Channels and merchandising

Channels and merchandising

What are the ways in which a franchise contract motivates a franchise to cooperate with the franchisor?

As a written contractual arrangement between the franchisee and the franchisor, all the conditions to which both parties agree on are stipulated and comply according to the national laws where the franchise is set up, allowing both parties to a very clear business relationship where each one of them have their own obligations they have to fulfill.

A franchise contract grant the franchisee an overall authorization to use the trademark and the business model of the franchisor. Also, a continuing support from the franchisor in order to sell the products/services via the franchisee is made available, everything heading toward a customer centric strategy which is the satisfaction of the end-user.

However, in order to have access to the ongoing assistance from the franchisor and all its benefits as well as a well-known brand name and overall knowledge from the franchisor, the franchisee must cooperate for its own sake. The franchisor provide a real expertise and bring value into the franchisee project. The franchisee has everything to gain to cooperate with the franchisor because they are entitled to share their business model which turned out to be successful (otherwise the franchisee would not want to do business with the franchisor). Even if a franchise contract obliges the franchisee to certain criteria and constraints throughout a franchise contract, it is actually a way to ensure the success of their common goal: the prosperity and success of their business partnership.

What are the positive and negative aspects of these contracts from the franchisee’s viewpoint?

Positive aspects of these contracts:

• Business model that has proven to be successful

The brand image and notoriety of the franchise has already been made upstream by the franchisor. The franchise does not need to spend resources in media campaigns, all the marketing and communication campaigns are taken care by the franchisor that will help attract customers and keep them updated on new products/services. Moreover, less mistakes can be made because the franchisor has developed special processes and trainings to franchisees.

• Assistance from the franchisor

Franchisors provide an expertise regarding its business model and its trademark to the franchisee as well as technical support, financial counseling, etc… It is in the best interest of the franchisor that the franchisee succeeds.

• Less risk for business failure

Thanks to all the assistance provided by the franchisor, the franchisee have access to valuable knowledge that will help them to reduce the risk of business failure. It is thus easier to succeed because the franchisee has less operational tasks to manage and easier daily operations provided by the franchisor.

• Easier to get financial access from banks

Investments from banks can be granted more easily thanks to the support from the franchisor and its brand notoriety.

Negative aspects:

• Initial fee and ongoing royalties to the franchisor

No matter the sales and franchise turnover, the franchisee has to pay an initial fee in the beginning of the franchise contract as well as ongoing royalties afterwards in exchange of trademark use and overall assistance from the franchisor.

• Constraints from the franchisor

The franchisor is still the owner of the trade name and have legal rights to it. The franchisee is not totally independent and have to abide by the franchisor’s rules stipulated in the franchise contract.

From the franchisor’s viewpoint?

Positive aspects of these contracts:

• Brand development

Thanks to the cross-channel strategy by letting franchisees use their business model and trade name, franchisors increase their brand development on its market, the more franchise they have the more franchisors expand their brand and grow their market reputation.

• Relevant operating data from the franchisee

The franchisee must fully cooperate with the franchisor and therefore share its operating data that are relevant and verifiable. These data will be used by the franchisor in order to have a better comprehension of the global market throughout market studies or help create new products/services that will meet the customers’ expectations.

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