The key to rapid growth
For many franchisers, franchising is the key to rapid market expansion. When a firm wants to grow rapidly and enter new markets in quick time without incurring large investments, franchising is perhaps the best answer. Firms can literally leap frog through franchising.
The computer education network NIIT is a good example of rapid growth through franchising. NIIT was able to build a network of over 100 branches across the country within a few years of operation thanks to franchising. Subsequently too, it has expanded its network of franchises and it dominates the computer education market of India.
Parle Agro is another example. Through franchising, it has grown fast and established its Frooti brand as the market leader. It has continuously strengthened its marketing network and distribution intensity, and achieved deeper penetration at minimum cost.
Brings in perennial inflow of royalty
Once a firm has built a brand and established a network of franchises, royalty income keeps coming to it without much fresh investment and additional effort. A franchiser can keep cashing in on consumersâ€™ brand loyalty for his product.
Helps brand building
Franchising also helps the franchiser in brand building. As the franchises know the local conditions better, the franchiser can piggy-ride on them and quickly establish his brand and grow.
Ownership involvement of the franchisee
Another major benefit is the ownership involvement of the franchisee. By virtue of his ownership involvement and financial participation the franchisee develops a strong commitment to the business. He accelerates business growth and keeps costs as low as possible. It is not easy for any firm to achieve such results though salaried employees.
Helps build entry barriers
Through franchising one can also build entry barriers for competitors. Franchising often confers a unique channel clout and brand power to the franchiser, which competitors find difficult to break. Like other forms of exclusive retailing, franchising also secures exclusive shelf space and helps avoid product clutter at the point of purchase .
Franchising is also a cost effective strategy of marketing. It helps the firm to secure premium store image for its network without incurring the associated costs. Today, marketing costs, channel/showroom costs, sales force costs, employee costs — are all going up constantly. Franchising comes to the rescue of firms in this context. With franchising, these costs can be transferred to be franchisees. Inventory costs too can be transferred to the franchisees fully or partly depending on the nature of the product and the conditions of franchising.