A Business Encyclopedia


Definition: The term ‘franchise‘ is understood as an exclusive right conferred by the parent organisation to an individual or enterprise to use the former’s successful business model, in stipulated areas. Franchising is a business relationship; wherein the owner authorises another party to use their brand, product, business system and process in return for adequate consideration.

In finer terms, franchising is an arrangement, in which the manufacturer, permits another firm, the right to use its diverse intellectual property rights such as trademark, brand name, technical know-how, designs, etc., in addition to the proven name, goodwill and marketing strategies, for a certain sum. E.g. Mc Donald’s, Subway, & Eleven, Domino’s, Dunkin’¬†Donuts, etc.

In franchising, the firm that grants a license is called franchiser, and the individual or entity to whom the right is conferred is franchisee. The franchisee acquires franchise by paying initial startup and annual licensing fees to the franchiser, who in return provides training and assistance to the franchisee at regular intervals.

Franchising Agreement is a special agreement between both the parties, under which rights are given, and also the terms and conditions relating to franchising are stated clearly.

Characteristics of Franchising


  1. License: The franchisee gets the right to use, franchiser’s trademark under a license.
  2. Policies: The franchisee must follow the policies concerning the mode of conducting business, as stated in the agreement.
  3. Marketing support and technology: Franchisee is supplied with continuous market support and technology, by the franchiser, to undertake business, in the manner stated in the franchising agreement.
  4. Training: Complete training and assistance are provided to the personnel working in the franchisee’s enterprise.
  5. Royalty: For making use of a well-known business model, the franchisee pays the royalty to the franchiser.
  6. Limited period: Franchisee is allowed to use the business know-how and brand name for a specified period, as mentioned in the franchise agreement. Although, the agreement can be renewed further.

Franchising is a most common practice of expanding the business, through a licensing relationship, wherein the owner provides training, equipment, ingredients, and marketing support to the other entity.

Importance of Franchising

  • It allows franchiser to augment his distribution chain in minimum time.
  • It provides feedback to the franchiser regarding the product popularity, needs and choices of customers, etc.
  • It expands the network of franchiser which helps in increasing goodwill.
  • As the business is already established, the franchisee need not make efforts in promoting the product.
  • Franchisee get sole rights in providing the product or service

Franchising is a great alternative to developing chain stores, to provide goods and services to the customers and avoid investment. But there are certain demerits attached to it such as there is always a fear that franchisee may open the same business with a different name, after the expiry of the said term. The franchiser’s brand name and reputation will suffer if the franchisee does not provide quality service to the target audience. Besides this, as there is a certain restriction due to which the franchisee lacks freedom in conducting business.

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

manpower planning meaninginformative report of demat accountflanking attackscientific management theory taylorperfect monopoly definitiontheory of scientific management by frederick taylorquota samplesproduct line with exampleselection hrmnational savings certificate maturityauthoritarian leadership style definitioncapital budgeting and investment decisionsexplain income elasticity of demandmotivation herzbergpyramid defdefine monopoly market structurecommunication patterns in organizationsdefinition marketerconvertible debentures meaningwhat is the full form of crrporter five forces model of competitioncriticism of modigliani and miller theoryitr indiameaning repo ratepath-goal leadership stylesneoclassic theorymeaning of speculationsivan pavlov classical conditioningmouton definitionfactors influencing demand for labourmeaning of autocraticmotivation meaning in tamiltotal utility refers topluralist industrial relationscash cow definitionwhistleblowing meaningwhat is the meaning of hedge fundsexamples of fmcg productswhat is oligopolistic marketsupply pull inflationdelfi methoddefine platinawhat is moral suasion in economicsdiminishing utility definitiondefinition kiosk7cs of effective communicationdefinition psychoanalyticthe employees provident funds scheme 1952 account balanceinvoluntary unemployment definitionmodgliani millerapproaches to collective bargainingfactors influencing buying behaviourmarginal costing accountingwhat is regiocentric approachmeaning of stability in hindidefinition of borrowingsretraining definitionstratum statisticsreposition definitionwhat causes cost push inflationfactors affecting consumer decision processwhat are isoquantsgender segmentation definitionmutual fund seed capitaldefine internsinnovation meaning in hindidefine ganttfinancial retrenchmentmeaning of aptitude testduality in lppmodigliani miller dividend policyhenri fayol 14 principle