franchise mgt.doc

MBA

PAGE II

A

SUMMER TRAINING REPORT

ON

FRANCHISEE MANAGEMENT

SUBMITTED TO:N.R. INSTITUTE OF BUSINESS MANAGEMENTGUJARAT UNIVERSITY

AHMEDABAD.

ON PARTIAL FULFILMENT OF 2 YEAR MBA PROGRAM (2003-05 BATCH)

SUBMITTED BY:

JAINESH SHAH

ROLL NO. 3082

Submitted on:

22nd July, 2004.ACKNOWLEDGEMENT

I would like to take the opportunity to express my profound thanks to and gratitude to my guide - respected Mr. Devang Jhaveri (MD, PUNYAM MANAGEMENT PVT. LTD.) for his unceasing efforts, encouragement, help and valuable guidance at every step which has contributed the most towards the success of this project.

I am also thankful to staff of PUNYAM MANAGEMENT for giving their full support and providing me necessary direction for the various topics related to the project.

Project student

Jainesh shah

EXECUTIVE SUMMARY

Today, in the global market, reputation and recognition of the business is must, because competition of the businesses not only in the country but also internationally. The prime objective of this FRANCHISEE MANAGEMENT is to find awareness of franchisee in the business sector and to provide them necessary and correct information about the importance of franchisee for business.

During this project, I have found that the business sectors in Ahmedabad, which include Fast food restaurants, Jewelers, Readymade garment shops, Furniture shops, Bakeries, Educational institutes, Mobile networks, Automobiles, Super markets, Shoes industry, are aware of franchisee management. After interaction with people managing these sectors, I have come to know that many of them are ready to give or take franchisee related to their field.

So, I can conclude that proper education and direction given to them (Todays businessmen) towards benefits of franchisee can be helpful in business sector. Franchisee management is the win-win situation that includes responsibility of franchisor and franchisee to each other to improve business function.

TABLE OF CONTENTSIACKNOWLEDGEMENT

IIEXECUTIVE SUMMARY

1ORGANAIZATION OVERVIEW

5RESEARCH DESIGN

7METHODOLOGY AND LIMITATION

INTRODUCTION TO 9FRANCHISING MANAGEMENT

1BENEFITS TO FRANCHISOR

21BENEFITS TO FRANCHISEE

3 1TYPES OF FRANCHISING

41ABOUT THE PROJECT

5FINDING OF THE 1RESEARCH ON VARIOUS INDUSTRIES

6 23APPENDIX SHOWING THE PLACES VISITED DURING THE FIELD WORK

IDEAL FRANCHISEE MODEL26

2CRITERIAS TO DECIDE WHETHER TO GO FOR FRANCHISEE OR NOT

6 2FRANCHISEE SELECTION PROCEDURE

7 LAUNCH OF THE UNIT32 TERMS AND CONDITIONS FOR AGREEMENT33LIVE PROJECT 38 BIBLIOGRAPHY.40

ORGANAIZATION OVERVIEW

PUNYAM (PMSPL) was born in November 1995 in the field of consultancy for ISO: 9000, other international standards, and Management areas. It is on the path of growth and having total 250 clients of various types of certification and very rich experience in ISO and management consultancy.

Group of 12 qualified engineers and management graduates (M.B.A), having experience in different types of industries and having done ISO: 9001, 2000 and other international certifications for many clients, are a part of this company.

PUNYAM is having its office in Vapi for clients located near Vapi as well as Mumbai.

At present, Punyam takes roughly 9 new clients per month and completes their work within 3 months. After every 3 days, average 1 client of Punyam is getting ISO: 9001, ISO: 14001, HACCP, CE Mark or any other certificate. All the Punyamclients have got ISO: 9000 series certificate from the leading certifying body like KPMG, BVQI, SGS, LLOYDS, DNV, TUV, U.L. LAB. Etc.

Punyam is also working for vendor Developments & Auditing of companies in India on behalf of leading international customers. Their clients include capacity-wise No. 1 companies in Asia as well as leading groups of India like

Reliance Industries Limited. Modern Terry Towels Limited. (Modern Group) Gujarat Telephone Cables Limited. (GTCL Group) Meghmani Group Of Companies Metrochem Industries Limited Shri Digvijay Cement Co. Ltd. Binani Cements Limited. INDEX B (Industrial Extension Bureau, Govt. of Gujarat Organization)

Pay back of their consultancy is less than 2 months because of quantification of measurable goals and providing continual improvement platform.

PUNYAM IS COMMITTED FOR

Optimum charges.

To complete project in minimum period (Within three months).Professional approachTo depute dedicated persons to suit client requirements.Hard work and getting work done from othersStrengthening clients by system establishment to make their house in proper manner Establishing system in finance and other departments for fund flow management.To establish strong internal control with the help of system.

MANAGEMENT

They provide help to the clients in management areas listed below in four main ways. Arranging in-house training programs.

Establishing system on project base.

Profit sharing based on improvement achieved.

They do total management activity.

a) SYSTEM CERTIFICATION

Reliance Industries Limited. ISO: 9001 (Quality System)ISO: 14001 (Environment)HACCP (Food Safety)CE markWHO GMP OHSAS:18001 BS 7799 ( Information Security Mgt. System) SA 8000 ( Social Accountability) NABL Accreditation (ISO/IEC 17025)

b) STRATEGIC MANAGEMENT

Competitive strategyOrganizational leadership for 21st centuryBusiness Process Improvement (BPI)Six sigma

c) MARKETING

International marketingMarket researchManaging retailingInstitutional marketingProduct policy & new product managementFranchisees managementCustomer based business strategiesSWOT analysis and marketing plans

d) PURCHASE

Sharpening negotiation skillsVendor development and evaluationSupply chain managementSystem audit for vendors

e) PRODUCTION AND QUALITY CONTROL

Project management Process refinement

Excellence in manufacturingQuality assurance establishment

f) FINANCE

Creative solutions to finance problemsAdvanced data analysis for financial decisionsStrategic finance managementFinance and costing for non financial staff

g) HRD

Human resource managementLeadership & change managementKey performance appraisal system (KPA)Creative solutions to HR problemsGoal setting & performance management Bench marking

RESEARCH DESIGNPROBLEM STATEMENT

The management problem is to find out potential customers in the business sector who wants to give or take franchisee and provide them necessary information and guideline about franchisee agreement and importance of franchisee in business sector.

RESEARCH OBJECTIVE How much business units are aware of the term Franchisee management? What are the alternate growth policies that they are using for expansion? What are the reasons that restrict them to go for franchisee? On geographical basis, where their customers are located? Describe the benefits that they are looking for, by giving franchisee? What are their future goals? On which criteria they select their franchisee?Research Design:

Design strategy: Type: Exploratory research.

Purpose: Mostly Descriptive

Time Frame: Cross sectional.

Scope: case study.

Environment: Field research.

Data collection design: Type of Data: In this area, not much research study has been conducted so far and hence everything is to be explored with the use of primary data. The tool that I used for collection of primary data was Questionnaire and Personal Interview Method.

Secondary data about what is franchisee management, what are its benefits, what are the criteria for selection of franchisee, process of selection, etc. are obtained from a book on Franchisee Management about which, it has been well mentioned in the Bibliography at the end of this report.

Questionnaires: I did my market research with three types of questionnaires, one for franchisor, one for franchisee and the third one for those who have not given or taken franchisee till date but are able to give or take franchisee.

I used more open-ended questions for first two types of questionnaires mentioned above, specially designed for franchisor and franchisee to get information from them regarding their business.

For the third type of questionnaire, which was for prospective clients, I use more of close-ended questions to educate and guide them about the concept of franchisee.

Personal Interview method: Interviews of small, medium and large-scale business units.

Interview of petrol pump holder.

Interviews of various corporate managers.

Sample design: Convenient sampling design method selected

METHODOLOGY AND LIMITATION

Research designs can be classified by the approaches and tools used to gather primary data. There are rarely three or four alternatives. We can observe conditions, behavior, events, people, or processes. Alternatively, we can communicate with people about various topics. The communication approach is questioning or surveying people and recording their responses for analysis.

The greatest strength of questioning or conducting a survey, as primary data collecting technique, is its versatility. Questioning is much more economical than observation. A few well-chosen questions can yield information very easily that would take much more time and effort to gather by observation.

The questioning technique has its shortcoming. The major weakness is that the quality and quantity of information secured depends heavily on the ability and willingness of respondents to cooperate. Often, people refuse and fail to reply to a mail survey. Certain people at certain time fail to see any value in participation; they may fear the interview experience for some personal reason; or they may view the topic as too sensitive and thus the interviews are perceived as potentially embarrassing or intrusive.

Even if respondents do participate, they may not have the knowledge sought or an opinion formed on the topic of concern. Under these circumstances, their proper response should be dont know or no opinion. Too often respondents feel obliged to express some opinion even if they do not have one. In those cases, it is difficult for researchers to know how true or reliable the answer is.

Respondents may also interpret a question or concept differently from what was intended by the researcher. This occurs when the respondent is answering a question different from the one being asked. A respondent may intentionally mislead the researcher by giving false information. It is difficult for a researcher to identify these occasions. Despite these weaknesses, communicating with research subject is a principal method of management research.

LIMITATIONS OF THIS METHOD

Non response rate: When people dont want to participate

Response error: When they interpret differently and cant find answer accurately

Interview error: It occurs when interviewer fails to achieve cooperation, interview has been taken with bias.

Costs: Organization has to make interviewers some kind of payments like travel costs, and some allowances.

FRANCHISING MANAGEMENT

Definition:

The word franchise is an old term, originating from the French word meaning privilege or freedom or a right. Thus, the rights for hunting, holding public fairs, agricultural activities, etc. were started being known as franchises.FLOW OF INFORMATION

Need:

The distribution industry was used to the dealers and retailers, both exclusive and non-exclusive. This was working perfectly for the distribution of products. But, with the fast growth of the service industry, there was a dire need for finding alternate distribution channels. For that, franchisee is the best vehicle for expanding network.FACTORS AFFECTING ON FRANCHISEE MANAGEMENT

Limitations:

A little literature available, which laid down the precepts of franchising. There are not so much existing franchise networks in the country, which could be studied and adapted.

A framework does not always suit the requirements of international expansion. What works in India doesnt necessarily work everywhere else.

Success factor:

To form the basis of a mutually beneficial and enduring relationship, it is vital to ensure that both the parties understand their rights and responsibilities to work in unison for success of the business. Success of franchisee lies in managing efficiently its brand as well as product.

BRANDMANAGEMENT

PRODUCT MANAGEMENT

BENEFITS TO FRANCHISOR Expansion without capital investment:It may not always be possible for an organization to deploy capital for simultaneously setting up units in different geographical locations. Through franchising, several franchisees can concurrently invest in setting up different units, thereby rapidly expanding the network for the franchisor.

Increase in market share:Franchising offers the concerned parties a mechanism to penetrate a market and achieve a large market share in a short time.

Low cost of franchisee:

Once the concept is fine-tuned, the cost involved in setting up additional franchisees is minimal.

Profitability increases:

As compared to the cost, the returns emanating from each unit are substantially higher, thus ensuring highly attractive per unit profitability.

Limited risk factor:

With the franchisee investing the capital, the franchisors risk is limited in the event of the failure of the unit.

Availability of a large number of entrepreneurs:

The franchisee is a committed and dedicated entrepreneur whereas a salaried employee will rarely show similar commitment and dedication. It is a well-known fact that no form of compensation is greater than entrepreneurship.

BENEFITS TO FRANCHISEE

Less amount of risk involved:

The risks normally associated with a start-up business are few because under franchising, there are little chances of failure of the business.

Training of business practices:

The franchisee has access to training from the franchisor in business practices that have been successful elsewhere.

No R&D and product development expenditure:

It is not possible for a small single business unit to make large investments in these areas. In fact, they can earn reward from investment made by franchisor and it will continue to invest in.

Transfer of know-how:

A proven business know-how is the biggest benefit for franchisee.

Economies of scales:

The network is also able to leverage on the economies of scale of a large organization and give substantial cost saving on material, equipment, media etc.

Expenditure on advertising and promotion decreases:

The synergy of operations that franchising ensures amongst the network of franchisees, reduces advertising expenditure at a per unit level.

TYPES OF FRANCHISING

Product franchising :

It is prevalent in the finished category of products and implies the right to sell the product as it is received from the parent company. The only value-addition that happens at the franchise outlet is in terms of display, which facilitates easy accessibility of the product to the customer and the actual sales transaction. Hence, product franchising is only applicable for the sale of a product.

Example: Car dealership

Process franchising :

As opposed to product franchising, process franchising is a little more complex. Here, the franchise outlets are granted the rights to the brand name and the process, by the parent organization. The process or the recipe may be patented by the parent organization and the franchise outlet has the right to use the process and sell the product under the parent organizations name.

Example: Food industry

Business format franchising :

It is a more comprehensive type of franchising where the name, sale and the method of doing business are transferred to the franchise outlet. The transfer of knowledge for conducting the business has to be accompanied by an effective follow-up mechanism by the parent organization.

Example: McDonalds

ABOUT THE PROJECT

I started my project from 24th May. As stated earlier, Punyam management services is basically an ISO and management consultancy which is to enter in a field of franchisee consultant. I was given a project of franchisee management. First week was allocated to understand theoretical framework of franchisee management as well as to understand terms and conditions that apply in franchisee. I was given a task to make PowerPoint presentation of franchisee concepts for companys own use. In the second week I submitted that presentation and started to prepare questionnaire. I started my fieldwork from the third week with one questionnaire. During that week, I updated my questionnaire and made another two questionnaires according to the response that I got from the market. So I did my market research with three types of questionnaires as has already been mentioned in the data collection design: one for franchisor, one for franchisee and the third one for those who have not given or taken franchisee till date but are able to give or take it. I used more open-ended questions for first two types of questionnaires specially designed for franchisor and franchisee to get information from them regarding their business. For the third type of questionnaire, which was for prospective clients, I used more of close-ended questions to educate and guide them about the concept of franchisee. I completed my fieldwork in seven weeks and after that one week was given for analysis of questionnaire and to make project report.

FINDINGS OF THE RESEARCH ON FRANCHISEE

Industry:

Garments

AwarenessVery much aware

Geographical Expansion policyRegionally as well as domestically

Benefits perceivedBrand name popularity

To increase market share

Expansion without capital investment

Criteria for selectionSite availability

Investment availability

Past experience

Restricting factors, if anyLow profitability

Alternative Growth PolicyPersonal selling

Advertising

Market concentrationScattered

SWOT Analysis of garment industry:

Strength:

All types of variety are available in a market for different taste of consumers.

Behavior of staff with customers makes repeat purchase possible.

Weakness:

Not a single company is able to provide all ranges of items.

Bargaining habits of customers imposes restriction on fix rate sellers.

Opportunity:

Non Residential Indians (NRIs)

Festivals like Diwali, Rakshabandhan etc.

Threat:

Tough Competition

Present trend regarding franchisee:

Garment is the highly emerging industry for the purpose of giving franchisee in Ahmedabad. Raymond had started of giving dealership, which is the primary form of franchisee. Nowadays customers value time and money and Raymond is only providing tailor-made garments. That is why Raymonds market share is decreasing day by day. Allen solly, Van Heusen, Planet fashion, Louis philippe are the companies that provide readymade garments and are capturing market by giving franchisee. Location of an outlet is the sole criteria in giving franchisee.

Industry:

JewelersAwarenessNot much

Geographical Expansion policyLocally

Benefits perceivedExpansion without capital investment

Criteria for selectionPersons credibility

Past experience

Restricting factors, if anyVery difficult to control

Alternative Growth PolicyInternet marketing

Personal selling


SWOT Analysis of Jewelers:

Strength:

Varieties in design, size and types Good service attracts loyal customers Weakness:

Customers require more money to purchase jewelry than their routine purchases hence ATM or banking facility requires in surrounding environment of the site.

Opportunity:

Marriage season

Threat:

Security aspect

Present trend of industry regarding franchisee:

Jewelry industry requires high investment for taking franchisee hence people avoid to take franchisee and go for their own shop. On the other hand, franchisor does not want to take risk by giving franchisee to even a known person due to high chance of vulnerability.

Industry:

Fast-food

AwarenessYes

Geographical Expansion policyLocally and regionally

Benefits perceivedTo increase market share

Availability of a large number of entrepreneurs

Criteria for selectionEntrepreneur capability

Lead time require to start the franchisee

Restricting factors, if anyCreate competitors in future

Alternative Growth PolicyAdvertising

Market concentrationCentered

SWOT Analysis of Jewelers:

Strength:

Tasty food. Change from routine food.

Weakness:

Not prefer in rural market.

Unhealthy and unhygienic food

Opportunity:

Youth.

Threat:

Tiffin services.


Fast-food industry is also highly emerging industry same as garment industry in Ahmedabad. It requires less investment but technical know-how is the crucial factor for giving franchisee. Sankalp is one of the best examples of restaurant franchisee. A group of Sankalp includes U.S. Pizza, Saffron, Salt n paper and Sankalp restaurant itself. Sankalp has already given franchisee in Jaipur, Udaipur, Baroda, Surat, Rajkot and more than two franchisees in Ahmedabad. Still they maintain same taste everywhere.

Industry:

Educational Institute

AwarenessYes


Benefits perceivedTo make brand name popular

To increase market share

Availability of a large number of entrepreneurs






SWOT Analysis of educational institutes:

Strength:

Tutors are the sole strength of institutes.

Weakness:

It can cover only limited area.

Opportunity:

Vacations and exam time

Threat:

Personal coaching

Change in the syllabus


A success of educational institute depends on its faculty members. It is tough to find equally qualified tutors at all places of franchisee, due to this franchisee is not preferred in educational institute. If franchisee is given to nearer place of franchisors location then it may be possible for the same tutor to cover all the students in a particular area. But it will not make any sense to have franchisee in a same area since it leads to cannibalization (your own franchisee competes with your institution and effectively speaking it is simply as if a transfer of students from one batch to another).

Industry:

Shoes

AwarenessVery much

Geographical Expansion policyLocally, regionally and domestically

Benefits perceivedLow cost of operation

To increase profitability





Personal selling


SWOT Analysis of shoes industry:

Strength:

Varieties

Weakness:

Bargaining power of customers put restriction on fix rate sellers

Opportunity:

School uniform

Threat:

Obsolescence of design


It is an evergreen industry; hence franchisee is very popular in this field. People are using popular brands name for their own outlet. For example, brand name CHAVDA is so popular in Ahmedabad that there is minimum one outlet with the name of CHAVDA in each area of Ahmedabad. There are three outlets with this name even on C.G. Road. The industry where the brand name is such a way critical success factor, franchisee is found to be one of the most suitable as well as the profitable management practices.

Industry:

Bakery

AwarenessNot much

Geographical Expansion policyLocally and regionally

Benefits perceivedTo capture more market

Low cost of operation

Criteria for selectionTechnical know-how

Ability to work as an operator, now owner


Very much difficult to control



SWOT Analysis of Bakery:

Strength:

Technical knowledge

Weakness:

Perishable products

Opportunity:

Working couple

Threat:

Modernization


Sales cycle is the fastest one in this industry as it requires faster production as well as supply. To maintain same quality, by maintaining speedy operations, makes franchisee management tough in this field. In spite of that, Cakes n Bakes is performing efficiently by giving its franchisee in Ahmedabad. It has given franchisee in areas like Ambawadi, Maninagar, Gurukul, Satellite, Paldi and Naranpura, It produces all the items centrally and then supplies them to all its outlets. That shows good potential of franchisee in this field, even though not too many such other examples have been found as yet.

Industry:

Cold drinks and ice cream parlors

AwarenessNo


Benefits perceivedLow cost of operation


Criteria for selectionGoodwill

Location

Restricting factors, if anyLow profit margin

Technical know-how


Personal selling


SWOT Analysis of cold drinks and ice-cream parlors:

Strength:

Goodwill

Location

Weakness:

Low Margin

Opportunity:

Various flavors

Threat:

Much stiffer competition


Low profit margin and high wastage due to perishablity impose restriction on franchisee. Girish Colddrinks has more than three own branches in Ahmedabad but not a single franchisee is given. Location of the site and goodwill are the crucial factors in franchisee selection.

Industry:

Automobile

AwarenessVery much


Benefits perceivedLimited risk factor


Criteria for selectionAbility to invest

Site availability

Restricting factors, if anyChances of spoiling brand image in the market

Alternative Growth PolicyDealer/Distribution network

Advertising

Personal selling


SWOT Analysis of Automobiles:

Strength:

Low maintainability

Mileage

Weakness:

Dependent upon petrol-diesel which are scarce resources and are quickly being depleted and getting costlier progressively

Opportunity:

Creativity

Gas driven engine

Threat:

Model failure


Because of the level of investment required and the complexity of manufacturing process of automobiles the question of franchisee does not come into the picture in case of production of automobiles. However, when we use the term automobile industry, it covers large Meta market of various sub industries such as auto ancillary, auto dealers, financing of automobiles etc. By using this term, I mean to convey the meaning of automobile showrooms and automobile financing. In both these areas franchisee has already become very popular.

Industry:

Mobile NetworkAwarenessAll are aware


Benefits perceivedTo capture more market

Low cost of operation

Criteria for selectionPrior experience

Ability to work as an operator, now owner


Very much difficult to control


Dealer / distribution network


SWOT Analysis of mobile network:

Strength:

Makes the use of Mobile phone possible

Various facilities provided like free sms, chatting, ringtones, R world, fortune telling, current affair news, games, music composer, etc.

Cost keeps on reducing and becoming affordable more and more

Can also be used as a residential phone

People worrying about their family members outside value mobile most

More and more used in marketing of products

Inbuilt caller ID function

Can be connected with internet

Weakness:

Frequent recharging

Dummy possession, ownership and usage

Physical security from thieves and possibility of misuse by so called friends

Opportunity:

Innovative models like camera inbuilt

Need creation (Many facilities are such which create needs from nowhere and people make them as their habits which is difficult to control afterwards)

Threat:

Mobile virus

Present trend of industry regarding franchisee: Though it is strange to know but it is true that even in mobile network industry, the franchisees are becoming a newly emerging phenomenon.

APPENDIX SHOWING THE OVERVIEW OF PLACES VISITED DURING THE FIELD WORK

GarmentsBakery

Pantaloon, ElsbdgCakes n Bakes(Franchisor),Nrnpr

Bodyline,CGrdCakes n Bakes(fr),Grkl

Radhika, ElsbdgItalian Bakery,Bhadra

Westside, ElsbdgRajkamal,Mngr

Adani Collection(Reid & Taylors fr),CGrdJanta,Gndhrd

Tanvi Collection(Akobas fr)ElsbdgAsian,Isnpr

Vimal (Reliances fr), CGrdBeekey,Cgrd

Greenfibre,Mngr

Planetfashion(Allensallys fr),CGrdCold drinks and Ice-cream Parlor

Shoppers paradise(Digjams fr), CGrdGirish cold drinks, CGrd

Mafatlal family shop,MngrGirish cold drinks,Mngr

Amruta(Allensallys fr),MngrGirish cold drinks,Mnchwk

Gopal Emporium,MngrFarki,Mngr

Adani (Raymonds fr),CGrdFarki, Delhi Darwaja

Gulabdas saree,MngrAsharfi,Unird

Shrinath selection,MngrHavmor,Panchwati

Shriniketan,CGrdJanta Ice-cream,Nvrngpr

Janta Ice-cream,Mngr

Fast food & RestaurantsPatel Ice-cream,Mngr

Sankalp (Franchisor),CGrdPatel Ice-cream,Nvrngpr

Sankalp (fr),Mngr

Saffron (Sankalps fr), MngrJewelers

Honest Bhajipav(fr),PldiMonica Jewelers, Mngr crossing

Honest Bhajipav,MngrManisha Jewelers, Mngr station

Prince Bhajipav,Isnpr

City corner Bhajipav,NrnprShoes

U.S.Pizza,NvrngprLiberty show room, CGrd

Khana Khazana,SttltBata (fr), Mngr

Khana Khazana,PldiChavda,CGrd

Udipi Caf,PldiChavda Shoe co.,CGrd

Rasranjan(Franchisor),UnirdChavda pagarkha, Mngr

Rasranjan(fr),MngrDollar,Sttlt

Rasranjan,CGrdKrishna footwear,Nrnpr

Choice snacks bar, CGrdPayal footwear,Mngr

Treat,Pldi

Tomatos,CGrd

Chinatown,Nvrngpr

IDEAL FRANCHISEE MODEL

CRITERIA TO DECIDE WHETHER TO GO FOR FRANCHISEE OR NOT

Are the customers making repeat purchases of the product?

Has the product been successful in other market segments?

Is there a need for the product/service to be available at different locations/markets?

Are all the units selling the product profitably and independently?

Can the same product be sold in different markets without changes or modifications

In financial terms, have the different outlets achieved break-even status in 12 to 18 months?

Is the return on investments (ROI), which is being generated from each outlet, acceptable to the franchisee as an investor?

Are all the outlets similar in appearance in terms of both exteriors and interiors?

Can a new unit be set up at a different location in less than a year?

Does the customer associate the brand with the product?

Is there an awareness of the brand among consumers in the markets where the current outlets operate?

Is there any awareness of the brand among consumers in new markets?

Is the brand available in different formats for advertisements, packaging, letterheads, stationary, etc.?

Is the brand registered in the existing and future markets?

Can a third person set up an outlet by studying the documentation?

Is the training requirement for the outlet clearly defined?

Is adequate training material readily available?

Using the documented system, can the outlet operate independently for 30 days, without any input from the parent organization?

Are adequate controls available in the system to prevent non-disclosure of income?

Does the system give adequate feedback to the parent organization regarding the product performance and customer satisfaction?

Does the system have inbuilt procedures to trap customer complaints and take care of recurring complaints?

Does the system ensure legal compliance of all local, state and federal laws?

FRANCHISEE SELECTION PROCEDURE

STAGE I ADVERTISING

A standard advertisement format has to be created so that it can be used in different print media with simple modifications. The size, layout and design of the advertisement are best decided by individual organization in consultation with its advertisement agency.

ADVERTISING MEDIA

Newspapers

Magazines

Technical and trade journals

Radio / television

Investor trade chambers clubs

Qualified databases for direct mailing

CONTENTS OF ADVERTISING

Product details with data on success / sales

Company details with the parent organization details

A profile of the potential franchisee

Broad investment requirements for the project

Locations where franchisees are being sought

It should sign off with the brand logo and the address and contact details of the franchisor.

SCREENING OF APPLICATIONS

Following applications should be rejected directly.

Who have too many businesses?

Who do not have succeeded in other businesses?

Who will not devote full time attention to the new business?

Who are relying on 100 % funding through borrowings and loans?

STAGE II FRANCHISE BROCHURES

After screening of applications in stage-I, franchisee brochures are sent to remaining potential clients. It is essentially a corporate brochure for the organization and should reflect its strengths, image and vision. It can contain testimonials from successful franchisees with photographs of their respective outlets. It is essentially a franchisee recruitment brochure which contains answers to all possible queries of the prospective franchisees.

SCREENING OF APPLICATIONS

In this stage, applicants are short listed by doing objective assessment. Each criteria of objective assessment is given specific weight according to its importance. This weight is differing from industry to industry. For an example, generally site availability criteria requires the highest weight while an educational qualification requires least weight. But again, how much weight should be allocated to each criterion depends on types of business.CRITERIA OF OBJECTIVE ASSESSMENT

Ability to invest

Site availability

Entrepreneurial capability

Education

Past experience

Lead time required to start the business

STAGE III PRESENTATION

If the response to franchise brochures is very good and there are a large number of interested prospects from whom the franchisor has to select the best franchisee, the presentation can be done in a group. It should be in the form of corporate video or a multimedia presentation. The presentation can be followed by a question and answer session.

SCREENING OF APPLICATIONSIn addition to the rating of an objective assessment, the behavioral aspect should also be taken into consideration. It includes behavioral criteria and those should be assessed using professional advice, if needed.

BEHAVIORAL ASSESSMENT

(Psychology test)

Motivation:

What is the motivation for the prospect to seek a franchise? A proper understanding of the prospects motives will help the franchisor to assess the franchisees long-term interest in the project and his ability to make it a success. He should be guided by a strong motivation, related to financial or emotional factors or to his self-esteem. The stronger the motivation, the higher are the chances of the prospects success.

Involvement:

Is the franchisee going to be an owner-cum-operator or is he going to rely on hired hands to operate the franchise? If the owner was not involved in the operations himself, his commitment and entrepreneurial skills, which are the backbone of any franchising operation, are not available to the franchisor for the business. Hence, a franchisee that will not operate the unit himself should be avoided.

Self-evaluation:

The franchisee should be encouraged to do a self-evaluation in order to determine whether he will be successful as a franchisee. This imparts a lot of confidence to the franchisee about the sincerity of the franchisor and helps him to make up his mind.

References:

Before finally selecting the franchisee, the franchisor should check the references of the franchisee. The franchisee should be asked to provide three references: two business references and one bank reference. In addition to the references provided by the franchisee, the franchisor can also elicit information from other business contacts in the area.

STAGE IV SITE SELECTION

Once the franchisee is selected, the next step is to select the site. Many times the selection of the franchisee is determined by the site he is able to provide for the outlet. For most consumer businesses, the site is crucial for success and the location becomes very important. Depending upon the nature of the business, the franchisor has to draw up the specifications for an ideal location and the site.

SPECIFICATIONS FOR AN IDEAL LOCATION: Demographics of the population around the location

Commercial, industrial, recreational and educational establishments around it

Accessibility of the location to the customers

Visibility to customers

Type, direction, density and qualifications of the traffic which passes from that location daily.

Buildings suitability to the business

Area, facilities and utilities required

Layout, the frontage available to put up the signage and parking available for customers.

A site evaluation form, similar to the franchisee evaluation form is used for assessing the suitability of the available locations. The site evaluation form gives ratings to each of the factors mentioned above and assigns weightages to them to arrive at a final rating for the site. This allows for an objective assessment by the franchisor, helping him to select one of the many possible sites for locating the franchise.

LAUNCH OF THE UNIT

A proper launch of the unit generates awareness about then outlet in the area hence acts as a morale booster for the franchisee.

Before the launch, marketing and sales activities need to be started in the area.

Handbills, posters, banners, newspaper inserts, print advertisements, radio jingles etc can be used according to type of the product.

The day of the launch should be advertised in the local media that attract potential customers.

The event could be a seminar, a music show or a cultural event. It can feature an eminent personality who can attract crowds.

The event and the launch should be adequately covered by the press so that it generates awareness in the area.

On the launch date should also announce a special promotion drive at the unit with discounts or promotional offers.

The start of one more units may not be of significance for franchisor, but for the franchisee, it is an important day in his life.

TERMS AND CONDITIONS FOR AGREEMENT

Prerequisites of agreement for franchisor

Disclosures related to bankruptcies and lawsuits in his past including all affiliated companies.

Disclosure regarding whether the initial franchise fee is uniform.

Investments details should be realistic and should give information about key investments and expenses.

Franchisor should give details of franchisees that have made money.

An agreement should be balanced means franchisor should avoid the tendency to make the agreement heavily in favor of the franchisor.

GENERAL GUIDELINES FOR AGREEMENT

Recitals:

A definition of all terms used in the agreement is given here. This is also the part, which specifies the unique proposition which the franchisor has and which he is franchising. The intellectual property rights and trademark rights of the franchisor are clearly spelt out here.

Tenure:

The period of the franchise contract is spelt out here. The terms for renewal of the franchise agreement upon expiry of the period are also clearly stated in this section of the agreement.

Territory:

The geographical area in which the franchisee is allowed to operate exclusively is specified here. It may be necessary to attach maps with the areas clearly marked out.

Operations of the franchisee:

If the franchise outlet needs to comply with quality standards like ISO 9002, clear guidelines and time schedules for achieving certification should be specified.

Termination and Expiry procedures:

Termination in case of breach of agreement and sale of franchise to other parties should be laid down. During the term of the contract, provision for penalties can also be made in case of breach of contract. The agreement also deals with standard clauses related to the death of the franchisee, and renewals of agreement and indemnity against acts of unforeseen nature like earthquakes, floods, riots, etc.

FRANCHISORS OBLIGATION

This section should be clearly worded and should match the promises made in the franchise offering circular. The main aspects to be covered here are listed below.

Training:

This should include information on the number of people, where and when they are undergoing training as also the duration and nature of the training. The initial training is undertaken at the cost of the franchisor, whereas ongoing and future training is normally undertaken at the franchisees cost.

Advertising:

This refers to the contribution of the franchisor towards brand promotion in the territory. Normally all outlets (including the franchisors owned outlets) are expected to contribute equally for advertising in the territory.

Information:

The franchise agreement should also provide relevant and timely information to franchisees and respond to all reasonable requests from the franchisees concerning the business.

Supply conditions:

This refers to details of items that will be supplied by the franchisor with an indication of costs.

Manuals:

These have to be issued to franchisees for the conduct of the business and regular updating of the manuals is a must. It should be specified here that the manuals are and shall remain the property of the franchisor.

FRANCHISEES OBLIGATIONS

This section should specify all the things that a franchisee should do to run the business properly and to protect the rights of the franchisor. All aspects pertaining to the items listed below should be covered.

Manpower and training:

All recruitment by the franchisee should be approved as being competent by the franchisor. New employees should be allowed to function only after receiving proper training from the franchisor. The franchisee should also be obliged to get all his employees trained in the future as and when required by the franchisor.

Registration and authority:

The franchisee is authorized to operate as the franchisee and not as a branch or as an agent of the franchisor. All literature, stationery and displays at the location should use the text as specified in the manuals supplied by the franchisor.

Brand name protection:

The brand name or the trademark should not be changed or damaged by the franchisee.

Secrecy:

The know-how, system, methods and all other information provided in the manuals and future updates should be kept secret and should not be divulged to any third party. The franchisees should be asked not to copy the manuals in any part.

Business performance:

Performance targets can be mutually discussed between the franchisor and franchisee and finalized from time to time. Mention should also be made about the performance expected from the franchisee regarding the quality and levels of service pertaining to the product.

Accounts, audits and financial performance:

The books of accounts can be audited by the franchisor. Here the periodicity and scope of the audit as well as the party at whose expense the audit will be conducted should be clearly stated.

Taxes:

If the franchisee is supposed to comply with local tax statutes like sales tax, VAT, service tax, etc. the same should be specified and the franchisee should be obliged to comply with them and provide the relevant financial details to the statutory bodies and to the franchisor.

MASTER FRANCHISE AGREEMENT

Master franchising is very common in international franchising, wherein the brand name of the franchisor is not well-known in a new country. A franchisee willing to set up a franchise outlet in a new country will have to make huge investments in generating awareness for the brand in the country. In such a case, the franchisee expects to be given the territorial rights in the country for appointing sub-franchisees.

If a master franchisee is given the rights to sub-franchise in a territory, a separate master franchise agreement should be drawn up, which is different from the franchise agreement. Once the master franchise rights for a territory are awarded, the franchisor normally cannot sell a franchise in that territory directly, as the rights are exclusive in nature.

LIVE PROJECTI got an offer from CHAVDA PAGARKHA while market research to make their agreement for giving franchisee. An overview of an agreement with terms and conditions is given below.

Agreement of CHAVDA PAGARKHA

A location of a shop should be at a place where there should not be other CHAVDAs shop in surrounding 3 kilometer of radius. Initial fee for franchisee would be Rs. 3 lacks. Interest on deposited amount will be paid as per nationalized banks interest rates. Insurance expenses will be shared by both the parties in a manner of 70% by franchisee and 30%by franchisor. Advertisement expenses will be shared in a 50-50% form. Advertisement will be given in a company newspaper, magazines, channels and local newspaper. Submission of sales data will be done on each Monday with a statement including article no, color, size, and price. Stock amount will be as per 80% of deposit. Manuals are and shall remain the property of the franchisor. All recruitment by the franchisee will be approved by the franchisor. Training schedule will be announced two weeks before of the training date. That schedule includes number of people who will be given training, where, when, duration and nature of the training will also be specified. New employees will be allowed to function only after receiving proper training. All literature, stationary and displays at the location will use text as specified in the manuals supplied by franchisor. The franchisee is authorized to operate as a franchisee and not as a branch or an agent of the franchisor. A franchisees profit margin will be equal to retail price minus wholesale price of franchisor. The performance targets will be changed time to time. Clearing will be done two times a year through sale in February and August. Minimum distance between two franchisees will be 6 Km. Franchisee cant sale other companys items. The brand name or the trademark should not be changed or damaged nor any derivates of it formed in the name of the franchisee. A company will provide support activities like a companys representative will inspect time to time and give advices regarding how to increase sales, stock maintenance, order etc. Minimum duration of the contract remains 3 years. In case of renewal or termination of contract last 3 months stock can be sent back at wholesale price or all the stock can be sent back at 50% of wholesale price. Octroi and transportation charges will have to bare by franchisee. If dispute has reached a stage where it cant be resolved through mutual discussion and meetings then mediators and arbitrators help will be taken to resolve the matter.

Franchising

Product Franchising

Business Format Franchising

Process Franchising

EMBED PBrush

_1152020014.docBibliography:

Kotler, Philip, Marketing Management. New Delhi : Prentice-Hall of India

Private limited, 2003. 706pp.

Khera, Pramod, Franchising The Route Map to Rapid Business Excellence, New Delhi:

Tata McGraw-Hill Publishing Company Limited,2001,150pp.

Hoy, Frank.,Stanworth, John.,Franchising An International Perspective, New Delhi:

TMH, 2003,200pp.

Cooper,Schildler.,Business Research Methodology, New Delhi : Tata Mc Graw-Hill

Publishing Company Limited, 2001, 455pp.

franchise mgt.doc

Documents