Who makes marketing decisions in a franchise

Development and conception of a franchise system as a franchisor

Table of Contents

List of figures

List of abbreviations

Attachment directory

1 Introduction
1.1. Problem
1.2 Methodological approach and structure of the thesis

2. Basics of franchising
2.1 Origin and development of franchising
2.2 Definition of terms
2.3 Concept of know-how
2.4 Basic types of franchising
2.4.1 Subdivided according to the object of the franchised system
2.4.1.1 Product Franchising
2.4.1.2 Distribution Franchising
2.4.1.3 Service Franchising
2.4.2 Subdivided according to the scope of the franchised system
2.4.2.1 Full franchising
2.4.2.2 Mini and part-time franchising
2.4.2.3 Shop-in-Shops
2.4.2.4 Master Franchising
2.4.2.5 Outsource Franchising
2.5 Advantages and Disadvantages of Franchising
2.5.1 System advantages of the franchisor
2.5.2 System disadvantages of the franchisor
2.5.3 System advantages of the franchisee
2.5.4 System disadvantages of the franchisee
2.6 Franchisor's Rights and Obligations
2.7 Legal forms for companies in franchising
2.7.1 Partnerships
2.7.1.1 The general partnership (OHG)
2.7.1.2 The limited partnership (KG)
2.7.1.3 The partnership company (PartnG)
2.7.1.4 The sole proprietorship
2.7.1.5 The civil society (GbR)
2.7.2 Corporations
2.7.2.1 Company with limited liability (GmbH)
2.7.2.2 The (small) stock corporation (AG)

3. Build a franchise system
3.1 The idea-goal definition
3.1.1 Strategy description
3.1.2 Strategic objective setting
3.1.3 The service or franchise package
3.1.4 The system manual
3.1.5 The system center
3.2 Franchise Suitability Analysis
3.3 Market and success analysis
3.4 Marketing concept
3.4.1 Strategic Analysis
3.4.2 Company and Marketing Objective
3.4.3 Marketing Strategies
3.4.4 Marketing Mix
3.4.4.1 Product mix
3.4.4.2 Mix of conditions
3.4.4.3 Distribution mix
3.4.4.4 Communication mix
3.5 Corporate Identity
3.5.1 Goals
3.5.1.1 Internal goals
3.5.1.2 External goals
3.5.2.1 The corporate design
3.5.2.2 Corporate communication
3.5.2.3 The corporate behavior
3.6 Financial planning
3.7 System testing
3.8 Franchisee Profile
3.8.1 Contacting us
3.8.1.1 Advertisements in print media
3.8.1.2 Direct Media
3.8.1.3 Public Relations
3.8.1.4 Measure
3.8.1.5 Events
3.8.1.6 Internet
3.8.2 Choice of partner
3.9 The franchise agreement
3.10 Cooperation Tests

4. Implementation of the system idea

5. Conclusion

Investments

bibliography

Individual writings and compilations

Magazines, articles and miscellaneous

Declaration of an oath

List of figures

Fig. 1: Overall development of the industry since 1995

Fig. 2: Industry development in franchising

List of abbreviations

Figure not included in this excerpt

Attachment directory

Appendix I: The TOP 20 franchising hit list 2005

Appendix II: ETHICS CODE for members and associated members of the German Franchise Association e.V.

Appendix III: The DFV system check

1 Introduction

1.1. Problem

The economic situation makes it more and more difficult for entrepreneurs to assert themselves in the market. Originally good business ideas fail more and more often because the entrepreneur is overwhelmed by the diverse requirements of the market. He is forced to give up due to competition, cost pressure but also due to a lack of innovative strength. In 2005 alone there were around 37,900 corporate insolvencies.[1]

Establishing or connecting to a suitable association, e.g. a franchise system, can often provide a remedy here. As a rule, the franchisor has already successfully operated the business and his role of franchisor is limited to the central services, such as marketing, purchasing and quality assurance, while the franchisee can concentrate on cultivating his local market. The mixture of individual competition of the individual franchisees and the centralization of overarching functions contributes to an overall strengthening of the competition. For small and medium-sized companies with a compelling business idea, franchising can be an opportunity to expand without overwhelming themselves. Potential franchisors who want to implement their concept together with licensees have numerous design options. With franchising, a chain can be set up and a high level of market penetration can be achieved without having to deal with the typical problems of branching out such as capital commitment or personnel management. Franchising is a growth strategy, because products and services can be offered regionally or supra-regionally, the sale of which would no longer be lucrative in conventional ways due to the sales costs incurred.

The present elaboration represents a guideline for the planned conversion of an owner-managed sole proprietorship from the wellness gastronomy sector to a franchise company. The specific business idea has proven itself over a long period of time and has been generating profits that are above the industry average for three years.

1.2 Methodological approach and structure of the thesis

The aim of the elaboration is to show the necessary steps on the way to an independent franchise system, which is ultimately carried out by the DFV (Deutscher Franchise Verband e.V.) as part of the DFV system check[2] should be tested and certified. The elaboration is at the same time preparatory work for the actual conversion of the individual business to the franchise system, which is planned to start at the end of 2006.

The possibilities and perspectives of the franchisee are only dealt with in a subordinate form, as the scope of this work would otherwise be exceeded.

The work is divided into three consecutive chapters.

The first part gives the reader an overview of franchising in general.

The second part discusses the structure of a franchise system in general.

The final part provides an outlook on the structure of the specific franchise system planned for the second half of 2006, taking into account the knowledge gained.

2. Basics of franchising

2.1 Origin and development of franchising

The word franchise[3] means "taxes, fees". The origin of the term lies in medieval France. There he referred to the granting of privileges to third parties who, for a fee, operated a production in the interests of the state or traded in certain products.

Franchising is a partnership-based distribution system with the aim of promoting sales. The company, which acts as a so-called franchisor, usually grants several partners, the so-called franchisees, the right to operate a business with their products or services under their own name.[4]

In the middle of the 19th century, franchising was understood to mean the commercial use of third-party rights - and this was already close to today's understanding of franchising.

The first "modern" franchise systems existed at the beginning of industrialization. In 1860 the "Singer Sewing Machine Company" allowed traveling dealers to sell their sewing machines on their own account and in their own name.[5] General Motors, Coca-Cola and “Snap on Tools” followed suit.

After the Second World War, a new form of franchising developed, which had to adapt to the requirements of mass markets. This meant that in addition to product sales and the range of services, work was increasingly being done on building system identities.

The current form of franchising found its origin on March 2nd, 1955 with the "McDonald's" franchise system that is known to everyone today.[6]

The further development to today's franchising consisted in expanding the offer orientation with the know-how of the management.

Today, a start-up who goes into franchising can expect a “turnkey” business concept that shows him from “A - Z” more successful marketing.

Figure not included in this excerpt

Fig. 1: Overall development of the industry since 1995

2.2 Definition of terms

The official definition of the term "franchising" by the European Franchise Federation (EFF) is as follows:

Franchising is a distribution system through which goods and / or services and / or technologies are marketed. It is based on close and ongoing cooperation between legally and financially independent and independent companies, the franchisor and its franchisees. The franchisor grants its franchisees the right and at the same time imposes the obligation on them to operate a business according to its concept. This right entitles and obliges the franchisee, for direct or indirect remuneration, within the framework and for the duration of a written franchise agreement concluded between the parties for this purpose with ongoing technical and business support from the franchisor, the system name and / or the trademark and / or to use the service mark and / or other industrial property rights or copyrights as well as the know-how, the economic and technical methods and the business system of the franchisor.[7]

Attempts have already been made several times to clearly define the term. However, this was never achieved because it is still interpreted differently nationally and internationally.

2.3 Concept of know-how

The know-how is the sum of the practical experience and knowledge of the franchisor, which he was able to gain during his pilot phase, but also in the period afterwards.

According to the regulations of the vertical BER[8] the know-how must be secret, essential and identified[9].

“Secret” means that the know-how in its composition must not be generally known or even accessible.

“Substantial” means that the know-how comprises knowledge which is essential for the buyer for the purpose of using, selling or reselling the contract goods or services and which promise him a competitive advantage.[10]

Furthermore, the know-how must be described so comprehensively that the first two characteristics mentioned are met.

2.4 Basic types of franchising

2.4.1 Subdivided according to the object of the franchised system

Depending on the object of the franchise system, the franchise types can be divided into three categories.

2.4.1.1 Product Franchising

In this type of franchising, which is also known as industrial franchising, the franchisee grants the franchisee the right to manufacture and process products according to detailed system specifications and then to sell them under the franchisor's brand.[11] This also includes the refinement of delivered components.[12] The best-known company in the product franchising sector is Coca-Cola. This type of franchising is relatively uncommon in Germany.

2.4.1.2 Distribution Franchising

In Germany, the second most common form of franchising is distribution franchising, also known as goods franchising. The focus can already be heard from the name: this is the pure distribution of the product (s). With this form, the franchisee does not have to manufacture, but can concentrate fully on sales.

2.4.1.3 Service Franchising

In service franchising, the franchisee can only be successful if the franchisor provides him with absolutely mature know-how. Here, too, one can already hear the subject of the system from the term "service". This category includes franchises in the areas of renting out materials, repairs and other service providers. The service sector, which in 2005/2006 represented the largest sector of the branch with 49 percent, includes all traditional services. The largest franchise company currently operating in Germany, TUI, comes from this franchise segment.[13]

Figure not included in this excerpt

Fig. 2: Industry development in franchising[14]

In practice, these three basic forms can be mixed up, as one often results from the other or it simply complements each other. A distinction between the individual groups is nevertheless necessary, since the character and the contractual or legal treatment of these types of franchise will often differ from one another. This is how the European Court of Justice (ECJ) ruled, which underlined the diversity of franchising with the well-known “Pronuptia decision” and divided it into the three basic forms mentioned.[15]

This decision was of great importance for the development of cross-border franchising.

2.4.2 Subdivided according to the scope of the franchised system

Furthermore, franchises can also be differentiated according to the extent to which they have been granted. To this end, the franchisor can make the following distinctions.

2.4.2.1 Full franchising

If the franchisee uses the offer of the franchisor to build his own existence, one speaks of full franchising. The franchisee runs the business as an economically and legally independent unit in accordance with the respective system concept and this is usually the only relevant business activity for him[16]

2.4.2.2 Mini and part-time franchising

This model is intended to help people who are otherwise employed in their main job, for example, to supplement their family income, since the actual business concept is not suitable for a full existence at the beginning.

2.4.2.3 Shop-in-Shops

The concept can be cited by various travel agencies as a prime example of this. These appear as independent business units in many large department stores. In other words, the shop-in-shop variant consists of integrating a business operation into an existing shop. A well-known example is "Mister Minit".

2.4.2.4 Master Franchising

In the case of master franchising, there is a master franchisee, who can also be called a “sub-franchisor”, as he can grant regional or local franchises and possibly also sub-franchises to the franchisees to be selected in his country or region. He is entitled to set up his own head office and to grant so-called sub-franchises to other entrepreneurs in his exclusive contract area.[17]

2.4.2.5 Outsource Franchising

In business life, outsource means the transfer of tasks to external providers. The term has a negative impact because it is often associated with the loss of jobs. A company that no longer wants to carry out certain tasks itself with its own staff and resources offers this task to a franchisee.

2.5 Advantages and Disadvantages of Franchising

The global success and rapid expansion of franchising can certainly be explained by the fact that the use of franchising represents a win-win system, i.e. positive results for both sides.

This should be clarified using the following strengths and weaknesses analysis from the perspective of the franchisor and franchisee.

2.5.1 System advantages of the franchisor

For the budding franchisor, the following are the typical benefits of franchising. If one were to choose the classic form of the distribution system structure via a branch system, the personnel costs, i.e. finding and selecting suitable branch managers, would primarily be associated with very high fixed costs. Since these sales managers cost a lot of money from day one, but this only comes back after a very long time, the alternative of setting up a franchise system with franchisees is cheaper, since the franchisee saves considerable fixed costs with his personal effort and the point of sale a profitable part of the overall system.

The franchising system is very similar to a branch system, but you can implement your marketing concept more successfully through franchising, since direct access to the market is crucial for the franchisor.[18]

In addition, his sales are ensured by uniformly motivated franchisees, whose sales practice he can promote and influence within the framework of system planning. With an effective marketing concept, the franchisor achieves a faster and more solid expansion of his system.

Furthermore, the tight organization and management typical of a franchise serve to avoid wrong decisions.

In addition, a franchise system offers the franchisor an additional source of financing through appropriate closing fees and ongoing fees for the franchisee, which is not matched by other sales systems.

2.5.2 System disadvantages of the franchisor

The selection of the "wrong" franchisees can lead to high costs, slowed expansion, a loss of image and competitive disadvantages. The franchisor is economically dependent on the commitment, the will to succeed and the skills of the partner.

The assumed relationship of trust between the contracting parties can also be clouded by a wide variety of reasons, such as personal antipathy or different views on business strategy.Such a problem is difficult to solve in a franchise relationship and requires a certain amount of tact. A break between two parties often occurs when the franchisee becomes successful very quickly and now thinks he can do without a franchisor.

In a normal employment relationship, the selection of wrong employees is easier to cope with due to contractual regulations such as an appropriate probationary period.

2.5.3 System advantages of the franchisee

The most important advantage of a franchisee is that he can become self-employed within the framework of an association with its support. Thus, he bears a lower conceptual risk, since a tried and tested business idea is adopted. He can use all the data and experience of the franchisor and adopt the success formula of the system that has already been tested on the market and whose prospects of success are foreseeable in advance.[19] The franchisee immediately benefits from a name and image and thus a higher "good will"[20] with the target group through the well-known brand that has already been introduced in other sales areas.

In addition, the franchisee is offered an induction and ongoing seminars, he has the logistical support of the system headquarters, benefits from advertising, sales promotion and public relations and has cost advantages through most-favored-nation treatment with central purchasing. There are no direct costs for developing new products and improving current market performance.

Because essential tasks are taken over centrally by the system center, he can devote his attention and energy to essential tasks in his own company.

2.5.4 System disadvantages of the franchisee

Many franchisees feel that they are not really independent, because franchising has to adhere to the rules set by the franchisor. In addition, there is constant pressure to justify the failure of the agreed goals. There is also ongoing comparative competition with the other franchise partners.[21]

2.6 Franchisor's Rights and Obligations

In order to be continuously successful in the market, the franchisor undertakes to support the franchisee in all areas. These tasks should ensure the success of the partner and the system on an ongoing basis.

It is therefore necessary for the franchisor to develop a type of business that is very easy to multiply and whose operations are perfected. In order to be able to guarantee this, the entire know-how of the establishment and management should be recorded.

Furthermore, the franchisor is responsible for advertising and sales promotion measures in order to further increase awareness.

It goes without saying that the franchisor supports the franchisee in setting up his own business and provides qualified advice.

The franchisor must also train the franchisee and inform him about the market situation and the development of the product.

The franchisor should provide a list of its specialists in business administration, marketing, finance and IT. Due to his market position, he may have already negotiated favorable major customer terms with suppliers, which he can pass on to the franchisee.

In addition, the franchisor should develop a concept for smooth and committed cooperation that is tailored to the franchise contract. Ultimately, the franchisor should set the system to clear organizational structures and processes in accordance with the DIN EN ISO 9000ff series of standards[22] have checked.

In contrast to the obligations of the franchisor, his rights are not as extensive. His right lies primarily in "controlling". He can therefore check at any time whether the contractually defined goals have also been met according to the concept. The franchisor can take measures at any time to ensure quality or to adapt the system to new conditions.

Above all, the franchisor has the right to charge fees for the services provided.

The duties of the franchisor just described apply in the opposite sense to the rights of the franchisee.

The franchisee must take his duties, such as adhering to the principles of the system laid down in the manual, working with his supervisor, attending seminars, carrying out promotional activities and paying the franchise fee, seriously.

2.7 Legal forms for companies in franchising

German legislation offers the following different legal forms, distinguishing between partnerships and corporations.

2.7.1 Partnerships

The partnerships are not taxed under the Income Tax Act, but the profits of the partners are subject to income tax. The partners are mostly natural persons and are generally liable with all of their private assets.

2.7.1.1 The general partnership (OHG)

The OHG consists of at least two partners and the name must contain a reference to the legal form.[23]

2.7.1.2 The limited partnership (KG)

The KG should have at least one personally and limited partner, the so-called general partner, and one partner who is only liable up to the amount of his contribution, the so-called limited partner.[24]

2.7.1.3 The partnership company (PartnG)

This type of company has existed since July 1st, 1995 and only applies to freelancers (not traders).[25]

2.7.1.4 The sole proprietorship

The sole proprietorship is the company of the sole trader and is created automatically when the business is opened. With this form, no minimum capital is required and there is only one business owner. It is important that no additions are added to the company that suggest a corporate relationship.[26]

2.7.1.5 The civil society (GbR)

The GbR consists of at least two partners and the name must contain a reference to the legal form. A minimum capital is not required.

Here, too, the partners have unlimited liability with their entire private assets. An entry in the commercial register (HR) is not required.[27]

For the sake of completeness, all legal forms of partnerships have been named. Most suitable and practically relevant for companies in franchising, however, are sole proprietorships and civil law corporations.

2.7.2 Corporations

The corporations have a fixed nominal capital to which the liability is limited.

Here the company has to tax the profit itself according to the legal regulations, additional withdrawn or distributed profits have to be taxed by the individual shareholders.

Since this company is a legal person, it has its own legal personality and can therefore itself be the bearer of rights and obligations.

2.7.2.1 Company with limited liability (GmbH)

A minimum capital of € 25,000 must be deposited here. The capital contribution of the individual partner amounts to at least 100 €.

A distinction must be made between whether there is a GmbH with several participants or only one partner.

In the case of a GmbH with several participants, the registration for entry in the commercial register requires that each shareholder has made at least a quarter of the capital contribution and a total of € 12,500 has been deposited.

In the case of a GmbH with only one shareholder, registration for entry in the HR may only take place if the latter has deposited at least € 12,500 and ordered the remaining part of his deposit with a security (e.g. a bank guarantee).

Accordingly, liability is limited to the company's assets and entry in the HR is required. The articles of association must be notarized.[28]

2.7.2.2 The (small) stock corporation (AG)

At least one founder is required for this form. This entrepreneur can be the sole shareholder and board member. A supervisory board is necessary. Liability is limited to the company's assets and a minimum capital of € 50,000 must be invested. The equity base can be strengthened by adding more shareholders. The AG must also be entered in the HR and the articles of association (partnership agreement) must be notarized.

Shares are issued for the contributions.[29]

Practice shows that many start-ups in franchising choose the legal form of a GmbH, as they assume that this will reduce the liability risk compared to the other forms. The problem, however, is that usually no lender agrees to a loan agreement only with a GmbH. Therefore, shareholders or managing directors must still be personally liable for any account overdraft.

Therefore, if possible, as a franchisee, you should start your business with the legal form of a sole proprietorship. Here you also have the private financial risk, but also have the tax advantage that all losses associated with the company can be fully offset against your own income or the salary of your spouse.

On the other hand, the GmbH or the "small AG" is an alternative legal form for franchisors, because the small AG combines the advantage of easier capital procurement with the possibility of the franchisees participating in the company as shareholders.

3. Build a franchise system

3.1 The idea-goal definition

In order to convert the idea of ​​an owner-managed sole proprietorship into a franchising concept, a number of hurdles have to be overcome.

Formulating the franchise system, corporate strategy and corporate goals are among the most important. The goals are then manifested in a service or franchise package to be handed over from the franchisor to the franchisee.

3.1.1 Strategy description

There are several strategies a franchisor can pursue. However, if you want to develop and expand a company or a franchise system, it is important that you follow a clear strategy to convince your future franchisees that mutual success is important.

Since there are no clear definitions, but only various views of different statements about possible strategies, some important examples should be briefly mentioned here. For example, managers understand strategy to be long-term planning, others understand corporate philosophy and still others understand it to be a mere procedure or behavior.

In the case of franchise systems, the strategy is based on the EKS method[30] led by Mewes to sustainable success. This method is a concept in strategic management. The focus here is not primarily on profit, but on the company's market leadership position and thus securing success.[31]

According to Mewes, the following four phases are those that have brought franchise systems to market leadership in the long term.[32]

According to Mewes, in the first phase you should concentrate on your strengths and bundle them. Everything you achieve comes from yourself - there is no failure, there are only results - results of your own efforts and efforts. Supported by an approach that is based on your own abilities and possibilities and is in harmony with your own environment, you create what you set out to do and you always know what you are doing.

In the second phase, the forces are to be focused on a narrow target group.

Their own performance is not for everyone; their own products are equally sensible and useful - but very specific people urgently need them. It is important to stand up for them, to whom you make all your knowledge and skills available. This target group is ready to appreciate the service in accordance with the benefit provided.

The third phase deals with the gaps and niches.

What has already been offered cannot be my business. My solutions are aimed at areas that have previously been neglected or that are still to be discovered. For this I like to get suggestions from other disciplines - I use all my imagination.

The last and fourth phases strive for market leadership and should develop problem solving in depth.

If one has found recognition, proven oneself and gained the full trust of one's clients or superiors, if the solutions are right, then this leads to a symbiosis, to a mutual benefit between the target group (customers) and oneself; Both continue to develop together and make full use of the resulting synergies. Through the close and trusting cooperation, you develop into the best problem solver in this area, the market leader in your target group - wanted and supported by partners and the world around you, unrivaled and unique.

After that, it is important to secure market leadership and customer loyalty in the long term.

3.1.2 Strategic objective setting

The corporate goals should be clearly defined in terms of content, extent and time frame and, if possible, should be in a harmonious relationship. From this, the marketing goals can later be derived as a sub-goal of the company goals.

The aim is to formulate the target content, i.e. what is aimed for, e.g. the contribution margin or a certain market share. The target extent determines whether a marketing target should be unlimited (e.g. maximizing market share) or limited (e.g. increasing market share by x percent). It is advisable to set limited goals, since here the fulfillment and thus also the success can be measured.

With the help of the time reference, i.e. the determination of whether a marketing goal should be achieved in the short, medium or long term, the timely use of the marketing instruments is given.

3.1.3 The service or franchise package

As already mentioned, the franchisor creates this package to hand it over to the franchisee later so that he can see from this what the franchisor offers him.

This package is the epitome of all of the franchisor's services. In a nutshell, the franchisee has the following rights: use of property rights, a procurement, sales and organizational concept, business development, training, further development of the system and ongoing active support.

The core of the franchise package is the marketing and organizational concept. This describes in detail the service, marketing and location policy. In addition, it contains conditions for rental contracts, advertising and distribution, etc. The franchisee has a benefit through the marketing concept, e.g. access to supra-regional partners, which he loses if he leaves the system. In addition, this concept forms the basis for the later system manual.

The marketing and organizational concept also includes the following elements: controlling and quality assurance. Since the franchisor is obliged to promote the economic success of its partners, this has nothing to do with control, but with promotion and quality assurance. Quality assurance plays a special role in the area of ​​service franchising because, in contrast to goods or sales franchises, there is a particular risk of quality fluctuations due to the immateriality of service production.[33]

In contrast, the organizational concept deals with the internal system processes, such as operational management, the interior and exterior furnishings of the sales outlets and the possible involvement of an IT system.

3.1.4 The system manual

The system manual, also known as the franchise manual, can be compared to a script. It contains all the framework conditions for constructive cooperation between franchisors and franchisees. Should there ever be a difference of opinion, it forms the basis for clarifying the situation. The franchisor is obliged to present and provide evidence of the intrinsic value of the services it provides (know-how) and the benefits to be derived from it by the franchisee.[34]

The manual is to be seen as the backbone of the franchise system and summarizes all the experiences of the franchisor to date. It documents all systematically coordinated operational processes and provides a kind of guide to the obligations and rights regulated in the franchise agreement. If it is used optimally, it ensures a common and uniform market presence. Of course, it is regularly updated and supplemented by the franchisor. "Electronic manuals" are also spreading more and more frequently in modern franchise systems. This has advantages for everyone involved in the system: The franchisor can make changes quickly and inexpensively and has at the same time created a control mechanism, e.g. to prove the use of the manual by the franchisee based on the number of "clicks". The franchisee, on the other hand, can use special search functions to navigate to specific information quickly.

It must be designed in such a way that it is generally understandable and comprehensible so that the franchisee and everyone, including his employees, can work with it on a day-to-day basis.

3.1.5 The system center

The heart of every franchise system is the system center. It is incumbent on you to fulfill the obligations to the franchisees assumed by the franchise contract and to ensure the performance and control of the entire system network.

The need for personnel and material equipment in the system center always depends on the size of the network. A franchisor who already runs a business in the industry should initially be able to organize the establishment of the franchise network with his previous staff. As soon as the first franchisees have been won, however, it is essential to be staffed in such a way that comprehensive support for the partners is always guaranteed.

The three important core tasks at the start of the system are: training & advising the franchisee, acquisition for the further system structure and administration of the system (initial information dispatch, appointment management, advertisements and PR as well as accounting). The franchise manager can take on one of the first two tasks himself. So that there should be a minimum of three employees.[35]

The careful construction of the system center is of great importance, especially due to the cost burden on the franchisee at the beginning. In addition to the costs of rent, business trips, image building (PR, brand and identification creation) and consulting fees for lawyers, franchise consultants, notaries, etc. that arise during the planning of the system, there are ongoing salaries. Since the speed of development of the sales network can never be predicted with certainty, the franchisor must always ensure that the staffing corresponds to the requirements of the network.

Outsourcing, the transfer of corporate tasks and structures to third-party companies, is a good way of keeping the head office lean.

3.2 Franchise Suitability Analysis

Basically, every potential franchisor should check his idea or his company to see whether it is at all suitable for setting up a franchise system and whether the duplication can be implemented in practice without any further problems. The following three prerequisites should definitely be present in order to continue working on the planning. Firstly, the franchisor must have or create a distinctive offer that differentiates itself from the competition but is accepted by the target groups. Then he has to develop a tight marketing and operational organization that is suitable for building and running a franchise system. Ultimately, the franchisor must prove the success of his offer, i.e. his concept and the necessary capital. Since the franchisor has to prove that its operation can be successfully repeated at other locations, the last point is very important.[36] The review must be carried out professionally on the basis of a company and situation analysis.

To further check whether your own concept can also be franchised, the development of sales and profits, future demand behavior, what “psychological” effect the company has, i.e. what goodwill or what image the business has, should be traced. If it is a matter of fashionable products, it is important to check whether there is a safeguard for successor products, since products or services with a short-term character may find it difficult to assert themselves in the market for a longer period of time.[37]

Whether the company has enough management and organizational potential must also be checked in order to be able to rule out that the company itself is burdened with too many problems, cannot react to potential franchisees and cannot provide the promised service.

It is important to clarify, especially in the case of seasonally dependent companies, whether the right opening time has been chosen, as a bad start may have a lasting negative effect on system development.

3.3 Market and success analysis

Basically, we know that an assessment of the market situation is important for every company. However, the better a franchisor is informed about current market figures, prospects and competitors, the stronger his negotiating position becomes, because franchising is not just about marketing a successful business concept, but above all about knowledge advantages and active market cultivation.

One of the first steps should therefore be to obtain statistics on various topics from associations, federal offices or market research institutes, e.g. sales figures in an industry. Even after viewing this material, trends can be foreseen. You can achieve your goal even better if you segment according to target customers and sub-markets and verify the data relevant to your own business project.

Despite the now good previous knowledge, the future prospects cannot be forecast. Because there are other influencing factors about which one should have knowledge.

It is important to ask yourself what can lead to changes in behavior, e.g. economic influences, social trends or prejudices that one has towards an industry or certain services.

You should also get a precise picture of the customer profile that you want to address with your product. Only if you know exactly what the customer's background and motives are to make use of an offered service can you understand him, learn from it and develop your own offer in his own way.

As a budding franchisor who already runs a business of the same type and would like to develop it into a franchise system, you may already be able to collect demographic data such as age, gender and income bracket. But he should also know the reason why you are visiting him. Is it the friendliness, the competence, the product range, the pleasant atmosphere, the geographical proximity or a combination of all these elements? If you have retained such a customer, it is of great advantage if he gives a good judgment on the business concept in his environment and thus has a very large influence on other target customers. Positive word-of-mouth advertising is essential for a successful franchise.

The competitive situation should not be ignored either. Because young companies in particular, mostly still with an innovative idea, do not see themselves in comparison with other providers. Here it is best to look through the eyes of the customers who have various purchase options every day and who usually cannot or only marginally make out the differences between the offers.

When determining the competitive situation, it is not only the price and performance comparison that is decisive, but also the market presence, tradition and acceptance of the competitors by the customer. The same applies here: "Knowledge is power". It is about enriching know-how, creating competitive advantages and preparing franchise partners for the actual market so that they know about the strengths and weaknesses of their own concept compared to others. If such information is missing, this contributes to great uncertainty among the partners and the chance of profiling in the market decreases. It is therefore worthwhile to record the entire market system with all influencing factors and competitive offers in order to determine the actual value of your own business concept and to “prepare” the franchise partners accordingly.

3.4 Marketing concept

Marketing is the most important success factor for a company, because without marketing you cannot win a customer for yourself. You only turn a customer into your customer when he is offered something that he does not get elsewhere in this way or in quality.[38]

To put it simply, you have to “put together” a customer-oriented and therefore needs-based service package, provide it with an attractive price-performance ratio, offer it to the customer, make its advantages consciously and ultimately accessible to him.

In colloquial terms, marketing is the effort to sell goods and services. Certain actions by customers signal to the company what the customer thinks is good or bad. Accordingly, the company is now systematically using various instruments to create preferences and competitive advantages in the market. Thus, the company builds a marketing concept, i.e. a comprehensive, consistent plan of market and customer development.

The marketing concept should contain three conceptual levels:

Company and marketing goal

Marketing strategy

Marketing mix

The art is to find the perfect mix of these instruments, because the marketing concept should be used for long-term planning and its effect should extend over several years and be sustainable.

In order to arrive at a comprehensive, functioning marketing concept, the steps outlined below must be followed.

3.4.1 Strategic Analysis

At the beginning, a situation analysis of the initial situation, i.e. the framework conditions, the resources and the needs, should be made, i.e. the own actual position in the market and competitive environment should be determined. This data can be accessed, for example, from market research institutes for a fee. The IHK, associations and industry organizations can also provide figures. But the Internet also offers a lot of information.

However, individual examinations usually have to be carried out at the competition and the customer. Surveys and observations are useful, e.g. visits to competitions, advertising analysis, price comparisons and internet research.

It is advisable to have ongoing reporting from your own company, which regularly provides key figures for specified periods of time, e.g. on sales, earnings, sales; this can help to be able to take countermeasures in good time if problems arise.

This mountain of data should now be sorted, perhaps based on the following considerations:

the customer with his needs and his behavior

the competition with its strengths and weaknesses

the environmental conditions and trends

your own strengths and weaknesses

your own opportunities and risks

This data must be documented and updated, because the franchisee should also be able to work with it later. On this basis, the goals can now be set.

3.4.2 Company and Marketing Objective

The corporate goals should be precisely defined in terms of content, scope and time frame. If this requirement is met, the marketing goals can be derived from this, which should also be defined in terms of content, extent and time reference.

It is important that the goals harmonize with each other, in the best case they should influence each other positively. They should never compete with each other.

This is very difficult with franchise systems. Although the franchisor can formulate the goals without conflict, they must also be able to be implemented and applied by the franchisee. Therefore, the franchisee must be given enough leeway to define his own, individual goals and to be able to achieve their implementation. In any case, he should accept the goals of the system headquarters and develop his own goals in accordance with the system.

3.4.3 Marketing Strategies

The marketing strategy has the task of making the marketing decisions a company makes and aligning the marketing instruments with the requirements and competitive conditions. It is important to pay attention to the set corporate and marketing goals. Such a strategy must be designed specifically and individually for each company. The following ideas and considerations can help in the design as a guideline:

a.) Spatial definition of the market
Should the company operate locally, regionally, nationally or even internationally?
b. ) Familiarity with the market
You should answer yourself whether you know the market well enough in which you want to operate, or whether you want to enter a new market.
c.) Scope of market cultivation
Should an undifferentiated mass, i.e. the overall market or a precisely defined customer segment, be addressed?
d.) Type of market cultivation and customer orientation
There are two types of market cultivation: on the one hand, undifferentiated market cultivation. Here the customer is offered standard products to satisfy the average needs of the target group. On the other hand, the differentiated market cultivation. This is particularly useful in franchise systems, as one chooses a conscious attitude towards the peculiarities of different groups.
e.) Primary service content
How do you want to differentiate yourself in the future: via the price, the quality or the services of the offer?
f.) Attitude towards competitors
Even if you are currently the first with an idea on the market, it won't be long and there will be imitators. In order to be able to face these, it should be considered whether, for example, one can strive for cost and price leadership or quality leadership. Another alternative is to concentrate on a market niche, e.g. concentrating on a specific target group as opposed to the competitor who may appeal to a less specific audience.
g.) Attitude to technological innovations
If you work in the telecommunications, biochemistry and IT sectors, the question should be asked whether you want to be a technological leader, as technological development is of great importance in these market segments.

[...]



[1] www.creditreform.de

[2] See Appendix III

[3]The term "franchise" denotes a type of company and "franchising" denotes the entrepreneurial activity with the help of the system; both together are a specific sales system, see www.dfv-franchise.de

[4] Official definition of the Deutsche Franchise Verband e. V.

[5] Skaupy: Franchising (1995), p. 2

[6] Pauli: Franchising (1990), p. 22

[7] Skaupy: Franchising (1995), pp. 8f.

[8] Block Exemption Regulation for Vertical Agreements

[9] Skaupy: Franchising (1995), p. 289

[10] see Wessels: Das Franchisesystem (2003), p. 64

[11] Esser: Franchising (1995), p. 14

[12] Magazine: Franchise Successes (2005), p. 16f.

[13] See Appendix I.

[14] dfv-franchise.de - (The data were determined as part of an empirical survey in March / April 2006 by the German Franchise Association e.V.)

[15] ECJ judgment of January 28, 1986, case 161/84, NJW 1986, 1415ff.

[16] Skaupy, Franchising (1995), p. 34

[17] Nebel-Tatzel, The Franchise Contract (1995), p.4f.

[18] cf. Boehm in Boehm / Kuhn / Skaupy, Checklist Franchising (1980), p. 22

[19] Alznauer-Lesaar, “Mythos franchising?” In FAZ supplement “Franchising No. 124 (1995) p. B9

[20] Denotes the goodwill

[21] Wilhelm, The ABC of Franchising (2002), p. 149

[22] Models for demonstrating quality management. These standards are primarily intended for external purposes and are also used to ensure compliance with contractual agreements. Basis for certifications (www.quality.de)

[23] HGB § 105ff.

[24] HGB §161 ff.

[25] PartG Section 1 Paragraph 1

[26] HGB §1 ff.

[27] BGB 705 ff.

[28] GmbHG §1 ff.

[29] AktG §1 ff.

[30] EKS stands for bottleneck-focused behavior and leadership strategy

[31] Bürkle in: Nebel / Schulz / Flohr - The Franchise System (2002), p. 44

[32] www.wolfgangmewes.de

[33] Stein: Franchising networks in the service sector (1996), p. 28

[34] OLG Oldenburg, judgment of October 16, 1997, 8 U 111/97, DStR 1998, 903 f.

[35] Nebel in: Das Franchise System (2002), p. 214

[36] Hanrieder: Franchising - planning and practice, (1976), p. 210

[37] Bellone in: Franchising - Die Königsklasse (2003), p. 54

[38] also Nebel in: Das Franchise System (2003), p. 34

End of the reading sample from 67 pages