- Chain stores Corporate chains, voluntary chains, retail cooperatives, advantages over independents, large quantity purchases, ability to specialize individuals for pricing, promotion
- Franchises Description of unique product or services (fitness center or hotel), foot hold within their markets
In a chain business we have the main company which is the parent company. This parent company owns all the other businesses in whatever location that they are. In a franchise situation we have same name same product but the businesses are individually operated unlike in chain businesses. Management in a franchise is handled separately in each location whereas in a chain business management is done centrally from the parent company. For most people who are into franchise they always own more than one store the only difference is that they operate separately and get managed separately
If a company gets an option of expanding they are two options franchising or operate on its own. In a franchise it sells its business system and brand to the buyer. For example a clothes store with a good name can sell its system and brand name to other investors in different location for example Jade a South African franchise. The new investor controls the quality in their location; this brings forth a big risk since one branch messes up it might negatively reflect on the rest of the franchises and wholly the brand. Whereas in chain stores we have different branches are opened in different locations by the same owner. Thus quality is centrally controlled. This reduces chances of sub standard quality issues.
The biggest and most fundamental difference between chain store and franchise is the amount of risk involved. In a chain store scenario the business assumes all the risk and risks are centrally controlled. Financial and quality risks are all borne by the parent company. Financially this is a very big expense thus becoming a bit impossible. On a positive note quality sustenance risk is minimized since this too is centrally controlled. In a franchise financial risks are shared though quality risk which determines the future of the company existence. It has minimal risk since it is transferred to the investor.
The potential of the business is also another considering when considering the differences. In a chain store system risks are not shared thus profits are also not shared. Whenever we minimize risks we should know we are also minimizing our chances of making profits. Thus franchises have less potential compared to chain stores.
In a franchise we invest in a sure business unlike opening a chain store. We have ready customers who already know about the products thus promotional costs are low. It also has an advantage of been recognized. It has a good reputation and no stress of trying to advertise or see what works or doesn’t all that hustle is already done for you.
We also have the following advantages in a franchise situation unlike in a chain store we have shared promotional costs, minimized risk of failure since it’s an already existing system and more research is been done by the initial to see how they can improve their system and brand.
The amount of paper work involved when one is dealing with a franchise is a lot and lawyers. The agreements, licenses and very few adjustments can be done to suit a certain environment whereas in a chain store scenario paper work is limited, one alter the sytem or products to suit the current area. For example one shall introduce swim wear in a clothes shop that is next to the beach whereas in the other branches swim wear may not be a priority.
Retrieved on 12th April 2012; http://www.wipo.int/sme/en/documents/franchising.htm
Kotler Philip, Gary Armstrong et al. Principles of Marketing. 8th Ed. Pearson Education, Prentice Hall, 2008. Print