There are two major types of franchising found in the United States today.
These two distinct franchising formats are called: (1) product or trade
name franchising, and (2) business format franchising.
or Trade Name Franchising
The product and trade
name franchising system has evolved from suppliers or manufacturers creating
sales contracts with dealers to buy or sell their products or product lines.
In this relationship the dealer (franchisee) requires the trade name,
trademark, and/or product from the supplier or manufacturer.
The franchisee identifies with the supplier through the product line.
This method of franchising consists primarily of distribution by a
single supplier of manufactured products to dealers who then in turn resell
this to the end consumer. This
franchising approach has been used extensively in the auto and truck industry,
the soft drink bottling industry, and the tire and gasoline service station
We will be primarily
concerned with the business format method of franchising which permits the
franchisee to use the franchisor's products and services, trade name,
trademark, and most importantly, the prescribed business format.
The business format
provides the franchisee with great depth of knowledge and information
concerning a great breadth of business activities including: marketing,
promotion, site selection, price suggestions, grand opening plans, management,
operations, training, financing, accounting systems, and legal support or
information. This method or
business opportunity allows an individual without prior experience an
opportunity to be completely trained and informed about how to operate a new
and different business. This also
requires the franchisor to take the franchisee through a fairly extensive
training program and to provide continuous training for the franchisee even
after the franchising unit has been started.
A new franchising
technique allows independently operated businesses to convert to the form of
an existing franchise business system. The
new franchisee is expected to make changes in the existing business which
would bring them into conformity with the common marketing display and trade
identity. The conversion system
is generally considered a business format franchise and has been successful in
many real estate brokerages (Century 21), financial services, floral shops, and home