Franchising as a device of marketing policy

MINISTRY OF EDUCATION AND SCIENCE

FEDERAL AGENCY FOR EDUCATION

BORIS YELTSIN URALS FEDERAL UNIVERSITY

 

 

DEPARTMENT OF MANAGEMENT

 

 

 

 

 

 

 

Topic: Franchising as a device of marketing policy

(an example of «Subway»)

Subject: «Entrepreneurship»

 

 

 

 

Student: Barkeeva U.A.

Group: EM-391902

Lecturer: Yazovskikh E.V.

 

 

Ekaterinburg

2012

Content

Introduction………………………………………………………..…………………...3

Chapter 1. Franchising as a device of marketing policy

1. The development of franchising…………………………………………………5
2. Nature and types of franchising………………………………………………….8

Chapter 2. The study of franchising as an example of «Subway»

2.1 Characteristic of the company «Subway»……………………………………...15

2.2 Features franchise in the company «Subway»  in Russia……………………….17

Conclusion……………………………………………………...………………..........22

Literature…………………………………………………………...………................24

 

Introduction

In recent years, a huge number of enterprises operating under the names of well-known domestic and foreign companies. Since it is obvious that the creation of a network of branches or representative offices would require a longer period of time and considerable investment, we can assume that in this case there is a new way of organizing the business, allowing Russian companies to use the well-known brands. This method is franchising.

Today Russia is no surprise in goods and services designated famous trademarks of such companies as "Coca-Cola", "Adidas", "Xerox", "Shell", "McDonalds" and many others. These marks clearly we associate with certain manufacturer that has a high reputation, and indirectly indicate the high quality of goods and services. One of the most efficient distribution channels through which these goods are distributed within and around the world, is also a franchise.

It can be argued that the franchise is now one of the most effective tools to improve the efficiency of small businesses. It allows you to combine the advantages of small and large businesses. Enterprises receiving advanced technology and support based on the franchise, become more competitive.

Any small business can come up with their brand, register it, but to become a successful company, you need to invest heavily in the creation and promotion of the brand. A broad advertising campaign, participation in exhibitions, active work of marketers. It is not expensive for all businesses. Easier for small businesses to purchase the rights to use the trademark in the solid framework of franchising. In this case, a large company, the franchisor provides the small business needed equipment and technology, organize training, and it undertakes to use the trademark only to the company, independently of where it is - in Russia or America.

As the foreign and domestic practice, the main advantage of franchising - reduction of risks, so that in industrialized countries, types of franchise businesses mainly engaged individuals and small businesses.

At present, the study of franchising is one of the most pressing issues of the Russian economy. Very many of today's businesses have devoted themselves to the subject of study and analysis of the functioning of business in the form of franchising and creating the best conditions for successful development of the franchise system.

The aim of this work: to examine the history and types of franchising, as well as to consider the particular case of franchising in the fast-food restaurant «Subway ».

To achieve this goal it is necessary to solve the following tasks:

1) to study the history and types of franchising;

2) to consider the mechanism of formation of relationships in the franchise system;

3) study the characteristics of franchising as an example of the company «Subway».

 

Chapter 1. Franchising as a device of marketing policy

 

1. The development of franchising

 

Some argue that the franchise has invented the Queen of Spain, in 1492 when she gave Christopher Columbus "franchise" on trade with the New World. Ironically, in this very "New World" franchise has once again started to develop in the twentieth century.

In the U.S., the first real commercial franchise contract is a franchise of "Singer" sewing machines for the production, which has issued its franchise in 1851. To stop the "war on sewing machines," in which four manufacturers chased each other, Isaac Singer and his partner, attorney, Edward Clark, organized the "Association of sewing machines," the first American patent package, distribute among the producers of distribution rights.

Like all successful franchisors Singer was a powerful businessman with a strong business sense. The firm was very successful and easily sell their products. Was created is a very important distribution and marketing concept. This concept has evolved into a modern one franchise, which is known to us today.

Franchising continued to grow as the industrial revolution in the United States has gathered momentum and mass production made it necessary to improve distribution systems.

Franchising in the automotive industry - one of the oldest forms of franchising in the economy. The company "General Motors" had a huge impact on the franchise. Not having sufficient capital to start retail sales, the company began selling its cars through dealers, which is still used in the automotive industry. Among the first franchisee, "General Motors" were the owners of bike shops, which are also engaged in selling cars.

When Henry Ford began mass production of the famous "Model T", he needed an efficient distribution system to deliver their vehicles to the consumer. Like the "GM" Ford did not have enough capital to open a lot of retail outlets within a short period of time, so the company has developed a franchise system dealers wherever possible. Since this system was a success, many car manufacturers have decided to implement the same. Today a significant percentage of sales of franchises account for the automotive industry.

The advantages of the concept of franchising was confirmed after the Second World War in the restaurant and hospitality industries. The first major breakthrough in franchising occurred in the 50s when the big success franchisees of famous fast food restaurants ("McDonald", "Kentucky Fried Chicken," "International House office Penkeyks").

Thus, in 1950 the restaurant industry has quietly begun their revolution, which today we take for granted. Restaurant chains, which had a success, once and forever changed Americans' eating habits, and changed the face of cities, we prove the familiar labels on the franchise fast-food spots that are present in almost every town.

The rapid development of franchising began in the U.S. in the 60s. Revealed a huge number of small hotels, small shops, laundries, dry cleaners, auto service points, restaurants and cafes, fast food, service stations business (photocopiers and photographic prints, fast delivery of correspondence, etc.), beauty salons, repair shops, recreation and entertainment clubs, travel agencies and other small businesses operating on franchise basis.

In 1970, sales of businesses operating on the basis of the franchise, has made more than $ 100 billion, which exceeded 25% of total sales in the U.S. different. In 1975, the amount of franchise has doubled, and in 1990 sales reached 716 billion dollars, more than twice higher than in 1980. The eighties as a period characterized by significant reductions in middle management personnel in major U.S. corporations. In this mid-level managers are ideal candidates for transformation into a Franchise - Franchise buyers. They are usually relatively well educated, have career aspirations, have the skills difficult, hard work, but are not ready to start your own business from scratch. Buying a franchise, former manager of a unique opportunity to combine the vast potential of free enterprise with the daily care franchisor, is vitally interested in the success of the Franchisee.

Today, franchising is the fastest growing method of doing business in a market system. Statistics on business development in developed countries show that over a five year period, more than 85% of small businesses, for whatever reasons, end its existence. During the same period of less than 12% of companies operating in the franchise system, were closed. Thus, of 8-9 newly created franchise businesses only one ceases to exist. According to the International Franchising Association (IFA) every eight minutes of the day in the U.S., a new franchise period.

As for the Russian market, over the past 10 years, it came out and successfully operate such well-known Western franchise systems as "Baskin Robbins", "English First", "Carlo Pazolini", "Kodak", "Sbarro" "Subway", " Xerox ", etc. Along with the development of international franchising domestic franchise systems are gaining increasing market share. Such Russian companies as "Masterfibre", "Econika-shoes ',' Fragrant World", "kopeck", "Ofisprintservis" and other very rapidly develop their franchise business.

It is believed that the first franchise in the Russian territory was sold by "Baskin Robbins", so far successfully developing here for franchising. But in fact, became a pioneer of Russian businessman Vladimir franchise Dougan, who founded the franchise just two companies: "Doc-bread" and "Doc-Pizza." It was he who took up the popularization of this phenomenon among compatriots, published a book, and even became the first Russian to have joined the International Franchise Association.

Prospects for the development of franchising in Russia, the most favorable. Recently, a tendency accelerated development and distribution franchise method of doing business. This improves the quality of the franchise proposals and technologies that are being offered to the transfer, become strong and commercially viable, there are more positive examples of the introduction of franchising. Apparent increase in Russian franchise companies for the period from 1995 to 2010 (Fig. 1).

 

 

 

 

 

 

 

 

 

 

 

years       1995           1998          2000       2001        2002      2005       2007     2008     2009     2010

Figure 1. The number of franchise systems

 

However, unfortunately we can say that the pace of development of franchising in Russia are relatively low compared with developed countries.

Among the specific, negative effects that prevent the effective formation of the Russian franchise market is potentially huge and represents a "no tillage field", include the following elements of a real common business practices:

• the imperfection of legislation,
• lack of business circles of serious knowledge of franchising,
• the practice of tax evasion and the routine use of "shadow" operations - the practice of non-fulfillment of obligations between the partners,
• excessive bureaucratic regulation of business and bribery.

 

 

1.2  Nature and types of franchising

 

The term «franchising» comes from the French word franchise means ""privilege", translated from the German franchise - a form of sales of goods in retail trade, at which the manufacturer has the right to sell its goods dealer licenses.

Some economists are considering franchising as a "system of promotion in the market for goods and/or services, and technologies, which is based on close and continuous collaboration between legally and financially independent parties - the franchisor and the franchisee."

In this case the franchisor - it is a large parent company, which conveys certain rights, including the right to use the trademark. Franchisee - a small company that gets the contract certain rights, including the right to use the trademark. The contract between these parties is the franchise, according to which:

a) The franchisee shall be entitled to participate in business deals, sale, or distribution of goods or services to market the plan or system prescribed in substantial measure the franchisor;

b) a franchisee's business is associated with a trademark, service mark, trade name, logo, advertising or other commercial symbol, developed by the franchisor or its affiliate;

c) The franchisee is required to pay, directly or indirectly, a franchise payment.

Organizer franchise - the franchisor who owns a certain brand and know-how - provides franchisees - small business, a part of a franchising network - the right to conduct business under its brand name, brand design, marketing techniques and a variety of goods and services. Franchisees, which is an independent economic entity, the franchisor agrees to comply with established standards for quality products and services, as well as technology manufacturing and service operations, to pay adequate remuneration and provides the franchisee the right to control it.

Interaction with members of the franchisor's system can be done either directly with the franchisee or through one or more subfranchayzerov.

An important component of success is a clear and thorough knowledge of the essence of the entrepreneur franchise, the variety, structure, benefits and possible risks when using it. Franchising can be defined as a way to deliver products or services to the consumer a way to conquer the market, based on co-operation of material resources and efforts of various companies.

At its core franchise - this is a temporary transfer of intellectual property rights to another company, which is based on the franchise agreement. As a result of this transaction will be implemented by the franchisee products or services of a certain brand, owned by the franchisor. We can say that franchising is a sale of intangible assets of the franchisor.

The contract specifies the franchise fee as a down payment and monthly payments (their sum), after which the franchisee receives the right to use the company name, reputation, marketing tactics, and many others provided in the contract. In addition, the franchisor also has benefits - it develops its own brand and attract more foreign investment, reducing its own investment in the business. Classification of franchising at this stage varied (Table 1).

Table 1

Classification of franchising

№	Classification attribute	Type of franchise
1	By the number of franchises	- franchise individual enterprise; - a corporate franchise.
2	By franchising strategy to expand business	- classic franchise; - conversion franchising; - a child of franchising; - franchise-contract management.
3	By the nature of the object of franchising	- trade franchise; - production franchise; - a business franchise.
4	The structure is build franchise network	- an individual franchise; - regional Franchise.
5	In place of the franchisee in the structure of supply channel	- the system of the "producer - retailer '; - the system of the "producer - wholesaler"; - the system of the "wholesaler - retailer"; - the system of the "provider of services - the retailer."

 

The most common types of franchise are depending on the nature of the activity, ie marketable, productive and business franchises. Consider the nature of these types of franchising.

Product franchising is a transfer of exclusive rights to sales of products manufactured by the franchisor under its trademark in a particular area. Franchisee is the only seller of the goods at a fixed territory and the exclusive representative of the franchisor's trademark. The main condition of this transaction is that the franchisee agrees to buy products only from their franchisor and refuses to implement similar products of other firms that can compete. Thus, for a typical commercial franchising specialization franchisees to implement one type of goods and services and receive a fixed share of total sales. He was also characterized by relatively low degree of regulation of duties due to the homogeneity of activity. Using the trademark franchise, the franchisor does not only increase sales of their products, but also regulates, by securing for the franchisee certain areas, the distribution of sales between the different regions, expanding the geographic market.

The main differences between the trademark and franchise dealership are great affection for the franchisor's trademark, the exclusive marketing of products, a larger amount of the provision of various services to the franchisee the franchisor: advertising support in the national press, discounts on goods purchased, training and consultancy in the process.

The production is a transfer of franchise franchisor rights to manufacture and market under their brand name products, using patented technology, materials, raw materials or source component production.

In this scheme, the major manufacturers are working soft drinks (eg, «Coca-Cola», «Pepsico», «Shweppes»), the company's food production («Mars», «Nestle», «Danone»), the company producing cosmetics and household («Henco», «Procter & Gamble»). Most of these companies, in addition to franchise relationships, become co-owners, investors (eg, «Nestle» owns a controlling stake in the chocolate factory "Russia" - Generous Soul ").

Business Franchise (business format franchising) is the most popular and promising way of franchise, since it involves not only the transfer of a trademark, but the technology business.

Application of the business of franchising is typical for catering (and others). In this case, the franchisee undertakes to act in accordance with the franchisor's marketing strategy, with its rules of planning and management organization, to comply with technical requirements, standards and conditions for quality assurance and participate in training programs and the development of entirely responsible for the economic results of their work . In Russia, the franchising business use: fast-food companies («Mcdonald's», «Subway», «Baskin Robbins», «Grillmaster», «Rostik", "Russian Bistro», «Kentucky Fried Chicken»), photo salons ("Kodak" ), copy centers ("Xerox"), shopping ("Pyaterochka", "kopeck", "The Seventh Continent», «Reebok», «Nike», «Ives Rocher»)

Franchise agreement is accompanied by a package of documents which detail to describe the technology business. Provides detailed guidance on the selection of real estate (location, rental price), the interior design (colors, style of furniture, lighting), training (training, compliance officer, the style of behavior, uniform). Common parameters are kept in production, advertising, politics, relationships with suppliers, record-keeping.

The franchisor provides financial, technical, information, support and carries out continuous monitoring of compliance with all conditions of a franchise agreement.

When a business franchise requires that franchisees paid regular contributions and make contributions to the advertising fund, administered by the franchisor. Franchisor may lease the fixed assets of the franchisee, to offer him funding, he is also entitled to speak and as a provider for its franchisees.

Thus, the business franchise - a franchise of an activity that is the inclusion of a small business in a full economic cycle of production and large corporations. Compare the main types of franchising (Table 2).

 

 

Table 2

Comparative characteristics of main types of franchising

Kind of franchise	Type of franchise	Value	Limitations
Product franchising	Product	This type of franchising is simple to use	Franchisee operates in a limited sphere of activity specialization
Manufacturing franchising	Technology / base component	Franchisor to easily control the franchisee, high efficiency	Require large start-up costs for the purchase of a franchise, the franchisee is highly dependent on the franchisor
Business Franchise	The model franchise business	Great scope, fast adaptability to market conditions	Initiative is often suppressed franchisee excessive regulation of

 

On the basis of the considered table, we can conclude that from all kinds of franchise and the most profitable franchise business is preferred, since the broad scope and rapid adaptability to market conditions.