Franchising in the UK
What is Franchising?
In its simplest terms, franchising refers to a form of marketing or distribution. It's a means of doing business whereby the franchisee buys the rights to sell, offer or distribute goods or services, under a system or marketing plan prescribed by the franchisor.
It's a proven strategy for successfully penetrating a market, as well as developing it, and eventually dominating it by achieving a significant (or even disproportionate) market share.
The franchisor is the business that controls and owns the entire franchise system and network and grants the licences required to run the franchise network, according to a defined and specific operating method, to market, sell and distribute the products and / or services which the franchisor has developed.
The franchisee on the other hand, is the person or company which pays the franchisor for their operating license and the franchise itself, giving them the legal rights to make use of the system.
The franchise itself is the right to use the operating systems and trademarks, to promote the franchised products / services.
Types of Franchises
The word 'franchise' covers a range of operating agreements, although the most common definition in usage concerns the ongoing relationship between the franchisee and franchisor. Most franchises will sit under the classification of a service, product or business format. Franchises will generally focus towards one of these categories, but will usually combine various characteristics from each.
Product or Service Franchise
The earliest franchises were typically 'trade names'. This meant that the franchisor approved the franchisee to distribute goods and services under the franchise trademark. This basic type of license agreement includes businesses such as soft drink bottlers, car dealers, service stations and DVD / game rental stores. In general, the franchisee was obliged to conform to a defined set of standards which related to the product or service quality. Beyond this he or she had the freedom to operate their business without any guidance or control from the franchise owner.
Business Format Franchise
This form of franchising is nowadays the most common type. It involves both the original product or service licensing agreement, along with the system or method for operating the business. It is commonly seen with franchises such as diet centres, property businesses and travel agents. With franchises such as fast food companies, the franchise model often combines both the product approach, and the business format franchise approach as a hybrid. In fact, this is nowadays the most common form of franchise.