Franchises and Basic Concepts of Business
In order to truly understand the concept of franchising, an exploration of the basic concepts of business is required. There is no magic in that. It just makes sense in order to provide clarity about the franchising strategy.
Franchising is not a business in itself. It is a business strategy. It’s a business system. That’s a significant distinction that isn’t always clear. McDonalds is in the fast food business – although many people feel they are really in the real estate business, while others think they’re in the entertainment business. Ramada is in the business of operating properties. Snap-On Tools is in the business of selling tools.
Each company uses franchising as its strategy to penetrate and dominate the marketplace. However, their core business relates to the products and services provided to their customers, using the franchising strategy to deliver those products and services in a consistent manner.
If someone says to you that they are in the business of franchising, they don’t really get what they are doing. It’s all about the customer, and if the focus is not on the customer and their needs, then something is wrong. Customers don’t need a franchise. They need hamburgers, hotel rooms and tools. So therefore franchisors are not in the business of franchising.
It has to be about the customer doesn’t it? After all, the customer pays for everything. They pay for salaries, they pay the rent, they pay the utilities, they pay for the costs of delivering the product or service, and they pay the profit. In businesses using the franchising strategy, the customer pays the royalties, the customer pays for the development of the system, including support and operations, and they pay for everything the business does in its day-to-day activities, both franchisor and franchisee.