Meaning and definition of Franchising

Meaning and definition

One of the key components of success of any business lies in its ability to reach out to customers at local, national and global level. Franchising has often been used as   a method for expanding domestic market and for entering international markets. A wide variety of goods and services are now made available to customers using this model. Franchising is used by businesses for marketing and distributing products and services.

According to International Franchise Association a franchise is a “continuing relationship in which the franchisor provides a licensed privilegetodobusiness, plus assistance in organising training, merchandising and management , in return for a consideration from the franchisee.”

As explained in Wikipedia, franchising is “the practice of the right to use a firm’s business model and brand for a prescribed period of time. ... For the franchisor, the franchise is an alternative to building “chain stores” to distribute goods that avoids the investments and liability of a chain”.

There are two parties to a franchising agreement

Franchisor: The owner of a business who provides the franchise. Generally he owns the patent / trademark and offers it to the franchisee under a licensing agreement. Depending on the agreement, the franchisor may also provide support services like service/product training, marketing, advertising, etc. The franchisor levies fees in the form of royalty.

Franchisee: The individual who acquires the right to operate the business  or  use  the trademark of the seller is known as the franchisee.