(FS1) Franchising Options – There are Two Forms to Franchise
There are two options when you are opening a business franchise. Those two options are product-distribution or business-format franchise. It’s important to understand the difference between the two before you take a step forward with your business franchising decisions.
Franchising Options
Product Distribution Franchise:
This franchise looks a lot like a supply or dealer for stores. They manufacture a certain product with a brand name and reputation for taste if it’s food, dependability if it’s equipment of any kind, or even success. To give an idea of manufacturing franchises popular in the United States, think of Kellogg’s, Coca-Cola, and Sony.
Product distribution franchises provide consumer goods of some kind directly to consumer stores such as grocery stories, gas stations, and Walmart. The product sold by a franchisee usually requires either pre-sale preparation, like the prep with bottles or cans of Coca-Cola, or they require post-sale services, such as auto sales locations offer through maintenance services. The major difference in product distribution franchises is that it offers a trademark and a product or service for a store to sell, but it does not offer a fully-operating system.
There is freedom in the product distribution franchise to be as exclusive or inclusive as the franchisee likes. You choose which stores you would like to offer your product to. For newer or more exclusive products, this can be an important part of building brand recognition and acquiring that reputation can be fully dependent on the reputation of the stores you put your product into. A franchise with their new vacuum cleaner on display in a store known for its dependability is more likely to be bought than if it were in an unknown or poorly perceived store. Once your product becomes well-known enough to stand on its own (like Coca-Cola), where it is sold should have a smaller effect on how well the brand is trusted.
Business-Format Franchise:
The business-format franchise is easily recognizable through chain stores that deal in consumer relations and goods. This kind of format is so popular that more than 80% of franchises in the United States are business-format. It adopts a parent company’s name, logo, and operating system within the store. This means the training in these locations will be like all the others and the services offered will be much like all the other stores of the same name. This creates consistency among the brand while also building the brand through more locations.
For the initial and royalty price, a franchisee is giving the confidential how-to guide of what made that business so successful and sets them up to succeed in building their own. Consider if you were to open a Best Buy Franchise. While you would adopt the look, system, and name of Best Buy, it would inherently be your store. This is the biggest difference between business-format and product distribution franchises. Business-format will always give you some system that every other franchise of the same name uses. The how-to guides offered can vary greatly from place to place and offer as much information as how to take out the garbage.
The goal to business-format franchising is to give consumers everywhere the same experience as they would have in the original store.
Every franchise offers a different system and there is no prescribed level of control for any specific franchise or industry. That is completely left up to the franchisor and the agreement their agreement with their franchisee. As you may imagine, each brand or business will have a different message they want to express so they will either off more or less control to their franchisees. These rules can become as specific as what all is included in every hotel room in chains across the world.
Conversion Franchising:
We mentioned that there were two types of franchises. This is a half-breed of franchising and opening your own business. The difference in Conversation Franchising comes from adopting the services of a certain franchise while it being your personal franchise. An example of this is through pet grooming franchise Splash and Dash. Splash and Dash offers a signature grooming service like no other pet grooming service. If they were to sell a Splash and Dash as a whole to a franchisee, they would give the style, name, and logo to that franchisee. However if they were to simply sell the Splash and Dash signature service, but ran a store by their own title, logo, and style, they would be doing what is called conversion franchising. As this store would be using a signature service of a brand, they would be required to pay royalties, but the royalties would be less. They would also receive little to no assistance in building their location or their brand name. Think back to the example of a vacuum sold in an unknown store vs. a chain store with a reputation.