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Franchisee in Marketing: Definition & Explanation

Instructor: Shawn Grimsley
If you want to start a business, becoming a franchisee has some serious advantages from a marketing perspective. In this lesson, you'll learn a bit about franchises, the parties to them, and how marketing is handled with them. A short quiz follows.

Definitions

Let's take a moment to get a handle on some key definitions, and then we'll put it all together to show you how being a franchisee may be a good marketing choice.

A franchise, also known as a turnkey business, is where a company, known as a franchisor, grants a license to another person or business, known as a franchisee, to use the franchisor's products, name and business model in consideration of the franchisee paying a fee, which often includes an initial start-up fee as well as a percentage of sales earned by the franchisee. The contract governing the franchisor-franchisee relationship is a franchise agreement and outlines the rights and responsibilities of each party, including provisions to control how the franchisee will operate the franchise to ensure the image and value of the franchise is not harmed.

Franchisors are all around you. Perhaps the most famous, and one of the most valuable, franchises in the world is McDonalds. Franchises are not limited to fast-food chains and include hotels, car rental companies, cleaning services, health clubs, retail stores, real estate agencies, and moving companies, just to name a few.

Marketing is a process of identifying and fulfilling the needs and wants of consumers. The marketing process starts with identifying customer needs and wants through marketing research. The next step is to create products or services that satisfy consumer needs and wants identified through your research. Then you will promote the product through pricing, advertising, and other promotions. Finally, you will distribute your products or services through one or more distribution channels that can include your own store, direct mail, wholesalers or retailers.

Franchises: Marketing Made Easier

The great advantage of becoming a franchisee is that the great bulk of the marketing work is done for you. A well-run franchisor will be continually engaging in market research to find untapped consumer needs and wants. It will also have a solid and popular product line and be actively engaged in product development. The franchisor will also invest significant promotional dollars to support its franchisees. In other words, a well-run franchise makes sure that you have the greatest chance of success because its success depends on your success.

The Downside

Turnkey operations are great if you want a ready-made business with instant name and brand recognition as well as marketing support. However, there is a major drawback: control and creativity. Most franchisors will keep their franchisees on a very short leash. You will often be contractually prohibited from deviating from the franchise model including changes in products, promotional approaches and even the color scheme of your store. The reason, of course, is that the great advantage of a franchise is the name and product recognition. If franchisees went wild and started to deviate, the benefits and value of the franchise would greatly diminish.

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