Pattern description

The franchisor owns the brand name, products, and corporate identity, and these are licensed to independent franchisees who carry the risk of local operations. Revenue is generated as part of the franchisees’ revenue and orders. The franchisees benefit from the usage of well known brands, know-how, and support.

Inventive problems

Application examples

Fast food giant McDonald’s reached worldwide fame through Franchising with its Self-service restaurant chain. Today McDonald’s restaurants operate in 119 countries around the world. Entrepreneurs can apply to become a franchisee, and, if accepted, McDonald’s supplies them with the necessary information, equipment and furniture to open a restaurant. Standardisation allows the company to sell the concept as a whole, including processes and products. As franchisor, McDonald’s generates revenue and profits through premiums earned from its large network of worldwide franchisees. The company focuses on its key service to provide competitively priced fast food, reducing costs on waiting staff and other overheads and increasing customer throughput and profit.

Subway, for example, is an American fast food restaurant chain, best known for its ‘submarine’ (sub) sandwiches and salads. Operating in over 100 countries and territories, Subway is one of the fastest growing franchises in the world. Franchisees adopt Subway’s business concept and apply it to restaurants in all sorts of locations worldwide. The menu varies from country to country, enabling Subway to achieve a wider reach and address regional tastes and customs. The company provides the information, premises and support for franchisees to ensure consistent representation of the brand in their chosen territory. For its part, Subway receives royalties from its extensive, growing global network of franchisees and over 30,000 restaurants.

Marriott International is an American company specialising in the hotel and holiday accommodation business. The company manages and franchises facilities within its extensive worldwide portfolio. Marriott provides hotel facilities with a focus on business customers, plus holiday accommodation facilities. The Franchising business model enables Marriott to apply its brand and concept to locations worldwide, providing information, property and the necessary support to its franchisees to ensure standardised branding and consistency of service. Marriott International is paid an application fee by franchisees and receives ongoing royalties during operation. The franchisees also pay a fee for national marketing programmes and the use of Marriott International’s reservation system. Franchising has allowed Marriott International to establish itself successfully in some 70 countries, marking it as one of the largest hotel chains in the world.

References

The Business Model Navigator: 55 Models That Will Revolutionise Your Business