Advantages of Franchising as a Business Model
Discuss about the Market Orientation and Business Performance.
Franchising is the business format where a company allows another firm to sell and market its products within a specified geographical area. The first party is called franchisor while the second party is called franchisee. The relationship between franchisor and franchisee is governed by written contracts between them which specify the terms and conditions of it. The business model is very successful because it encourages new business firms to sell and market branded products of other firms and earn high profit. This model has emerged as a successful foreign expansion strategy and is followed in a number of industries like fast food by international companies like KFC. The model no doubt is the theme of several literary articles and internal magazines.
Franchising is based on contract between the franchisor and the franchisee. The contract mentions important conditions like sharing of profit, franchising fees and provision of training to the franchisee’s staffs, if any (Buchan et al., 2015). Thus it creates a transparent framework which enforces the two parties carry out dynamic business operations which ensures capital maximization for both. Perigot & Pénard (2013) in their work state that internet has allowed the franchisors locate franchisees in the foreign markets more easily. This enriches the literature of the internal magazine and adds new matter to it. The franchisors and the franchisee can communicate more easily over the internal platform through video conference and hold meetings to handle urgent situations. This allows the international fast food brands like KFC to manage and collaborate with their franchisees on a larger scale and ensure deeper market penetration even in the foreign markets. KFC follows business model franchises and allows the franchisee to market the products and the trademark.
Lam et al., (2014) while discussing the advantages of the model in his work stated that franchising results in the flow of foreign goods and capital in the host countries. The franchisee is able to market the products of KFC and earn high profits. KFC is able to market its high quality products like chicken snacker and burger through the franchisee. KFC follow a very intelligent strategy to ensure that it is able to serve a huge customer base and earn profit high profit simultaneously. Stahel and Clift (2016) in their work add that franchising helps the saturated economies to gain foreign resources which help to accelerate economic development. The work of Lee (2016) further strengthens the literature of Lam et al through his work. KFC uses scientific process of preparing tasty food products which creates customer satisfaction. The fast food chains like KFC promote their products through existing menu, gift coupons, KFC Tshirts and large display outside the outlet. Thus franchisee model accommodates a strong marketing model which allows the franchisor and the franchisee to earn huge profit.
Franchising as a Profitable Tool for Market Penetration
van Tongeren and Stolwijk, (2013) says that KFC markets its products and receives orders online and hence helps the ecommerce companies to earn revenue. It appears it is one way scope to earn profit given to the ecommerce companies by KFC. However, it is two way relationships between KFC and ecommerce companies where both profit. Eriksson & Tenfält (2015) state that ecommerce provides a sales platform which allows franchisors like KFC to sell their products globally to earn huge profits. Ecommerce companies like Amazon provides the companies like KFC a platform to promote their products and enhance their brand image. Thus, the ecommerce companies and the producing companies help each other to earn huge profits.
Franchising as a business model has great significance because it creates value for the stakeholders and maximizes capital of the shareholders. The fact draws strength from the work of Maak, Borecká & Pless (2014). They state in their work that franchising model ensures operation in responsible ways to meet the demands of all the stakeholders like government, customers, employees and shareholders. KFC manages its franchisees after its own international business model which ensures that they provide customers with world class food items and services befitting the fame of KFC. The franchisor maintains a high quality core product like great taste, highly quality chicken and spices and so on. The KFC products applie optional pricing and mixed bundling pricing. The products of KFC are affordable to customers and they come in combinations which increases the customer’s value of money. The staffs at KFC outlets are well trained and attend to customers in professional ways. Thus franchisee model has helped KFC to make and sustain a great trade mark and brand name.
Zhang, Lawrence & Anderson (2015) state in their literary work that franchising model involves and benefit three primary stakeholders, the franchisor, the franchisee and the customers. The franchising model creates employment opportunities and generates revenue which help the government and the investors respectively. KFC partners with franchisees all over the world which generates revenue for both making it one of the most sought after international franchisors in the world (Kacker et al., 2016). Rhou, Singal and Koh (2016) state that today franchisor model followed by KFC has transcended the profit earning motive and are actively promoting social development. KFC necessitates its franchisees to take part in social initiatives which promotes strengthening of their brand image. The international fast food chain is already working with the United Nations and helping it to combat hunger and poverty. It is working with several governments supporting their initiatives to bring about social development. KFC provides the same meal quality that comes with a diverse menu, focusing on the chicken rather instead of the hamburgers. KFC have been broadening their menu assortment over a certain period of time, adjusting its menu to the local tastes. KFC’s scale of production has been associated with cost savings procedures for a standardized menu; the idea being the larger the scale of production, the lower the cost allocated for per menu. Successful chains of franchisee generally begin with the proper business model, proceeding with accretion of the exact scale and scope within the proper locations, until they have reaching the optimum saturation level of the market. The franchising model of operation has allowed KFC to spread its business all over the world.
Ecommerce and the Franchising Model
The company is a public company which can generate huge capital from the market using its brand value as a security to the investors(kfc.com, 2017). The company is able to hold its high brand value owing to the high revenue it earns from the chain of franchisees it has all over the world. It is no doubt that the company is looking forward to increase its franchisee chain which has a great future (yum.com, 2017). The franchisees provide the important information about the changing customer tastes and preference to the franchisor. The franchisor can introduce the product lines according to the tastes of the markets in question to satisfy the customers better.
For example, KFC provides burgers & wraps, chicken, all in the box, buckets, salads & sauces, side dishes, desserts and kids items as menu in Germany. The same fast food chain offers make your own bucket (MYOB), chicken, burgers, rice bowlz, snacks and beverages. The different food items actually cater to the needs of the markets like India is consumed both as a part of staple diet and fast food dishes. These product differentiation strategies combined with the great product and marketing maximizes customer satisfaction. The combination of items offered by KFC through its franchisees at affordable prices increase the value to customer’s money. It is no doubt that fast food chains like KFC enjoys a huge customer loyalty in the market. The fast food chain offers total product which maximizes customer satisfaction. The customers can distinguish the distinct taste and quality of KFC from its competitors. Thus, franchising model helps the multinational fast food chains like KFC to sell their total products in the whole world and earn high profit. This market strategies of KFC has led to the success of the franchisee model of the fast food chain internationally.
Franchising is a very successful business model and foreign expansion strategy. The essence of this model is not restricted to mutual profit anymore. The model is capable of maximization the value of the key stakeholders which has led to its success and adoption by the international companies like KFC. It offers high quality products, thus benefitting the customers. The franchisee model helps the international fast food chain to market its product all over the world. The products are of high quality and follow the high brand value of KFC. KFC promotes its products through its franchisees and advertises its value enhancing products. The marketing strategy of KFC through its franchisee chain has led to generating high profit for both the parties.
Franchising and Stakeholder Value Creation
Conclusion:
The strong marketing strategy and the alignment of products with it results in high customer satisfaction. The company no doubt has a huge consumer base worldwide to love to consume KFC products. Restaurants have been successfully expanding in the global basis along with locally with the use of the franchisee model. For instance, KFC, Taco Bell and McDonald’s having been making the best use of this franchise model. In this franchise business sculpt, the franchisor and the franchisee have been entering into the contractual conformity in selling the branded products of the franchisor. It is the franchisee who takes the lumber of improving the restaurant, overseeing the regular operations along with managing of the cost for administering the restaurant. Due to the elimination of the operational cost, the margins are generally elevated for the franchisor. The benefits for making use of this model is to take in the opportunity in expanding faster as the franchisee offers the capital in making the restaurant equipped for the purpose of the operations. The franchisor generally faces lower amount of risk if the store is being underperforming.
KFC would be having more time in focusing on the product and operational research and spending of less amount of time on the purpose of execution. As the restaurant is being owned by the franchisee who is generally the highest motivated part in making the restaurant a success, it eradicates the issue of agency. The franchise is as good as the boss of the restaurant, whose capital is generally being employed in the restaurant. The only downside of this model that KFC might find is the company having less power over the work procedure of the management.
References:
2016 Yum! Brands Annual Report. (2017). Yum.com. Retrieved 10 May 2017, from https://www.yum.com/annualreport/
Buchan, J., Frazer, L., Zhen Qu, C., & Nicholls, R. (2015). Franchisor Insolvency in Australia: Profiles, Factors, and Impacts. Journal of Marketing Channels, 22(4), 311-332.
Eriksson, C., & Tenfält, M. (2015). The Evolving Role of E-commerce in Retail-Effects on Brand and Customer Relationships.
Kacker, M., Dant, R. P., Emerson, J., & Coughlan, A. T. (2016). How Firm Strategies Impact Size of Partner?Based Retail Networks: Evidence From Franchising. Journal of Small Business Management, 54(2), 506-531.
Kentucky Fried Chicken. (2017). kfc.com. Retrieved 10 May 2017, from https://www.kfc.com/
Lam, S. P. L., Martínez, J. L. C., Zanoguera, L. M. B., Carrillo, S., & Valenzuela, A. C. B. (2014). Measuring Organizational Environment and Its Relationship with Leadership in a Fast Food Franchise in Tijuana, Baja California, Mexico.
Lee, M. C. (2016). Knowledge management and innovation management: best practices in knowledge sharing and knowledge value chain. International Journal of Innovation and Learning, 19(2), 206-226.
Lee, Y. K., Kim, S. H., Seo, M. K., & Hight, S. K. (2015). Market orientation and business performance: Evidence from franchising industry. International Journal of Hospitality Management, 44, 28-37.
Maak, T., Borecká, M., & Pless, N. M. (2014). Developing Global Leaders Who Make a Difference. Developing the Next Generation of Responsible Leaders: Empirical Insights and Recommendations for Organizations, 115.
Perrigot, R., & Pénard, T. (2013). Determinants of e-commerce strategy in franchising: a resource-based view. International Journal of Electronic Commerce, 17(3), 109-130.
Rhou, Y., Singal, M., & Koh, Y. (2016). CSR and financial performance: The role of CSR awareness in the restaurant industry. International Journal of Hospitality Management, 57, 30-39.
Stahel, W. R., & Clift, R. (2016). Stocks and Flows in the Performance Economy. In Taking Stock of Industrial Ecology (pp. 137-158). Springer International Publishing.
van Tongeren, M., & Stolwijk, A. M. (2013). Multi-channeling and the use of Social Media by companies of the Service and Product typology.
Zhang, J. J., Lawrence, B., & Anderson, C. K. (2015). An agency perspective on service triads: Linking operational and financial performance. Journal of Operations Management, 35, 56-66.
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