Types of Franchising
Franchising involves a business expansion strategy where companies bring their products or services closer to their customers without owning the distribution centers. Alternatively, it can also be described as a continuing relationship between the franchiser and the franchisee where the former provides licensed privileges to the latter to conduct different forms of business on its behalf including merchandising, training, marketing and organizing in return for monetary compensation (Lafontaine, 2014). Essentially, there exist various types of franchising including product distribution, business format, and social franchising.
Product Distribution Franchise
Product distribution franchise is where the franchisor sells its products to the franchisee and allow them to use their trademark and name to conduct their business. However, the franchisee has to pay a minimum fee or buy a certain amount of products as stipulated in their agreement (Lafontaine, 2014). Most of the companies using this form of business include automobile manufacturers, mobile accessories firms and soft drink entities. For instance, the Coca-Cola Company relies on franchise for both bottling and distribution of its products.
Business Format Franchising
Understandably, this form of business involves a franchising agreement where the franchisor helps in providing the franchisee with an established business including the trademark and name thus enabling them to run independently (Lafontaine, 2014). Notably, firms using this system give a complete right to delivering the products or services produced by the franchisor. For example, the McDonald does not franchise its hamburgers but allow the franchisees with a complete system of distributing their products.
This form of business involves the application of different business format franchising methods in the delivering of products to satisfy the needs of the customers living around the base of the economic pyramid (BOP) (Du Toit, 2014). Essentially, this form of franchising focuses on lack of some of the basic needs such as food supply, drinking water, education and quality health care. It also helps countries break the cycle of poverty through assisting entrepreneurs to expand and develop their businesses. Some of the enterprises using this type of business include international organizations such as Red Cross that use local suppliers and professionals in both distribution and provision of services and products.
Du Toit, A. (2014). Social Franchising as Organizational Format—An Overview. In Social Franchising (pp. 8-32). Palgrave Macmillan UK.
Lafontaine, F. (2014). Franchising: directions for future research. International Journal of the Economics of Business, 21(1), 21-25.