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BLS Institute of ManagementFeb 6, 2010
What is Franchising?
NIIT Confidential – Perspective Plan 2011-13 2
“A franchise operation is a contractual relationship between
the franchisor and franchisee in which the franchisor offers or
is obliged to maintain a continuing interest in the business of
the franchisee in such areas as know-how and training;
wherein the franchisee operates under a common trade
name, format and/or procedure owned or controlled by the
franchisor, and in which the franchisee has or will make a
substantial capital investment in his business from his own
resources.”
- Definition by International Franchise Association
Why Franchise?
• Legal and commercial arrangement
concerning the successful business of a
franchisor
• Use of franchisor’s trade name, format,
system and/or procedure under license
• Means to raise capital and expand
quickly
• Assistance to franchisee
– Marketing, management, advertising,
store design, standards specifications
• Payment by franchisee by way of
royalty, licensee fee or other means
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Fundamentals
Why Franchising?
– Model for Multiplication, Synergising
– Profitability – For both
Key attributes of a Franchisee
– Is an entrepreneur / Owns the Business
– Invests money, time & emotions into managing
operations
– Return on investment a key driver
– Trust
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Why buy a Franchise ?
• Group Advertising power
• Owning your business & making day to day decisions
guided by franchisor’s experience
• Benefit of identification of trademarks, proprietary
information, patents & designs
• Systematic training from experts
• Lower risk of failure and/or loss of investments
• Being a part of uniform operations throughout the
country
• Assistance in financial & accounting matters from the
franchisor, as well as ongoing support
• Enhancement of management abilities
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Types of franchise
1. Product distribution franchise
2. Business format franchise
3. Management franchise
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Types of franchise: Product distribution franchise
• A product distribution franchise model is very much like a supplier-
dealer relationship.
• Typically, the franchisee merely sells the franchisor’s products.
However, this type of franchise will also include some form of
integration of the business activities.
• Some Examples:
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Produces the syrup
concentrate
Sells the syrup
concentrate
FRANCHISEEProduces the final drink
Retail Stores
Restaurants & F&B
Outlets
Vending Machine
Operators
Types of franchise: Product distribution franchise
Types of franchise: Business Format franchise
• In a business format franchise, the integration of the business is
more complete.
• The franchisee not only distributes the franchisor’s products and
services under the franchisor’s trade mark, but also implements the
franchisor’s format and procedure of conducting the business.
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Types of franchise: Business Format franchise
NIIT Confidential – Perspective Plan 2011-13 10
Outlet in AustraliaOutlet in France
Outlet in India
Types of franchise: Management Franchise
• A form of service agreement.
• The franchisee provides the management expertise,
format and/or procedure for conducting the business.
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Key dimensions
Financial
Marketing
License Agreements
Territory Management
Systems & Communications
Engagement
Conflict Resolution
Principles of Continuity
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Financial
Financial Model: Win-Win
– And not that of squeezing the franchisee profits
– Risk vs. reward balance
Cost of Franchise:
– Uniform and consistent across franchisees
– Initial fee
– Royalty fee / Management fee
– Capital required
Marketing
Branding– Centralised, Local Marketing
– Standard designs / messages
Understanding Customer needs & environmental trends – Technology
– Customer needs, requirements
– Customer profile
– Competition (familiar, unfamiliar)
– Feedback from Franchisees
– Inputs from independent sources
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Marketing
Advertising and Branding
Trademark Usage
Product / Price:
– Being competitive
– Meeting customer needs
– Introduction of new products and phasing out of
existing products
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Systems & Communications
MIS: Franchisee & franchisor
Systems & Processes: For managing the franchise outlet
Support
Physical Monitoring
Communications– Communicate actively
– Document communications, meetings, decisions
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License Agreements
• Contains details of the relationship like:
– IPRs
– Fee to be paid: Initial and ongoing
– Duration of the Agreement
– What Franchisor is expected to do
– What Franchisee is expected to do
– What none is expected to do
– What is that we exist for
– What are the conditions under which we
would not continue with this relationship
Standardise Agreements
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Territory Management
Territory/Area of operation
Carve territories with a long term
perspective
Do not create competition for
existing franchisees
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Engagement
Training of Franchisee & their
Employees
Ongoing support
Franchisee Meets
Recognition & Awards for
Franchisees & their Employees
Do not treat Franchisee & their
Employees as subordinates:
– Strong tendency among front end
executives of the franchisor to do so.
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Conflict Resolution
Three levels of conflicts:– Operational – Resolve at field level
– Policy matters – Resolve at corporate level
– Major disputes – Address at appropriate level
Transactional conflicts are likely to arise.– Resolve them proactively
– Don’t let them come in the way of long term relationship
Remedy non-conformances speedily– Corrective actions matching with the degree of
non-compliance.
Avoid Litigation & Arbitrations
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Principles of Continuity:
1. Win-Win relationship
2. Business sense to each other
3. Alignment of Values &
Business Ethics
NIIT's ten commandments of partnership
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Rationale
Customer success
Shared vision of future
Rules of engagement
Win-win or no deal
Nurture openness, trust and mutual respect
Co-invest, co-promote, co-benefit
Entrepreneurial and people development
Outcomes
Partner Success comes first
Continual growth is imperative
Building a future
Reinvent, rejuvenate, reinvigorate
And keep falling in love again and again…..
Customer Delight Council: Objective & Focus Areas
Objective:
To create sustainable competitiveness by pooling in the rich experience of seasoned NIIT-ians
• Customer Delight
• Market Addressal
• Pain reduction
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Think Tank
of Senior
franchisees
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Involvement in Strategic Issues
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Be in each other’s shoes
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Nurture openness, mutual trust & respect
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Franchising is all about
Leadership in the Century of the mind
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