Business Studies – 3.3.1 Product | e-Consult

Franchising is a popular extension strategy that allows a business to expand its reach using independent entrepreneurs (franchisees). Advantages for the franchisor include rapid expansion with relatively low capital investment, as franchisees provide the funding. Franchisees are also motivated to run their businesses well, leading to consistent brand standards. The franchisor benefits from local market knowledge and reduced management burden. However, disadvantages exist. Loss of control over quality and brand image can be a concern if franchisees don't adhere to standards. Potential for conflict between franchisor and franchisees can arise over fees and operational procedures. Furthermore, the franchisor's reputation is directly linked to the performance of its franchisees, so poor performance by one can damage the entire brand.

Challenges for the franchisee include paying franchise fees and royalties, which can reduce profitability. They have limited control over the brand and operational procedures. Success depends on following the franchisor's system, which may not suit their individual business acumen. Franchisees are also vulnerable to the success or failure of the overall franchise system.