services through intermediaries

8/4/2019 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)

services through intermediaries

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