Franchise Systems Are One Type Of Vertical Distribution System
Vertical distribution is the system of movement of a product from the manufacturer to a customer through a series of intermediaries. It’s a complex network that helps bring goods and services closer to the consumer. Vertical distribution systems come in many forms including franchises.
What Are Franchise Systems?
Franchise systems are a form of vertical distribution in which businesses offer licenses to other companies and individuals to distribute their products and services. The franchisor, or the company granting the license, will typically provide promotional materials, support in setting up the business, and assistance in running it. The franchisee on the other hand pays a franchise fee and receives ongoing support, advice, and training from the franchisor. This franchise system helps both the franchisor and franchisee to achieve a mutually beneficial relationship.
Benefits Of Franchise Systems
Franchise systems offer a number of advantages for both the franchisor and franchisee. Franchisors benefit from increased brand recognition and increased sales potential, while franchisees benefit from reduced startup costs, access to the franchisor’s products, and support in setting up and running the business. Additionally, franchise systems provide an easy way to expand a business quickly and cost efficiently.
Drawbacks Of Franchise Systems
Franchise systems do have some drawbacks, however. Franchisees are not always able to exercise complete control over their business, and franchisors can often control the product or service being sold, which can limit innovation or customization opportunities. Additionally, the franchisor may require franchisees to buy materials or services from them, which can add additional costs. Lastly, franchisees may find it challenging to break away from the franchisor’s operations and standards if they decide to do so.
Conclusion
Franchise systems are just one type of vertical distribution system and can offer many advantages for both the franchisor and the franchisee. However, there can be some drawbacks to the system as well, so it’s important to weigh the pros and cons before entering into a franchise system.