In a general sense franchising – is a “rental” of a trademark or commercial designation. Using a franchise is governed by the contract between the franchisor and the franchisee. The content of the contract may be different from simple to very complex, containing the smallest details of the trademark. Typically, the contract is regulated by the amount of royalties for the use of a franchise (it can be fixed, one-time over a certain period, the percentage of sales). The requirement of deductions may be absent, but in this case the franchisee agrees to buy from the franchisor’s a certain amount of goods / services / works.
Individual item of the contract may be conditions for the use of a trademark / brand. These requirements can be very simple (for example, franchisees can use the brand in a particular industry) and hard (for example, the franchisee agrees to use the equipment in a shop in strict accordance with the requirements of the franchisor, the size and color of the shelves to the uniforms of staff).
Philip Kotler identifies the following signs of franchising:
A franchisor receives royalties for the use of his trademark;
A franchisee pays an initial fee to become part of the system;
A franchisor provides the franchisee with system of doing business.
The first prototype of the modern franchise system is considered to be the system of selling and servicing sewing machines Singer. The founder of the world famous company «Singer Sewing machine company» Isaac Singer was the progenitor of modern franchising. Beginning from 1851, the firm Singer concluded with distributors of the goods a written agreement on the transfer of a franchise agreement transferred the right to sell and repair of sewing machines in a certain area of the United States.
At the time of organizing the world’s first full-fledged franchise system the firm Singer provided a mass scale production of sewing machines in order to maintain the most competitive prices, but it did not have a streamlined system of services that would organize the maintenance and repair of machines throughout the United States. In this regard it was established a franchise system that provides financial and independent firms with exclusive rights to sell and service sewing machines in a particular area. These first franchises, in essence, were operating distribution agreements with the additional responsibilities of the franchise (dealer) to service of the machine.
Modern franchising experienced a real upturn in 1898, when the company “General Motors” has adopted a franchise dealership.
In 1920 in the U.S. a standard trademark franchising began to develop. According to the principle of franchising larger wholesale suppliers began to build their relationship with the owners of retail stores. Wholesaler (or franchisor) enabled the small retail trade organizations to receive additionally many discounts, use the stamp trading firm and still maintain their independence.
After the crisis in the U.S. economy in 1930 the oil companies began to explore franchising. Thus the first gas station network, owned by independent franchisees, appeared. Typically, gas stations were transferred to small local entrepreneurs on lease terms.
A classic trademark franchising, distributing in the system franchisor – franchisee goods and services began to evolve only in the 50s of last century.
In 1945, Ray Kroc, the future founder of McDonald’s, became interested in the reasons of popularity of a small restaurant in San Bernardino in the West of the United States. As a result, he appealed to owners of successful restaurants and soon received a license to purchase the same restaurants. In 1955, Ray Kroc founded McDonald’s System, Inc., which is the ancestor of the franchising of business format (Business Format Franchisings), that is franchising in its modern form, when with the franchise it is transferred a whole system of doing business.
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