A franchise is a system where rather than setting up a new business, trademarks or trade names of an already existing venture is obtained from the owner by another party, generally in lieu of a onetime fee and stipulated royalty in the long term. The franchisor selling the trade name grants the franchisee the right not only to their trademarks but also helps them with expertise, training employees, upgrading the products, if and when required, among other things.
Typically there are three types of franchises,
1.Product distribution franchise,
2.Business format franchise, and
1. Product Distribution Franchise
This is a franchise where the franchisee basically sells the product of the franchisor. Therefore the control of the latter on the former is not too rigid.
2. Business Format Franchise
In this type of franchise, the control of the franchisor is stronger, as the franchisee’s responsibility does not end in only distributing the product, but it has to implement the franchisor’s business format and procedure too.
3. Management franchise
Management franchise is different from the other two types of franchise, as in this case, the franchisee provides the franchisor with business procedure and/or management expertise, retaining the trademark of the latter.
The franchise is generally run by a hierarchical set up. The franchisor provides the employees with advice and training in most cases.
He is the head of the original trade-mark or trade name. He therefore stands at the topmost position of the franchise management pyramid. According to the above mentioned characteristics of the venture his control over the franchise varies. However, he still possesses the authority of decision making, which were generally abiding to the franchise.
The franchisor is helped in dispensation of his duty generally by a board of executives. They are in charge of the decision making that the franchisees are supposed to follow. The board commonly includes a chief executive officer, a chief financial officer, a board of directors and a President.
The Regional or Area Manager
Major franchisors need area manager for the management of their well spread franchise network. Each manager therefore oversees the operation of franchisees operating within a specific area. It is up to them to keep an eye on how the franchisees are performing, and if they are adhering to the company policies.
The party that bought the right to use trade marks from the franchisor is the franchisee. He is the head of the unit or franchise, though he has to take advice, and in certain cases incorporate the business procedures put forward by the franchisor. At times one franchisee own several franchise of a business body. Though his authority is restricted when it comes to certain specific decisions, he is still autonomous in areas such as selecting the stuff.
According to the size and other factors, there can be several managers, looking after aspects of advertising, promoting products, finance etc., though in most franchise agreements, the main decision making power remains with the executives of the franchisor body.