Franchise Talk

Five methods of franchising Part Two

September 1st, 2006 | Author: Jack

Subfranchising
The fourth method of franchising is termed subfranchising. Often called master franchising, subfranchising involves two levels of franchises: subfranchisors (often called master franchisees) and subfranchisees. Subfranchisors are like a franchisor in that they will often be responsible for recruiting and providing ongoing support to operating franchisees. However, in contrast to the franchisor with nationwide interests, they are responsible for a smaller area. For example, Jean could offer Jim a master franchise for the Canterbury area. Within this area Jim could be expected to attract, select, train and provide ongoing support to owner-operating franchisees (subfranchisees). Jean may also have master franchisees responsible for other regions, such as Wellington and Auckland. Jean would then manage the subfranchisors who, in turn, manage a number of subfranchisees in their respective regions.

Area representation
Less common than subfranchising is area representation. Like subfranchising area representation has two levels of franchisees. The main difference is that the master franchisees (called area representatives in this instance) are delegated less responsibility than subfranchisors by the franchisor. Specifically, the franchisor will often play an important role in recruiting and providing ongoing support to franchisees, within an area representative’s region.

Final comment
As illustrated above there is considerable variation in the methods of franchise agreements available to franchisors and prospective franchisees. For both parties, this means considering what method is most appropriate for their individual circumstances. Each method carries a set of advantages and disadvantages relative to the other types of franchising. From the point of view of franchisors, like Jean, my own research is seeking to determine which type of franchising is most suited to a particular type of business.

For people interested in buying a franchise factors such as level of available investment, managerial ability and ambition are likely to play an important role in determining what type of franchising opportunity would be most suitable. For example if Jim has a lot of money to invest, has sound managerial skills and plenty of ambition, single-unit franchising may be too restrictive for his needs. Consequently, he may want to consider a franchise opportunity that would at least give him the option of establishing further stores, sometime in the future.

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