers together. Therefore, a broker is the third -
person facilitator between a buyer and a seller. An
example would be a real estate broker who facilitates
the sale of a property.
Brokers may represent either the seller or the buyer
but not both at the same time.A
n example would bea stockbroker, who makes the sale or purchase of
securities on behalf of his client. Brokers play a huge
role in the sale of stocks, bonds and other financial
services.
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Benefits and Challenges in DistributingServices through Agents and Brokers
Reduces selling and
distribution costs Intermediarys
possession of special
skills and knowledge
Wide representation
Knowledge of local
markets
Customer choice
Loss of control over
pricing and otheraspects of marketing
Representation of
multiple service
principals
BenefitsBenefits ChallengesChallenges
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When to use Agent for servicedelivery?
At the time of entering the market
For launch of new products to find their wayinto the market
To cover a wider market reach
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Broker operates in Service Industry whichcharacterized by:
Large number of small suppliers and purchasers
Require finding the right mix for a client
Require advisory deal
Require tools and resources to reach the largest possible
base of buyers
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14-25Basis Franchising Agent Broker
Represent Represent one
company
Represent one
or morecompany
Represent one
industry
Responsibility To use the brand
name as per
guidance of
franchisor
To act on behalf
of Principal
To make
negotiation
between two
partiesControl A much greater
degree
of control is
exercised by the
franchisor over a
franchisee
Partial control
given by
principal
No such control
Liability Principal is liable
for the act of agent
Principal is liable
for the act of
agent
No such liability
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Basis Franchising Agent Broker
Commission Franchisers get
fees or commissionform the agent.
Agent get fees
or commissionfrom the
principle
Broker get
commission whendeal is finalised
Management High levels of management by
franchiser
Less levels ofmanagement by
Principal
No suchmanagement
Brand reputation Franchising within a
relatively short time
built brand
reputation
Take longer
duration as
compared to
franchising
Not relevant
Risk Shared financial
risk and more
working capital
No such sharing
of risk
Rarely involved
on financing and
assuming risk
Contract Rigid contracts Not so rigid
contract
Contract is not
rigid
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ThankYou
NipunKesari
(FC10149)
AishwaryaJaiswal
(FC10122)
Aditi Tyagi
(FC10121)
MohitChaudhary
(FC10144)
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