Many times, people think licensing is an easier route to franchising. In product trade name franchising, a franchisor owns the right to the name or trademark and sells that right to a franchisee. Both the positive aspects and the lacunas associated with licensing are substantially discussed further in this paper. So, licensing can be a good way to start if you are interested in franchising your business. One could say that franchising is a special type of licensing arrangement in. Owning a franchise allows you to distribute the companys products as well as to use. Jan 27, 2018 pdf lecture given for graduate students for the course merc 6541 marketing management. Franchising is a form of licensing in which one firm the franchisor contracts with another the franchisee to operate a business. For one thing, franchisees have to abide by company rules and the terms of their licensing agreements, so if. However, they enjoy a lot more freedom than franchisees.
Differences between licensing and franchising marketing. Each of these modes entails different levels of resource. Quizlet flashcards, activities and games help you improve your grades. Essay on the pros and cons of franchising 2194 words. After having clarified what these two concepts actually mean, one can also understand how licensing and franchising differ. Franchising is a fast growing business model in the united states. Aug 12, 2017 the difference between licensing and franchising can be drawn clearly on the following grounds. From a licensor standpoint, there are fewer risks in the selling and service of what is being offered. International franchising and licensing request pdf researchgate. Dec 01, 2014 strictly, this was licensing, but it is so similar to what we think of franchising today that some people even consider singer the father of franchising. Licensing and franchising can be done both as a business owner and as someone looking to enter a specific market. The difference between licensing and franchising is that licensing is a legal relationship that is limited in scope and relates only to the use of a trademark or technology, whereas franchising involves a. A licensing arrangement can slip into an unintentional franchising structure if the licensing contracts are drafted poorly or if the licensor inappropriately controls the business operations of the licensee.
A franchise is a license to use the name, trademarks, and proprietary products of an existing company. Given the prevalence of franchising and the interstate, national, and even. What is the difference between licensing and franchising. Strictly, this was licensing, but it is so similar to what we think of franchising today that some people even consider singer the father of franchising. The broad scope of the franchise laws may apply to a. If you are a business owner, you may want to license the use of your brand or products to another business in order to gain more exposure for your company and earn revenue on the side. A franchise agreement, also sometimes called a franchise business agreement, is a document between two main parties, the party that will be franchising out their already welldeveloped business model, called the franchisor, and the party that will be agreeing to certain terms and conditions in order to create their own franchised business based on that business model.
Most often, a licensing agreement allows the licensee to use the trademark, logo, insignia, or other intellectual property of the licensor for a fee under whatever terms and conditions might be set forth in the agreement. If that occurs, the licensor needs to immediately comply with franchise laws or readjust the operations to avoid franchise laws. This written contract is called a license agreement. So, licensing can be a good way to start if you are. For one thing, franchisees have to abide by company rules and the terms of their licensing agreements, so if you love to be independent, opening a franchise might not be your best bet. This paper explores why big box retailers such as walmart.
Franchising and the impact, page 1 franchising and the impact of mcdonalds gerhardt, steve tarleton state university dudley, dan tarleton state university hazen, samuel tarleton state university abstract as individuals decide to open or pursue a small business, an important option available to. Because america is the worlds most mature and sophisticated franchise market, use of the franchise model internationally is a competitive advantage for u. The main differences are summarized in the following table. Licensing and franchising, what is the difference and does it. In such a situation, the licensor needs to either a.
Under this, dealers were given the right to distribute goods for a manufacturer. Whether you are licensing or franchising, the important thing is to protect your ip. The broad scope of the franchise laws may apply to a distributorship or license relationship resulting in an unwitting breach by a business owner of federal or state franchise and business opportunity laws. Holmes northern california office s outhern california office 555 chorro street, suite d2 6621 pacific coast hwy. The intellectual property rights that are licensed in a franchising arrangement almost always include trademarks, and often include trade secrets, industrial designs and patents depending on. Cateora and graham 2002 stated there are six basic strategies for entering a new market. The difference between licensing and franchising is that licensing is a legal relationship that is limited in scope and relates only to the use of a trademark or technology, whereas franchising involves a relationship that goes beyond the grant of a license and includes a relationship of control where the underlying business is required to operate in accordance with designated systems and. Licensing, franchising, and other contractual strategies. The advantages and disadvantages of franchising by david e. The intellectual property rights that are licensed in a franchising arrangement almost always include trademarks, and often include trade secrets, industrial designs and patents depending on the nature of the business. A franchise agreement, also sometimes called a franchise business agreement, is a document between two main parties, the party that will be franchising out their already welldeveloped. Licensing, on the other hand, allows a licensee to pay for. The five major ways of entering a foreign market are exporting, licensing, franchising, forming joint ventures or establishing a wholly owned.
Licensing vs franchising top 5 best differences with infographics. Each growth strategy has its own advantages and disadvantages, and each has its own legal ramifications. A franchise is a license, though you usually dont find someone so focused on language minutia that they make a big deal out of the distinction in the sense of business opportunities. Accordingly a franchise agreement is typically a lot more prescriptive than a license agreement. Licensing refers to an arrangement between licensor and licensee where latter party would acquire the right to use. Franchising is a most common practice of expanding the business, through a licensing relationship, wherein the owner provides training, equipment, ingredients, and marketing support to the other entity. Book description the definitive resource for corporations in myriad industriesnow completely revised and updated. So if you are a business owner evaluating licensing versus franchising, consider. Jul 26, 2016 accordingly a franchise agreement is typically a lot more prescriptive than a license agreement. Jun 28, 2019 licensing and franchising share a few similar advantages.
Franchising is an arrangement in which the franchisor permits. This is most often seen in the soft drink or automotive industry. Franchising vs licensing difference and comparison diffen. The franchiser maintains a considerable degree of control over the operations and processes used by the franchisee, but also helps. Franchising is a wellknown marketing strategy for business expansion. In a franchising model, the franchisee uses another firms successful business model and brand name to operate what is effectively an independent branch of the company. After having clarified what these two concepts actually mean, one can also. However, while franchising is a regulated industry and there are startup costs and expenses associated with franchising your business, it is critical that you. Find out more about the pros and cons of franchising below. Franchising meaning, examples, advantages, disadvantages.
Franchising is an arrangement where franchisor one party grants or licenses some rights and authorities to franchisee another party. This is because licensing is not subject to the ftc franchise rule. Given the prevalence of franchising and the interstate, national, and even international scope of so many franchise networks today, attorneys need to know about potentially applicable federal, state, and foreign franchise laws. A theoretical approach to the methods introduction to. Franchising is a business strategy for getting and keeping customers. Pdf lecture given for graduate students for the course merc 6541 marketing management. Opening a franchise can be a lowerrisk way to start a small business, but its not for everyone. Differences between licensing and franchising marketinginsider. Franchising is a wellknown marketing strategy for business. Franchising and the impact, page 1 franchising and the impact of mcdonalds gerhardt, steve tarleton state university dudley, dan tarleton state university hazen, samuel tarleton state university. For this right, the dealer pays a fee for the right to sell the trademarked goods of the producer.
The difference between licensing and franchising can be drawn clearly on the following grounds. A franchised system will provide you with support in site selection, training, marketing and much more, whereas a licensing agreement provides. Brouthers and others published international franchising and licensing find, read and cite all the research you need on. It is similar to licensing, although franchising tends to involve longer term commitments than licensing. Generally, these represent a continuum from lowest to highest. Difference between licensing and franchising with comparison. On occasion, a licensing agreement can turn into unintentional or accidental franchising if the contracts are drafted incorrectly or if the licensor controls the licensees business operations. Franchising, licensing and contract manufacturing franchising is a business strategy in which franchiser owner of the business, product or services, affiliate with franchisees dealers of products for distribution, business expansion, and marketing.
Owning your own franchise can be a great way to start a small business without taking on the risks that are associated with starting from scratch. This article will explore different growth strategies with a particular emphasis on franchising, which is the most highly regulated of the growth strategies analyzed. Each of these modes entails different levels of resource requirements, organizational control, expected future returns and risk exposure ahsan and musteen, 2011. It aids in the stimulation of the economy, creating jobs and expanding businesses nationally and internationally. Licensing is designed to reduce the risks involved in doing business for everyone involved. Licensing and franchising franchising license free. This article will explore different growth strategies with a particular emphasis on. Licensing and franchising franchising license free 30. Licensing and franchising by providing some practical examples from around. Licensing and franchising free download as powerpoint presentation. Licensees also enjoy lowered risk because theyre usually entering the marketplace with a known quantity and a builtin customer.
The conversion language in the license agreement is a red flag and sign that your license is probably a franchise. In general, a franchise is a business form where you pay a fee to the franchisors allowing you, the franchisee, to use their business logo, name, product, and business system. Licensing is an arrangement in which a company licensor sells the right to use intellectual property, or produce a companys product to the licensee, for a negotiated fee i. Franchising is a method of distributing products or services. The conversion provision in the license agreement is probably unenforceable. The obvious advantages of licensing over franchising include reduced legal costs, reduced accounting and auditing costs, no registration and approval of the license program with any state, and quicker.
Many businesspeople and professionals think that franchising and licensing are the same, but the fact is that they are different. Franchising allows another business to replicate your entire. It allows franchiser to augment his distribution chain in minimum time. From a licensee standpoint, there are fewer risks in product development, market testing, manufacturing, and distribution.
In franchising, the franchisor licenses its intellectual property to the. A contractual agreement takes place between franchisor and franchisee. Licensing is an arrangement in which a company licensor sells the right to use intellectual. Whats the difference between franchising and licensing. Franchising as it relates to the hospitality industry.
Franchising, licensing, contract manufacturing pros and cons. Because america is the worlds most mature and sophisticated franchise market, use of the. A license arrangement is primarily composed of 2 elements. Licensing and franchising share a few similar advantages. Franchising is a business strategy in which franchiser owner of the business, product or services, affiliate with franchisees dealers of products for distribution, business expansion, and. A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. We will now turn to the differences between licensing and franchising. If you continue browsing the site, you agree to the use of cookies on this website. In product trade name franchising, a franchisor owns the right to the name or trademark. Franchising franchising is a business model that allows companies to rapidly expand their market share.
Licensees also enjoy lowered risk because theyre usually entering the marketplace with a known quantity and a builtin customer base. For a company looking to expand, franchising and licensing are often appealing business models. Franchising is a term used to describe a business model where companies sell the rights to their business to owners and operators who, for a cost, operate their business using the companys brand. The obvious advantages of licensing over franchising include reduced legal costs, reduced accounting and auditing costs, no registration and approval of the license program with any state, and quicker entry into the marketplace. Franchising is a type of licensing that goes beyond use of a specific product or branding and encompasses your business model. It is a marketing system for creating an image in the minds of current and future customers about how the companys products. Franchisor authorizes franchisee to sell their products, goods. A clearer case of licensing is a car wash that has developed a successful process for getting its customers to opt for hot wax and other optional extras. In addition to franchising, there are two other popular methods by which businesses expand their market and distribution channels.
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