Business Franchising

Business Franchising: types and major differences

There are basically two types of business franchising: product distribution and business format. The majority of franchises available today are business format franchises.

The right to use a brand name and distribute a product is a product distribution franchise.

The right to use a brand name and distribute a product plus the systems needed to operate the local business is a business format franchise.

Major difference

A major difference between the two types of franchising is that in product distribution, the franchisor may license its trademark and logo to its franchisees, but it typically does not provide them with an entire system for running their businesses. Providing a business system is characteristic of business format franchising.

Business Franchises: product distribution franchises

In a product distribution franchise, the franchisee typically sells products that are manufactured by their franchisor. The industries where you most often find product distribution franchising are soft drinks, automobiles and trucks, mobile homes, automobile accessories, and gasoline.

Business Franchising: business format franchises

The business format franchisee gets to use the parent company’s trade name and logo just as the product distribution franchisee does, but more importantly, it gets the complete system for delivering the product or service and for doing business. It’s this system that produces consistency—and consistency is a franchise’s foundation for success.

Uniformity is a fundamental principal to the success of a franchise

While all franchises do not operate under the same rules, usually the franchisee must follow the franchisor's standards, methods, procedures, techniques and specifications, and use the marketing plan developed by the franchisor.

Most franchisors have standards that define the minimum levels of service and operations required from the franchisee and each location – whether it’s owned by a franchisor or a franchisee - no matter where it is in the world, should look and feel the same and in restaurants the food should taste the same. It’s one of the brand requirements set by the franchisor.

Your experience at every location should be the same. Every well-managed franchise system strives to achieve a high degree of uniformity and consistency so that the buying public knows what they will get just by looking at the brand.

The power of brand recognition offers franchisees an advantage over individual entrepreneurs, because more people are aware of and depend on their franchise's products or services. That's true for any type of business format franchise. The name brand you see on the door is what you depend on to get the product or service you want. You may not know the franchisee but you do know the brand.

Major growth industries in business format franchising today

As the economy becomes more service and technology oriented, as more women enter the work force, and as a larger percentage of the population grows older, growth areas in franchising are responding to these changes. The industry categories in franchising that are expected to continue to experience rapid growth for the start of the new century are service-related fields such as home repair and remodeling, carpet cleaning, household furnishings, and various other maintenance and cleaning services; business support services including accounting, mail processing, advertising services, package wrapping and shipping, personnel and temporary help services, and printing and copying services; automotive repairs and services such as quick-lube and tune-up; and other areas such as environmental services, hair salons, health aids and services, computers, clothing, children's services, educational products and services, and telecommunications services.

While it is important to consider industry growth before investing in a franchise, it is more important to analyze an individual franchise company's track record, keeping in mind that quick growth does not always spell success. A franchise organization that grows too quickly might not have a service team in place to support all of the units properly. Overall, long range trends indicate a steady, solid growth in business format franchising.

Development Formats

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