Franchising Dynamics and Challenges

These flashcards cover key concepts and challenges discussed in the lecture about franchising, including the dynamics between franchisees and franchisors, decision-making conflicts, and innovation limits.

What is a key issue in franchising related to maximizing profits?

The conflict between franchisee's goal of maximizing sales versus maximizing profits.

What can limit a franchisee's ability to innovate?

Franchisees are limited by the parent company's approval for new ideas and innovations.

How might aggressive pricing strategies affect franchisees?

Lower pricing can increase sales volume but decreases the profit margins for franchisees.

What is the concept of free-riding in franchising?

Free-riding occurs when a franchisee benefits from others' investments without contributing equally.

Why do franchisors prefer high volume, low margin strategies?

Franchisors earn more from royalties based on sales, encouraging higher sales volume.

What are advertising costs in franchising?

Franchisors can require franchisees to contribute to national advertising, which may not benefit smaller chains.

What is the role of territory exclusivity in franchising?

Territory exclusivity prevents franchisees from opening near each other's locations to avoid cannibalization.

How can franchisee success be impacted by corporate changes?

Changes in corporate policies or ownership can affect franchise operations and support.

What is the main disadvantage of being a franchisee?

Franchisees operate under rules set by the franchisor, limiting flexibility and innovation.

What does the term 'obsolescence bargain' refer to in franchising?

It describes the decline in the support and value offered by the franchisor over time as the franchisee's needs change.