The franchise is a type of contract in which one company (the franchisor) assigns to another (the franchisee) the right to commercialize certain products or services within a specific geographical area and under certain conditions. This, in exchange for financial compensation.
Therefore, in the franchise, we have two main figures:
- The franchisor: Charges some marketing rights so that the franchisor company can use its brand, the commercial name and the design of the franchisee's establishment. In most cases, these elements cannot be modified to maintain the same quality levels of the franchisor. In addition, the know-how, business experience and technical and commercial assistance are also provided during the term of the agreement.
- The franchisee: He is the owner of the business and who makes the necessary investments for its start-up. Thus, you pay a royalty to the franchisor to use your brand. Said subscription is like a "right of entry" into the business. Even, periodic amounts may be established in the contract according to the volume of sales and / or technical and commercial assistance.In addition, the franchisee has the exclusive franchise regime with respect to a specific geographical area and a type of products.
An inherent benefit of this type of business is undoubtedly brand recognition, since the customer is already used to its services in other establishments. This generates that the entrepreneur in a certain way can save an important part of investment of time and money in advertising and marketing.
Franchising is usually one of the most common formulas for establishing distribution networks in international markets.
On the other hand, for the franchisee there is an excessive dependence on the franchisor that makes it a disadvantageous position in the face of any agreement or conflict, reducing capacity and flexibility in the face of any change in the market.
Types of franchise
There are multiple types of franchises that may depend on the type of activity and the level of integration.
- Distribution franchise: The franchisor assigns the marketing rights for manufactured products manufactured by himself or by third parties.
- Service franchises: An idea of service and a way of providing it are given together with the brand, the prestige of the franchisor and its know-how and experience.
- Industrial franchise: Mix the license and franchise contracts, and the rights are transferred both to manufacture and to market products under certain characteristics.