A successful business finds growth prospects in expanding the capacity so as to cater to a larger number of consumers. So a restaurant with ten tables may add ten more tables and increase the staff. An office may move from a smaller place to a bigger one where it can accommodate more staff, computers and serve more customers. What next? A couple of branches in other cities? Probably an office overseas? In line with this thinking, comes the next business model – that of franchise. Franchise means the authorization given by a business organization to another individual or organization to carry on a specific business activity. Franchise is necessarily geographical expansion with multi-location representation of a brand. These are not offices/ outlets owned by the principal organization, but a network of independent businessmen/ owners representing an established brand at multiple locations. In short, a hierarchical partnership of sorts!
Franchise or business chains have become an increasingly popular model of business especially in the service industry like restaurants, couriers, retail shops, service centres, laundries, pathology labs etc.
The foundation of franchise business is that the original brand enjoys a high degree of popularity, visibility and demand. The franchisee representatives must ensure that they deliver quality in consonance with the brand promise of the original brand. At the same time, the franchisee gets a ready brand equity as his business rides on the principal brand’s image and it saves him the effort and investment to start brand building from scratch.
Normally a franchisee is expected to make a certain minimum investment. Often the principal business lays down certain conditions to be fulfilled by the prospective franchisee, like – a certain capital investment, commercial space, basic infrastructure etc. He may specify the minimum area, frontage etc. The franchisee outlet must bear the same appearance, work style and quality of service so as to maintain brand perception.
Naturally when you visit a certain fast food franchisee outlet of an established brand in any city, you would find the same colour scheme, décor, furniture, staff uniforms and menus. The marketing communication and Point of Sale material is normally designed centrally and distributed to all franchisee outlets.
Often part of the production process may be carried out at franchisee level, especially in cafes and restaurants. In such cases the exact preparations and processes, even storage method etc must be laid down clearly to franchisee staff. The principal must keep a keen follow up to ensure that the quality standards and brand style is maintained.
Sometimes franchisee outlets fail in delivering the promise of the brand. This harms the image of the original brand which has been cultivated painfully over long years.
Most franchises therefore involve a centrally controlled customer relation management system which draws customer feedback from all locations. This helps in maintaining critical parameters.
While several franchises have been greatly successful not only across nations but even abroad, some have failed. Reasons have been varied, from excessively heavy franchisee network to lack of central management. It is however worthwhile to explore the possibilities of this modern day business model to get on the fast track of growth.The franchising business model is widely and increasingly used by entrepreneurs seeking growth through geographic expansion.