Small Business Development

Question 1

Advantages of Franchising

• Franchises offer a good benefit of a well-known brand name among consumers. In general it takes time to build up a reputation among the public and attain a good customer base. A franchise has already achieved a public image and a position in the market.

• Franchises offer support and guidance to the franchisee with regards to the running of operation systems and service techniques.

• When purchasing a franchise it comes with the installation of unique fitted fixtures to create the established look of the franchise as well as a supply of brand name products. The franchisee is supplied by the franchisor. This means that the worry of finding a reliable supplier is taken care of.

• The greater the number of outlets of the franchise the easier it is for the franchisor to establish a customer base and gain from economies of scale.

• A franchise must be monitored continually by a company but the franchisee should have motivation and incentive to drive his/her own operations successfully. This results in lower monitoring costs for the franchisor.

• Regarding risk management, a franchise allows the franchisee to experiment with new markets without the risk of opening a company store.

• Franchises offer access to training and support. The franchisee receives know-how and training and this is a good benefit if the franchisee is lacking in business experience.

• Franchises are viewed as low risk investments with regards to credit providers and banks. Access to capital is available.

• Franchises have leverage against small businesses and start-ups because the franchisee is provided with an established brand name, mass marketing and promotional strategies and distribution channels.

• Franchises are given exclusivity in a certain geographical area. This can also be seen as a competitive advantage if the franchise is in a shopping centre. The franchisor will not sell any...