Category: Franchising

The financial analysis of Borders Group Inc. previously carried out has highlight important insights in the company’s business and its financial performance was evaluated for a period starting from 2005 to 2009. There are some crucial decisions which company has undertaken having direct impact on the cash flows of the company. In this paper six business decisions have been identified that will be assessed for their relationship with company’s cash flows.

Franchise Decision

Borders Group still considers its overseas franchisee opportunities to be of high value. This is based on the company’s evaluation of its brand name which it considers to hold higher value in overseas markets such as Australia (Borders Group Inc., 2009).. The company has made a decision to continue its international growth by allowing franchise opportunities for investors in other markets. By selling franchise the company could generate positive cash flow which would result in higher ‘Other income’ and thus would help the company to support its negative income generating business.

Sell Off Decisions

Company’s decision to sell off its low performing businesses could also have impact on its cash flow. These business units have been underperforming with slow sales and company’s investment had been stuck in these business units. By selling off these units specially its paper chase business for $65 million and a chain of 42 book stores in Ireland would ease off some of its cash problems. The sale proceeds from selling these units could also add positive cash flow for the company which could be used to support its ailing business. This decision would have impact on its net cash flow from investment activities (Borders Group Inc., 2009).

Dividend payout

Dividends are considered as outflows and are shown as deductions from financing activities. However, they are based on the previous year financial figures. Upon examining the financial reports of the company it could be observed that the company did not pay any dividends in 2009 as the company made loss in the previous year (Borders Group Inc., 2009). This will not be appreciated by shareholders who may consider selling off their investment in the company and this could further dampen company’s financial position. Shareholders should not expect dividends next year as well because of negative income position in the year 2009 despite of company’s projections of overall improvements.

Goodwill Amortization

The company’s accounts indicate goodwill $0.2 million in 2009 which has declined from $40.5 million in the year 2008 (Borders Group Inc., 2009). The company has made a decision not to amortize goodwill which implies that there is no deduction of amortized amount against the income earned. Goodwill as identified by the company is the amount received in excess of the value of its franchise which is available for sale to investors abroad. This is likely to have impact on the cash flow as the company does not amortize its goodwill which will result in higher cash flow.

Increased Borrowing

In order to fund its cash flow problem the company has made a decision to increase its long term borrowing which is reflected in the year 2006/07 where the current portion of long term debt has showed an increase of 142% (Borders Group Inc., 2007). The company’s account continuing to show high figures for borrowed funds. This will have positive impact on the cash flow however payments of interest on the borrowed amount will show as negative flow under financing activities in the cash flow statement.

Strategic Planning

The company has decided to develop a plan to improve the strategic positioning of its stores. The company has recently faced with immense competition in form of new entrants and the company is facing difficulty to hold its strong position in the market. Therefore, in order to stand out amongst leading names the company has carried out short term investment of $108 million to give its stores new look and added values in shape of Coffee Café and paper chase shop (Thomas Reuters, 2009). This investment will be a cash flow arising from investment activities of the company in the cash flow statement.

Discontinued Operations

Finally, the company accounts indicate that the company has decided to shut down some of its continuing operations. This would prevent recurring losses from these operations. Thus, it will improve company’s income. The company did not make any profit on the sale of these assets however some positive cash flow will arise that will be reflected under investment activities as sale proceeds.

Remarks

The company cash flow position is affected by the above business decisions which the company has undertaken during the course of its business. However, from examining the company’s strategic planning and its weakening financial position the company is seemingly is destined to have cash flow problems in the future periods as well.

References

Borders Group Inc. (2007). Annual Reports 10K.

Borders Group Inc. (2009). Annual Reports 10K.

Thomson Reuters. (2009). Borders Group Inc (MI): Financial Statement.

Licensing entails a company arranging to sell or grant a licensee the right to produce their products or use their intellectual property or items for royalty. On the contrary, franchising requires the franchisor to authorize a franchisee to use a process, brand name, and business model for a certain feel to do business (Gaitán, 2021). Registration is not required when licensing goods and products but is compulsory during franchising. Items like patented technologies and software are associated with licensing, while franchising entails services like automobile service centers and food chains. Moreover, franchising involves exercising massive control of the service quality and strategies applied in the franchisee’s business (Gaitán, 2021).

However, licensing does not allow autonomy over the right given to the licensee to perform business. Franchising requires the franchiser to offer complete support and training to the franchise but is not a requirement in licensing. Rights or property are transferred once during licensing, whereas franchising entails providing continuous support (Gaitán, 2021). Franchising applies strict rules concerning the franchisee’s business activities, while licensing regulations are less stringent.

Contractual Entry Approaches of Franchising and Licensing

Contractual entry approaches commonly implemented are franchising and licensing. Companies that enter a market using licensing contractual mode gain the right to the owner’s patents, brand, technology, or trademarks (Cavusgil et al., 2016). Aspects specified when making a licensing agreement include the relationship between the licensee and licensor. On the other hand, franchising contractual entry approaches are an advancement of licensing, which allows the franchisee to utilize the franchisor’s entire business components for a specified compensation (Cavusgil et al., 2016). Franchising parties are involved in a continuous relationship likely to last several years. Each entry approach is associated with significant advantages and disadvantages.

Advantages of Licensing Entry Method

Capital investment and the licensor’s direct involvement are not needed when using licensing contractual entry approach. In addition, licensing is associated with lower costs and offering the right to key technology (Cavusgil et al., 2016). Moreover, this approach can be effective when entering restricted or challenging markets that require bureaucratic requirements and tariffs. Licensing helps to limit the entry of competitors by enhancing the company’s brand name in new markets.

Disadvantages of Licensing Entry Method

The risks associated with licensing entry approach include a limited relationship with clients and reduced control of services and products. The licensee relies on contractual enforcement to control their business, which may hinder performance. Remarkably, licensing may result in the creation of future competitors because it involves sharing intellectual property (Cavusgil et al., 2016). For instance, IP knowledge is disclosed to other firms contributing to technology transfer and increased future competition.

Advantages of Franchising Entry Method

The franchising entry approach is also associated with lower capital and increased brand diffusion. Moreover, the franchisee enjoys control over products, operations, and brand marketing (Cavusgil et al., 2016). This enables them to achieve improved performance and expand in diverse foreign markets. Furthermore, the franchisee’s knowledge can be applied or leveraged to develop markets and navigate efficiently. Therefore, the owner is not left to fully control the franchisee’s operations, services, and products.

Disadvantage of the Franchising Entry Method

However, the franchising entry mode results in a challenge when maintaining control over the granted rights. Conflicts are often witnessed between the owners and franchisees, such as legal disputes (Cavusgil et al., 2016). Remarkably, the owner’s image may be challenging to preserve because they do not have complete control of the operations. Furthermore, ongoing support and assistance are required when franchising is an entry strategy. The knowledge given to franchisees may contribute to future competition if it is misused.

References

Cavusgil, S. T., Knight, G., & Riesenberger, J. (2016). International business: The new realities. Pearson.

Gaitán, M. G. (2021). Licensing as a central structure of technology transfer agreements–joint venture and franchising agreements. GRUR International, 70(5), 427-439.

International franchising is the merging of assets and skills to achieve worldwide marketing, distribution, and sales objective. It is structured with a centralized franchisor as well as franchisees in various regions of the world. By paying the management fee and an agreed-upon percentage of total sales, the franchisor provides the franchisees the right to utilize the business’s intellectual property, name, and brand. This is a profitable business since it enables a firm to capitalize on the possibilities of the international market while also allowing individuals to be their own bosses. Starting a new franchise necessitates a significant investment; nevertheless, the rewards outweigh the initial outlay.

America has one of the most franchise brands in the world. McDonald’s, Subway, Baskin-Robbins, and Domino’s Pizza are among these companies (Daszkowski, 2019). The majority of these franchises are in the food industry. The organizations have stringent standards that must be fulfilled in order to join them. To be incorporated in the franchise, a Macdonald’s shareholder must have a net value of at least $1.5 million, whereas Subway requires a capital value ranging from $116,600 to $263,150. (Daszkowski, 2019). In addition, some other brands require a royalty charge, that is always a percentage of overall revenues, and Subway Franchise demands 8%. (Daszkowski, 2019). Despite these hefty start-up fees, franchising is lucrative.

Most people mind where a product is made while buying them. American brands’ power index made America be number four of 70 countries assed in 2017 (Daszkowski, 2019). This is a positive sign showing that around the world, products from America were considered highly. Moreover, it is a boost to American brands as this gives them a high chance of their products and services being considered by consumers around the world.

Domino’s Pizza Franchise brand is very friendly to new investors compared to other brands. They require a license fee of $25,000 to start up a new investment (Daszkowski, 2019). This fee can be lowered up to as low as $0, depending on the social segment. It can also be reduced if the investor works with the franchise as a general manager (Daszkowski, 2019). Furthermore, the company offers a complete training program that covers retail operations, promotion, financing, and human resources. Daszkowski (2019). These friendly guidelines would come in hand for a new investor, making the brand highly considerable.

The United Kingdom provides a great market potential for a franchise brand. It provides a large market size due to its large urban population. The market is still growing, meaning more aggressive sales are expected for a brand. Since the population is mainly urban, the brand is dealing with food and has a high purchasing power for food. The United Kingdom is a very stable country regarding political stability and low economic risk; thus, investing there would have low chances of investment failing due to political issues. The United Kingdom would be the most suitable country to finance a franchise company internationally.

However, United Kingdom has few issues that may negatively impact the investment. The looming Brexit is making the citizens uncertain of the future of the country’s economy. This makes the citizens fear spending much money on buying products and services, which reduces the purchasing power of the population. This can have a significant effect on new investors seeking to make good sales, thus reducing the United Kingdom’s attractiveness.

In conclusion, international franchising is a lucrative step that a company can exploit the current global market. It requires a hefty investment to start but brings in good sales. The start-up cost differs across international franchises in that an individual’s financial status will dictate the type of business they can invest in. Different characteristics of a country affect the attractiveness of a country for franchising.

References

Daszkowski, D. (2019). Here is a list of the most popular food franchises and opening costs. The balance small business. Web.

Abstract

Franchising is one of the most effective strategies through which businesses can attain the desired level of growth and competitive advantage. Its effectiveness emanates from the view that it is based on a tested business model.

Despite its effectiveness in promoting financial sustainability, the franchising business model has been criticised extensively by various scholars due to its standardisation requirements, which demand the adoption of similar business practices across different markets.

The standardisation requirement may hinder the ability of franchises to align their operations with the prevailing market conditions, especially in geographically dispersed markets.

Therefore, it is imperative for franchises to adapt to the prevailing market conditions. This report highlights the various issues associated with the standardisation and adaptation of franchises. The report emphasises the importance of establishing a balance between standardisation and adaptation. Thus, the report argues that franchisors should not limit the franchisees’ decision-making capability.

Introduction

The contemporary business environment is experiencing a significant evolution arising from diverse macro and micro environmental forces. These forces may affect an organisation’s long-term survival (Truitt 2006). Therefore, achieving competitive advantage is one of the fundamental aspects that organisational leaders should emphasise in their pursuit for sustainable business operations.

Investors and organisational leaders must ensure that their firms have incorporated effective strategic and operational management practices. One of the issues that should be taken into account relates to the integration of effective business format (Rundh 2003).

Previous studies conducted by researchers and business experts have led to the development of different retail formats that organisations could adopt. One of the examples of business format is franchising, which entails a contractual business relationship between two legally independent businesses [the franchisor and the franchisee] (Tuunanen & Hyrsky 2001).

Cox and Mason (2007, p.1053) emphasise that the ‘contractual agreement gives the right to trade under the franchisor’s name and use the franchisor’s products or services’.

However, the franchisee must adhere to operational regulations and procedures stipulated by the franchisor. Moreover, the franchisee accesses different forms of support from the franchisor such as training and marketing support in order to enhance business success.

The franchising business format is increasingly gaining recognition amongst investors due to its numerous benefits. Over 3,000 franchise systems have been established in the US, which represents over 901,093 franchisees. These franchisees have created employment to over 18 million citizens (Dant, Grunhagen & Windsperger 2011).

Franchising is associated with a higher rate of success as compared to green field start-ups. Businesses benefit from franchising due to the established business name. Moreover, franchising leads to the attainment of competitive advantage as the franchisee becomes a part of an extensive network. Franchisees receive a constant flow of business ideas, which enhance their ability to attain competitiveness.

Stanworth et al. (2004) assert that franchising benefits are not only limited to financial capital, but also an extensive knowledge of the labour markets and geographic locations within which the firms operate.

It is projected that franchising, as a business format, will experience remarkable growth into the future. A study conducted by the PriceWaterhouseCoopers (2011) shows that franchisors in Australia are projecting a 37% growth in revenue over the next 3 years.

Despite the aforementioned benefits associated with franchising and the projected growth, the concept is not free from challenges. Stanworth et al. (2004) emphasise that the retailing industry is characterised by an increment in the number of firms exiting the franchising business concept after few years of trying it out. Subsequently, the industry is experiencing a high rate of failure.

One of the major criticisms associated with the high rate of failure amongst franchises relates to the concept of standardisation and adaptation. Previous studies have identified standardisation and adaptation as one of the core aspects in franchising.

Sidhpuria (2009) argues that the franchisees’ operations are based on well-defined procedures, which define the product and service design, product offering, store location, tools and equipment, interiors, and space.

Furthermore, the concept of standardisation also entails specification of the strategies that the franchisee must adopt. An example of such strategies include employee training. Biethahn et al. (2013) are of the opinion that standardisation is aimed at enhancing the effectiveness and efficiency with which franchisors and franchisees achieve the desired level of market growth due to the well-known business procedures.

The success of franchising is subject to the nature of relationship established between the franchisor and the franchisee. However, the concept of standardisation and adaptation stifles the franchisees’ creativity and innovation, which is contrary to the level of independence that franchising claims to offer.

The franchisee has a duty to adhere to the standards set by the franchisor. Under the franchising system, the franchisor has the power to influence the franchisees’ operating decisions (Biethahn et al. 2013).

On the other hand, Cox and Mason (2007, p.1054) contend that some ‘franchisee have developed the perception that owning a franchise unit gives them the right to exercise entrepreneurial initiatives rather than conform to the franchise norms’. The strategy advocated by the franchisor may lead to operational inefficiency, hence affecting the contractual agreement.

For example, the agreement may be based on the sales revenue. Consequently, the franchisee will be focused to maximising the sales revenue. However, following the strategy advocated by the franchisor may hinder attainment of profit maximisation objective.

Cox and Mason (2007) are of the view that the tension between the franchisor and franchisee may be increased by the existence of geographically differentiated markets, which may force the franchisee to deviate from the set operational standards.

Rationale of the study

The modern retail industry is characterised by remarkable changes, which are driven by diverse macro-environmental factors such as the increment in the rate of globalisation and economic changes.

Despite this aspect, firms in the retaining industry have a responsibility to accomplish their profit and wealth maximisation objectives. Consequently, organisations are under intense pressure to develop substantial competitive advantage. Therefore, the importance of adopting optimal strategic management practices has increased substantially.

In an effort to achieve the desired competitiveness, organisations are increasingly venturing into the international market through the adoption of various internationalisation strategies (Hoy & Stanworth 2014).

Some of the internationalisation strategies being adopted include the non-equity modes of entry such as export and contractual agreements. Franchising is one of the contractual agreements that firms in the retail industry are increasingly adopting due to its effectiveness in stimulating business growth (Twarowska & Kakol 2013).

Twarowska and Kakol (2013, p.1006) further argue that firms ‘that venture into the international and global markets have an obligation to adapt to the local business environment’.

The operational strategies adopted in the local market may not be effective if replicated in the international market. Therefore, the overemphasis of standardisation as one of the core aspects in franchising might not be effective if applied in geographically dispersed markets.

Objective

This report intends to evaluate the concept of franchising as one of the business formats that are gaining significant market recognition. The study focuses on the elements of standardisation and adaptation as some of the core elements in franchising. The report intends to achieve a number of objectives, which include

1. To assess how geographical factors affect the implementation of franchising business format.
2. To analyse the extent to which franchisors allow franchisees to adapt to the prevailing environmental conditions.
3. To evaluate how the franchisees integrate the concept of adaptation in their effort to carry out the franchising system.

Scope of the report

In order to achieve the above objectives, the report has taken into account a number of issues. First, a review of existing literature is conducted in order to illustrate some of the core issues that have been evaluated by various scholars on the concepts of standardisation and adaptation in franchising. Some of the issues evaluated in this section include the factors that motivate companies to adopt the franchising strategy.

Additionally, the various types of franchising that organisations can adopt are evaluated. The report also details the various factors that companies should take into account in determining whether to adopt the franchising strategy. Additionally, the report details a review on the concepts of standardisation and adaptation amongst franchises.

An effective methodology is used in conducting the study by employing the qualitative research design due to the exploratory nature of the study. Furthermore, data is collected from credible secondary sources, which include peer-reviewed journals and company websites. The data obtained is analysed and presented using charts and graphs.

This study has adopted a theoretical perspective by taking into account two main theories of franchising, which include the agency and the resource scarcity theories. Furthermore, the study seeks to provide franchisors and franchisees with insight on how to manage the franchising system.

Literature review

The business format adopted has a remarkable impact on the organisations’ ability to succeed in their respective industries. The choice of the legal format is subject to diverse factors, for example, the desired level of market growth, capital requirements, and the prevailing business environment (Dant, Grunhagen & Windsperger 2011). Franchising is one of the internationally proven business models.

The decision to adopt the franchising business model varies amongst companies and individuals. Buchan (2013) argues that diverse factors motivate companies to adopt franchising. One of the core reasons entails the need to overcome the monitoring and financing challenges encountered in business operations.

Standardisation is one of the strategies used in attaining cost minimisation by the franchisee and the franchisor. Cost minimisation is achieved through various strategies such as reduction in the amount of time required to monitor the firms’ operations. Additionally, franchising leads to the development of economies of scale.

Secondly, companies franchise in an effort to leverage on the support system associated with franchising. For example, the franchisees gain different entrepreneurial skills. On the other hand, Dant, Grunhagen, and Windsperger (2011, p.258) assert that individuals ‘become franchisees because of the perceived lower risk and greater rewards’.

The standardisation requirement of the franchising enhances the effectiveness and efficiency with which an organisation formulates and implements its marketing strategies. For example, standardisation enhances the franchises’ public image due to consistency in communicating the business concept. Consequently, customers develop the perception that they can access the same product in different markets (Chary 2009).

Therefore, consumers seeking a common consumption experience develop a high level of loyalty towards the franchise. Dant, Grunhagen, and Windsperger (2011) emphasise that standardisation is paramount in sustaining brand integrity.

Types of franchising

Organisations and individuals can adopt two main sub-categories of franchising. These formats include

1. Traditional format franchising
2. Business format franchising

Traditional format franchising

The traditional format franchising is the oldest franchising model, which entails establishing a contractual relationship between a franchisee and a company. The contractual agreement gives the franchisee exclusive rights to distribute or deal with the company’s products. The franchisee benefits from the distribution network established by the franchisor.

Yudoko (2012) asserts that traditional franchising format is mainly common amongst firms that deal with finished or semi-finished products. The franchisees’ operations entail reselling the company’s product to other firms or the final consumer.

The franchisor receives a certain percentage of the sales made by the franchisor. Some of the companies that have adopted traditional format franchising include the British Petroleum service stations, Avon Cosmetics, and the Coca-Cola Company.

Business format franchising

This format entails licensing a tested business model to the franchisee. The franchisee is required to pay a certain fee for using the business model. Abell (2009) asserts that business format franchising is more complex as compared to the traditional format franchising.

Abell (2009, p.16) notes that business format franchising ‘encompasses the right to adopt an entire business model, with predefined roles and responsibilities, operational standards and procedures, quality control, and product distribution’. The franchisor’s revenue is based on the total sales. Business format franchising is mainly common in the restaurant and hospitality sector.

Factors considered in franchising

Developing a franchising system is a challenging undertaking. Therefore, firms planning to adopt franchising as their expansion and growth strategy must assess the ‘franchisability’ of their business. The assessment criteria should be based on a number of issues, which include the level of profitability, flexibility, transferability of the business model, and standardisation.

Profitability

Franchisors must assure the franchisees that adopt the franchising model will enhance the firm’s level of profitability. Therefore, the franchisor must prove that its franchising system is based on a proven business model. Sidhpuria (2009, p.54) asserts that the ‘business model should be profitable and not in the concept stage’.

Transferability of the business model

Firms intending to attain the desired level of market growth through franchising must ensure that the model adopted can be transferred to the franchisee, which is dependent on the complexity associated with the franchising system.

Simpler franchising systems take relatively shorter duration to transfer the required knowledge to the franchisee as compared to complex franchising systems. Dant, Grunhagen, and Windsperger (2011) assert that the acceptability of the franchising system depends on the duration required to transfer the necessary skills and knowledge.

Flexibility

One of the common practices in franchising entails standardising various aspects such as the product offering, store ambience, pricing and promotional strategies, and policies. However, standardisation increases the level of rigidity in the franchising system, which limits the franchisees ability to offer products that align with the local market requirements.

Lack of flexibility has adverse effects on the franchisees’ growth potential, which might eventually make the franchising strategy an unviable business proposition. The franchising model should provide the franchisee with an opportunity to accommodate the consumers’ tastes and preferences.

Despite the product standardisation requirement, franchising should be characterised by a substantial level of product customisation.

Sidhpuria (2009, p.55) asserts that the ‘flexibility of the franchising system should allow the franchisors to tailor all their marketing efforts to meet not only the legal requirements of the local market in case of internationalisation of the franchise system, but also the cultural and behavioural aspects of the local market’.

In an effort to align its operations with the prevailing market conditions, the McDonald’s, which is a renowned fast food multinational company, introduced a vegetarian burger in order to penetrate the Indian market through franchising.

Consequently, the firm was in a position to align its operations with the prevailing behavioural and cultural market requirements. Moreover, the McDonald’s has also adjusted its promotional strategies to align with the local market requirements.

Standardisation

Franchisors must develop an effective and well-defined procedure outlining how it intends to conduct its business operations. Standardisation plays a fundamental role in enhancing consistency and uniformity of operations within the franchising system.

Prototype

Franchising should be based on a well-developed and tested prototype. Findings of a study involving 40 franchises conducted in the UK shows only 27 of the firms were based on a tested business format (Stanworth et al. 2004). Prospective franchisors should undertake a comprehensive test on the applicability of their franchising system in different locations before inviting franchisees.

The objective of franchise system piloting is to ascertain whether the system can be replicated in different locations. However, Stanworth et al. (2004, p.553) assert that many ‘franchise systems are far from being ‘tried-and-tested’ in their early days and thus they still have much to learn’.

Management competency

The growth of organisations irrespective of their area of operation is influenced by the managerial competency of the organisational leaders. Managerial competency has an impact on an organisation’s ability to develop and introduce new products into its existing and new markets. Managing inorganic organisational growth strategies for example franchising is relatively more complex as compared to managing inorganic growth.

Franchising; standardisation versus adaptation

Franchising has gained recognition by different researchers. Combs, Michael, and Castrogiovanni (2004) argue that the significance of franchising varies across different stakeholders. Entrepreneurs are of the opinion that franchising is one of the most effective ways of achieving business ownership.

On the other hand, marketers perceive franchising as one of the most effective ways of attaining competitive advantage with regard to product distribution. The strategic management perspective considers franchising as one of the most effective organisational form (Combs, Michael & Castrogiovanni 2004).

The available literature on franchising cites autonomy and operational independence of franchisees as one of the issues that have been researched on extensively. The interest on the area has emanated from the inherent contradiction on the relationship between the franchisor and the franchisees (Cox & Mason 2007). Some scholars argue that independence is one of the fundamental elements of franchising.

Consequently, Cox and Mason (2007, p. 1054) posit that franchising ‘is promoted as a means of being your own boss’. Despite this assertion, the provision of standardised products and services across different locations is considered as one of the fundamental elements in the franchising system.

However, Hoy and Stanworth (2014) assert that franchisors may not endure the franchisees’ decision to deviate from the set operational standards. Thus, franchisees do not have an opportunity to develop their business ideas.

Franchisors have the exclusive right with regard to decisions associated with the system’s operating procedures, supply of inputs, promotion activities, and trademarks.

The standardisation requirement restricts the franchisees’ decision-making autonomy to issues associated with the firm’s local operating policies, for example, working hours, product pricing, store location, and how to recruit employees (Combs, Michael & Castrogiovanni 2004).

Cox and Mason (2007, p.1054) accentuate that the ‘existence of misalignment of incentive structures creates a further source of tension between franchisors and franchisees’. For example, the contractual agreement between the franchisor and the franchisee may require the latter to pay the former a certain proportion of the total sales revenue.

However, following the marketing strategy stipulated by the franchisor may hamper the effectiveness with which the firm attains profit maximisation. This situation may occur if the franchise operates in an area characterised by a low rate of market growth. However, the firm may increase the level of profitability by adopting different strategies rather than what is stipulated by the franchisor (Michael 2000).

The tension between the franchisor and the franchisee is augmented by the existence of geographically differentiated markets (Cox 2002). Moreover, Cox and Mason (2007) assert that resource availability increases the pressure on franchisees to diverge from the concept of standardisation. Franchising is considered as one of the most effective ways of entering geographically dispersed markets.

Geographical dispersion exposes organisations to varied market conditions, which can lead to the attainment of the desired level of competitiveness. Hence, the importance of adapting an organisation’s operational policies and procedures to the local market environment in order to maximise performance cannot be underestimated (Sorenson & Sorensen 2001).

However, contradiction exists with regard to the uniformity of the operational strategies and adaptation. Some of the studies conducted show that the uniformity and consistency associated with the franchising system enable organisations to increase their customer base.

Additionally, Sorenson and Sorensen (2001, p.320) posit that some ‘customers transfer goodwill they associate with the quality of one outlet to others operating under the same trademark’.

The various franchise units, which constitute the franchising system, should operate interdependently. Thus, developing a consistent reflection is fundamental in the success of the authorisation structure due to the potential effect of one of the units on the other firms in the charter scheme.

Some studies show that the uniformity requirement of franchising systems increases the likelihood of free riding due to the spill over effects (Michael 2002),. For example, the existence of shared brand name amongst franchise outlets leads to the transfer of benefits amongst the various outlets (Combs, Michael & Castrogiovanni 2004).

Deviating from the standardisation requirement can erode the franchise’s trademark. Additionally, deviating from the set operational standards can adversely affect the quality of product and service offered.

Another criticism of accommodating the franchise system is illustrated by the view that adapting to the local market conditions may have a negative impact on the franchise system’s ability to innovate (Sorenson & Sorensen 2001). The inability to innovate arises from the view that the knowledge generated by the various franchise units may be of less value in different geographical locations.

Coping with the local market circumstances minimises the chances of benefiting from cross-fertilisation of information due to lack of operational practices across the franchising scheme (Cox & Mason 2007).

On the contrary, some studies show that the uniformity of operational strategies as advocated by the standardisation requirement in franchising cannot lead to the optimisation of organisational performance in geographically dispersed markets (Dada 2013). Organisations are gradually adopting the franchising strategy in their pursuit for competitive advantage in the international market.

This trend is mainly evident in the retailing sector (Levy & Weitz 2007). Franchise systems penetrate the international market through two main phases. The first phase involves entering into neighbouring countries characterised by similar culture, for example, the expansion by US-based firms into Mexico and Canada or by Japanese firms into neighbouring Asian countries.

The second phase entails venturing into countries characterised by different political systems and national culture. In a bid to succeed in such markets, it is essential for franchisors to take into account the various cultural components such as customs, language, and tastes (Pisant & Lerner 2003).

According to Dant, Grunhagen, and Windsperger (2011), developing franchise units in geographically dispersed locations is one of the major avenues that franchise firms are adopting. Multi-unit franchising is increasingly being adopted by franchising system in an effort to achieve the desired level of growth. However, the success of franchise units in the domestic market is not a guarantee of succeeding in the foreign market (Megan 2010).

Some of the factors that might affect the international operation relate to the variation in the degree of economic and political risk and high cost of operation. Furthermore, the firm may experience challenges arising from the existence of communication problems, which are increased by geographic, cultural, and language differences (Ryans, Grittith & While 2003).

According to Cox and Mason (2007), market dimensions vary from one market to another such as the consumers’ tastes and preferences, intensity of competition, and income levels. Additionally, geographically dispersed markets are characterised by variations arising from the factors of production.

Findings of previous studies conducted by Cox and Mason (2007) show that most small and medium sized enterprises do not remain passive towards the constraints and pressures originating from the external business environment. However, they formulate operational strategies that are intended to overcome the market constraints (Cox & Mason 2007).

Theories of franchising

Most studies conducted on franchising are based on two main theories, which include the agency and the resource scarcity theories.

Agency theory

This theory explains the relationship between two parties [the principal and the agent]. The concept of franchising is based on a well-designed contractual agreement between the franchisor and the franchisee. The contract outlines the rights and responsibilities of the franchisee and the franchisor.

Moreover, the contract is aimed at protecting the franchisors’ and the franchisees’ financial interests (Combs, Michael & Castrogiovanni 2004). The agency theory is one of the extensively applied theories of franchising due to its effectiveness in undertaking theoretical examination on the impact of hybrid organisational arrangements on organisations’ growth and long-term survival.

According to Pisant and Lerner (2003, p.910), ‘the relationship between the franchisor and the franchisees results in the creation of an agency problem for the franchisor delegates local decision making to outlet managers whose interests are not perfectly aligned with the franchisors’. However, adopting the franchising strategy is considered as one of the most effective ways of dealing with the agency problem.

The concept of franchising offers ownership allocation to the franchisee rather than salary compensation. First, the franchisor avoids the complexity associated with monitoring the franchisees’ activities. Franchisee may misrepresent his/her abilities. Secondly, the principal [franchisor] minimises the moral hazard associated with the agency problem.

Allocation of ownership also fosters the franchisor’s ability to achieve cost minimisation. The franchisee is charged with the responsibility of undertaking the various activities associated with improving human capital such as employee recruitment, selection, and training in order to achieve the desired level of growth (Michael 2003). Franchising is based on a contractual agreement, which the franchisee is required to follow.

Thus, franchisees have a duty to meet the stipulated operational criteria. Despite the increased application of the agency theory in explaining franchisor-franchisee relationship, critics claim that the theory does not take into account the relational complexity.

The theory assumes that the contractual agreement is long-term in nature. However, there is a high probability of the relationship undergoing short-term changes (Croonen & Brand 2012).

Resource scarcity theory

This theory suggests that the adoption of the franchising strategy is motivated by the need to deal with resource scarcity. The theory mainly emphasises the managerial and financial resources (Stanworth et al. 2004). Achieving growth is one of the major challenges faced by businesses especially for start-ups.

One of the main sources of challenges arises from the inability to access the required financial capital from the traditional markets such as banks and the capital market (Stanworth, Healeas & Purdy 2002).

Moreover, start-up businesses experience challenges in developing the necessary market knowledge and managerial talent. Nonetheless, achieving rapid market expansion is one of the essential elements in businesses’ efforts to achieve economies of scale, and hence their competitiveness (Combs, Michael & Castrogiovanni 2004).

According to Combs, Michael, and Castrogiovanni (2004, p. 910), the theory contents that firms ‘seek to access the capital and managerial resources that franchises provide when they build and manage outlets, even though returns might be higher among firm-owned outlets’. Firms adopt franchising in order to achieve economies of scale.

The above literature review on the concepts of standardisation and adaptation amongst franchises shows the existence of a significant gap. For example, the existing theoretical framework shows that the concept of franchising is based on an agency relationship between the franchisor and the franchisee. The relationship should result into mutual benefits between the two parties.

However, there is a high probability of the relationship between the franchisor and the franchisee experiencing difficulties, which might lead to an ineffective performance by the franchisee due to constrains arising from the standardisation requirements. Thus, the relationship between the franchisor and the franchisee may be affected by the existence of the agency problem between two parties.

On the other hand, the resource scarcity theory argues that franchising enables franchisees to access various managerial and financial resources, which enhance their competitiveness. However, franchisors may be hesitant to offer the requisite resource assistance if the franchisees do not adhere to the standardisation requirement as stipulated in the franchising contract.

Methodology

Research design

This study aims at exploring the choice on whether franchise firms should adapt to the local market conditions or standardise their operations across geographically dispersed markets.

The study is based on qualitative research design due to its exploratory nature. Adopting qualitative research design provides the researcher with an opportunity to gather substantial amount of data from the field hence making the study extensive (Maxwell 2005).

The data used in conducting this study is obtained from secondary sources such as company websites. Furthermore, the study will rely on the data documented in various reports and studies on standardisation and adaptation amongst franchise firms.

However, the researcher will ensure that only credible reports are utilised. Subsequently, the study will rely on peer reviewed journals and other literature available from credible online sources in order to enhance the credibility of the study’s findings. Using secondary sources provides the researcher with an opportunity to gather substantial data.

One of the studies used in compiling this report relates to survey conducted by Dr. Colin Mason and Dr. Juliet Cox, who are renowned experts with regard to franchising on firms operating in the fast food, industrial, commercial distribution, personal services, and the retail sectors.

In the process of conducting the study, the authors relied on interviews as their primary methods of collecting data. Furthermore, their study was comprised of a sample of 40 franchisors operating in the UK. The franchisors were obtained from the United Kingdom Franchise Directory.

In order to illustrate the choice of standardisation and adaptation amongst franchise firms, the study evaluates literature on the operation of the McDonald’s, which is a renowned multinational franchise company across the world.

The data collected from the secondary sources will be analysed using Microsoft Excel to enable the researcher condense the voluminous data collected. Data collected from company website will be presented and analysed using tables and charts.

Findings

Firms operating in different economic sectors in the UK have integrated the concept of franchising. Furthermore, most firms that have integrated the concept of franchising have been in existence for over five years, which underscores the importance of developing adequate managerial competence. However, the number of franchise firms reduces with age.

The reduction in the number of franchises might indicate an increment in the rate at which firms that previously operated as franchise units are adopting other formats of operation. Graph 1 below illustrates the trend in the number of franchises over time.

Table 1 (Cox & Mason 2007)

Furthermore, the study shows that the franchising strategy is mainly common in the distribution and personal services sectors as opposed to the retail, fast food, business-to-business, industrial, and commercial sectors as illustrated by graph 2.

Table 2 (Cox & Mason 2007)

Furthermore, most franchise firms considered have adopted the concept of multi-unit franchising, which is evidenced by the number of outlets that have been established as illustrated by graph 3 below.

(Cox & Mason 2007)

In an effort to optimise their performance, most franchisors evaluated had established outlets in different geographical regions. However, most firms had entered the South East and South West regions of the UK as illustrated by table 3 below.

Table 3 (Cox & Mason 2007)

An analysis of available literature from the McDonald’s company website shows that the firm has adapted its products [hamburgers] across the different markets in which it operates. Furthermore, the firm has standardised its marketing activities across the various international markets in which it operates. The McDonald’s has adjusted its hamburgers in order to meet the prevailing market demands.

Analysis

All the franchise firms considered in this study were required to adhere to the franchising contract. Subsequently, the firms were under pressure to standardise and maintain uniformity in their operations. Despite this aspect, the franchisors experienced intense pressure to deviate from the contractual requirements due to their inability to respond to the prevailing market conditions.

According to the franchisors, firms that have expanded their operations into different regions in the UK experience challenges arising from the geographical market variations.

Firstly, the various geographical regions in the UK are characterised by different socio-economic composition, with regard to the consumers’ level of income, lifestyle, and status. Moreover, consumers in different regions in the UK have different tastes, culture, and preferences. In addition to the above issues, the intensity of competition varies from one region to another.

In order to succeed in these markets, the franchisors have appreciated the importance of adjusting their operational strategies. Subsequently, the firms have observed a high level of flexibility in implementing their strategies. However, the franchisors are required to adhere to some issues associated with the franchising business format such as the company image.

Product mix variation

The McDonald’s operates as one of the largest fast food companies in the world. The firm’s headquarters are located in the US. Currently, the firm operates over 33,000 retail outlets in over 120 countries. It is estimated that the firm sells hamburgers to over 68 million customers daily. The firm has adopted the concept of franchising in an effort to enter the international market.

The firm has developed a broad product portfolio, which is comprised of shakes, cheeseburgers, snacks, soft drinks, French fries, and various breakfast items.

The firm’s operations are based on a number of core values, which include quality, customer focus, cleanliness, and service. Moreover, the firm’s operations are based on an effective philosophy, which entails providing customers with high quality fast foods and ensuring consistency in the preparation of all the fast foods.

Some of the markets that the McDonald’s has entered through the establishment of multi-unit franchises include India, South Africa, Australia, and Canada. In an effort to succeed in its respective markets, the McDonald’s has adapted its operational strategy to the prevailing market conditions. This move has been facilitated by the need to align its operations with the prevailing market conditions and culture.

For example, in its Indian market, the McDonald’s does not offer beef burgers. This decision arose from the appreciation of the view that Indians do not consume beef. On the contrary, the firm markets burgers, which are made of vegetables, fish, and chicken meat.

Additionally, the firm ensures that the burgers are fortified using local cuisine, for example, the McAloo Tikki. Through such adaptation, the firm has been in a position to align its products with the prevailing market needs (Fock 2001).

The McDonald’s has also adopted the concept of standardisation in its international marketing. One of the main areas in which the firm has adopted this strategy relates to product packaging. The firm’s products are packaged using the same logo across the different markets in which it operates.

The significance of adapting the product or services offered to the prevailing market conditions is further illustrated by the findings of the 40 franchisors in the UK. The franchisors granted the franchisees the autonomy to vary their product mix in order to meet the customers’ tastes and preferences.

Subsequently, the franchisors have considered adaptation as a tactical strategy through which franchisors can succeed in geographically dispersed markets. The need to adjust to the local market conditions underscores the view that companies intending to venture into geographically dispersed markets must think globally, but act locally in their operation.

Thus, franchisees should exploit the benefits associated with franchising in exploiting the market opportunities available in their local markets. Moreover, franchisors should prevent occurrence of agency problem by relaxing the contractual agreement between the franchisor and franchisees.

For example, franchisors should be given the autonomy to adjust their product mix in order to meet the local market demands. Such autonomy will enhance the likelihood of exploiting the local market conditions, hence optimising performance (Dada 2013).

Human capital

The franchisors considered in the study argue that the franchises operating in different regions of the UK operate as independent businesses.

Consequently, they have the capacity to make decisions associated with various human capital issues such as the reward system to be adopted [salaries and wages], working hours, and recruitment strategies. However, in the event of having trouble in formulating either of the human relations policies, the franchisees can adopt the strategies stipulated by the franchisor.

Pricing requirements

Product pricing is one of the major elements that influence the success of an organisation in the market. Consequently, the importance of adopting effective pricing strategy cannot be underestimated. In accordance with the standardisation requirement, franchisees are constrained to adopt pricing strategies similar to those of the franchisors.

This strategy may adversely affect the franchisees’ ability to generate sales, and thus influence the franchise’s level of profitability. However, some franchisees may benefit from the existence of policies governing the operation of franchisors. For example, franchisors in the European Union, which the UK is a member, are restricted from stipulating the pricing structure to be adopted by the franchisees.

On the contrary, they can only make recommendations on their preferred pricing structure. Therefore, franchisees have the power to determine the pricing strategy to adopt in marketing their products and services in the local market.

Marketing strategies

The existence of market variations in different geographical locations calls for limited standardisation in the franchisors’ marketing activities. For example, in an effort to succeed in its Indian, Canadian, and South African markets, the McDonald’s, which has adopted the concept of multi-unit franchising, ensures that its product strategy varies across the various markets.

Similarly, the 40 UK franchisors considered in the study have also provided the franchisees with the discretion to adopt the most effective marketing strategies. However, the firms have maintained a significant degree of rigidity with regard to some issues, which differentiate the franchise from the competitors. Some of the major system identifiers include the trade name and branding of the outlets.

Despite this aspect, the franchisees have the discretion of deciding the most effective strategy to adopt in creating market awareness. This assertion arises from the view that the effectiveness of a particular market communication strategy may not be applicable in other markets due to various factors such as infrastructural developments.

In order to improve the performance of newly established franchises, the well-established franchisors may assist franchisees in the formative stages in formulating and implementing aggressive competitive strategies. Such assistance plays a fundamental role in fostering the success of franchisees.

Conclusion

Firms, especially business start-ups, can achieve numerous benefits through franchising. Some of these benefits include accessing managerial and financial resources. Furthermore, the contractual agreement between the franchisor and the franchisee allows the latter to deal in the franchisors’ products.

Subsequently, the franchisor benefits from well-established brand name. Additionally, the franchisee becomes a part of an extensive network, which increases the likelihood of benefiting from spill over effects. Thus, the likelihood of achieving competitive advantage is increased.

The franchising strategy gives franchisees and franchisors an option on the franchising format to adopt. Some of the two common formats include the business format and the traditional format. The traditional format involves offering franchisees the right to deal in the franchisors’ products.

Examples of firms that have adopted this format include BP and Coca Cola. On the other hand, business format franchising involves obtaining the right to adopt the ‘tested-and-tried’ business model of the franchisor. Consequently, the franchisee has a responsibility to adhere to the stipulated operational procedures, policies, and control measures.

Before making the decision to adopt the franchising strategy, it is imperative for organisations to assess the ‘franchisability’ of their business. This goal can be achieved by evaluating different aspects, which include the standardisation requirement and the level of profitability that can be accrued through franchising.

Moreover, an effective franchising system should lead to the attainment of high level of profitability or return on investment. Subsequently, it should be based on the operations of a prototype.

In addition to the above factors, it is essential for a firm to assess the extent of flexibility associated with adopting the franchising system. Another major factor that should be considered related to the effectiveness with which the business model can be transferred to different regions. The success of franchises is also influenced by the managerial capability of the entrepreneur due to changing market conditions.

The study cites agency theory as one of the core issues in franchising. However, the theory has largely ignored the importance of providing the franchisees’ with a certain degree of autonomy in managing their firms. On the other hand, the resource scarcity theory underscores the importance of adopting the franchising strategy in order to achieve growth.

This aspect arises from the view that franchising exposes the franchisee to diverse managerial and financial benefits. The study has also identified standardisation and adaptation as some of the core aspects in franchising. Standardisation emphasises the importance of adhering to the contractual agreement between the franchisor and the franchisee.

Ordinarily, the franchisors outline a number of issues that the franchisees should follow in their operations. Some of these issues relate to marketing strategies, employee recruitment and development, store location, working hours, and store design. On the other hand, the concept of adaptation emphasise the importance of providing the franchisees with the discretion to make decisions that suit the local market conditions.

The literature review conducted shows that markets are characterised by varied market conditions. Thus, standardisation has negative impact on the ability of franchisees to optimise their performance. For example, the product strategies stipulated by the franchisor may be ineffective in some markets, hence limiting the franchisees’ ability to maximise sales revenue.

However, adapting to the local market enhances the performance of franchises in geographically dispersed markets, which is evidenced by the high rate at which some franchisors, such as the 40 franchisors in the UK and the McDonald’s, have successfully ventured into different regions and the international market.

Recommendations

Franchising is one of the most effective strategies that organisations can adopt in their quest to achieve growth by venturing into the international market. However, the standardisation requirement of franchising leads to rigidity in the franchisees’ operations.

In order to enhance the relationship developed between the franchisor and the franchisee, it is imperative for franchisors to provide franchisees with the autonomy to formulate their own strategic decisions with regard to marketing and human resource management issues.

For example, franchisors should allow the franchisees to develop products that align with the local market tastes and preferences. Moreover, franchisees should have the capacity to make decisions affecting their service delivery such as how to train their workforce.

Providing such operational autonomy will enhance the success of firms in geographically dispersed markets due to their ability to respond to the local market through product innovation and development.

Consequently, the relationship between franchisors and franchisees will be improved. In addition to the above issues, it is essential for franchisors to establish a balance between the concept of standardisation and adaptation as they are both valuable in the operation of franchises despite their geographical operations.

Reference List

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Introduction

Entering into a franchise agreement is one of the most common ways of becoming a business owner. Franchising entails establishing or operating a business under an authorization to sell or distribute a company’s goods or services in a particular area (Seid & Thomas, 2007). It involves writing a contract between a franchisor and franchisee, which defines the business relationship they will have for an agreed period. The agreement signed by both parties stipulates the limitations, rights, duties, and responsibilities of each party. This helps to ensure that the business agreement comes to fruition by ensuring the satisfaction of everyone involved (Seid & Thomas, 2007). Consumers benefit the most from franchising because they get a chance to have increased access to quality goods and services from reliable entities.

Advantages and disadvantages of entering into a franchise agreement

Buying a franchise has both advantages and disadvantages. Studies have established that franchising is a better option for becoming a business owner compared to starting one. First, a franchise owner enjoys the independence of operating under a big and reliable business network (Sherman, 2011). The biggest motivation for people who buy a franchise is the ability to be their own boss, the pride of owning a business, and the convenience that comes with dealing with a brand that people are already familiar with. Second, buying a franchise allows a business owner to have a quick start characterized by higher sales, huge profits, and better equity because a lack of experience does not affect performance very much (Sherman, 2011).

People who buy a franchise are often trained by their mother’s business on how to operate a business using their model, thus increasing the chances of having a strong start. Other benefits provided by the franchisor to a franchisee include advertising, management support, selecting a site, financing, as well as designing and constructing the business (Seid & Thomas, 2007).

Third, buying a franchise is advantageous because it has low risks for business owners. Studies have established that franchises have a very high success rate compared to businesses that start from scratch (Sherman, 2011). The success rate is a result of the help that a franchiser extends to a franchisee. The success strategies and models applied by a mother business are often duplicated with a franchise, thus increasing the chances of succeeding. Experts argue that buying a franchise involves acquiring a successful business that already has a good image, reputation, and a sizeable market share (Seid & Thomas, 2007).

Despite all the positives, experts also argue that franchising has a number of disadvantages, especially for the buyer. The disadvantages of franchising revolve around the concept of independence. First, franchising denies a business owner the ability to have full control over their entity and its crucial processes, such as decision-making (Seid & Thomas, 2007). Franchises have to follow the business model used by their franchisor, thus limiting the ability of a business owner to be creative. A franchise cannot introduce a new product or service that is not provided by their franchisor (Sherman, 2011). Similarly, they have to work with the same suppliers for the sake of quality management and brand development. Second, if a franchise can suffer the effects of failure by another franchise connected to its franchisor, finally, a franchise can risk losing their business at the end of an agreement because a franchisor does not need to renew if they do not want (Sherman, 2011).

Conclusion

Franchising can be a good option to own a business, especially for first-timers. Franchise owners should know that the success of a franchisor does not automatically make their business success because they will have to manage their entities well. Before signing a franchise agreement, prospective business owners should ensure that they are comfortable with the performance, reputation, and overall operational setup of the franchisor.

References

Seid, M, & Thomas, D 2007, Franchising for Dummies, John Wiley & Sons, New York. Web.

Sherman, A 2011, Franchising & Licensing: Two Powerful Ways to Grow Your Business in Any Economy, Cambridge University Press, New Jersey. Web.

Introduction

Breadtop is an Australian foods company that marching through the food industry for several years with pride, goodwill, and honor. This is a report on Breadtop’s franchise marketing plan for the next five years in its place of origin and as well as in some parts of Europe and in the main part of Asia-Pacific. In order to do so, this paper will consider the current market, competitive analysis, SWOT analysis, position in BCG matrix, marketing strategy, branding strategy and brand positioning strategy, market segmentation, and marketing mix strategies for customized foods of Breadtop.

In this report, the performance measurement will also be discussed. Consistent with their market position they are in the growth stage and to reach maturity spot they are involved in research and development for required customized foods.

Company overview

Breadtop Franchising

The franchise is a legal form of business mutually two parties come in a venture where the first party is the title-holder is called the franchisor and the counterpart is the franchisee. The franchisor owns the trademark, advertising symbol, and goodwill. The second party trades with products or services designed by the first party or sell its own goods and services complying with the quality and standards of the first part, this second party is identified as a franchisee. Business policy adoption, marketing plan, brand promotion, and management guidance are all policy-level decisions taken by the franchisor.

Breadtop group has a large number of the franchisee in Australia and rest of the Asia Pacific Rim. Breadtop Franchising provides lots of opportunities for its franchisees to advantage from Breadtop’s market success for investors who owning its franchise.

The significance of Breadtop’s professional franchise and established market success system indicators are as follows –

• Delivers of sky-scraping quality of bread and cake foods
• Functions under Breadtop brand name
• Well argued site in a high traffic-shopping zone
• Fully equipped shop together within-site kitchen
• Territory guarantee – you are the only Breadtop
• An outlet in popular shopping center
• Complete training for franchisees and their staffs
• Unending support for franchisees in all aspects of retail bakery
• Ongoing promotional efforts

Quality Significant

Breadtop’s methodology allows it to assess the products scientifically by considering all surfaces of the food safety. All Breadtop’s products comply with food safety programmers of HACCP. The quality assurance process consists of an examination of the manufacturing process, the design, materials, delivery, instructions, accuracy, storage, and labeling of food safety marks.

The standard norms of Breadtop foods are as-

• Deliberate Healthy and food-safe characteristics
• Non-toxic Foods
• Trouble-free to clean
• Reduced risk of any form of pollution
• Planned for the low consequence of error

Current Market Situation

In Australia, Breadtop has a strong position in the food industry for its hospitable service. They always try to serve better quality, secure, wholesome foods for all types of people like- children, teenagers, young and old.

Competitive situation

In Australia, there are big most big snacks franchising players like MacDonald’s Subway, Pizza Hut, Domino’s Pizza LLC, Wienerschnitzel, and Kentucky Fried Chicken are seriously active. All these companies are strong competitors of Breadtop. Among them, Mcdonald’s holds the leading position in the industry.

Environmental situation

Nowadays a person has to involve with too many responsibilities and preparing food is too time-consuming work. Therefore, they should require to saving their time by cooking their food within a very short period. Breadtop considers office hours, school period, vacation, or in a celebration where individuals would like to serve healthy foods. Breadtop provides secure, tasty, and healthy food. Breadtop has capable to fulfill all of these requirements for all types of the customer such as children, young and adult.

SWOT analysis

BCG matrix and the company’s position in it

The BCG matrix categorizes a company with along with SBU. It has been designed according to the growth share matrix presented in the following figure.

• Dogs: Dogs represent the low-growth integrated with low-share businesses as well as goods. They should engender an adequate amount of cash to preserve and maintain themselves. Nevertheless, they do not to be large resources of cash flow.
• Question marks: Hansen, M. H. (2003) argued that these are the low share business parts with high-growth markets. They necessitate numerous resources of cash to carry on their share and move alone increase themselves.
• Cash Cows: Hansen, M. H., (2003) mentioned that the Cash Cows are watched with the low-growth. They are integrated with high share products and businesses range. These have recognized the successful SBUs those needed less investment to carry on their market shares.
• Stars: The Stars are incorporated with high growth and high-shared products or businesses. They repeatedly need heavy investments to finance their speedy growth, which is required by the “Breadtop”.

Breadtop Developing their goals and objectives

Breadtop set numerous goals in order to face future threats and to utilize their opportunities. On the other hand increase rate of market competitors and continuous changes of customer demand insist Breadtop to changes their strategy. The clearer a firm is about its objectives, the easier it is to set price. Objectives of Breadtop can be discussed as bellow-

1. Current Profit Maximization: Breadtop wants current financial outcomes for long-run performance by providing protected and healthy foods. To do this, they estimate the demand and total expenses by which they differentiate value and fixed the price of the products, which they made. The maximum net and current profit, cash balance or return on equity all are depends on demands and sales of the foods where pricing of the product play an important role.
2. Market share leadership: In order to achieve this goal Broadtop considers that they are enjoying large market share and to hold this position they consider the lowest costs and highest long-run profit. Not only that they set low price of their food products to hold on this position.
3. Product quality leadership: Broadtop wants to achieve product quality leadership to cover superior performance quality by their R&D department.

Marketing Strategy of Broadtop

This term means the marketing logic by which the business entity or organization anticipates to reach its goals and objectives. In order to achieve their mentioned goals and objectives, Breadtop continue a service-profit chain, which links them with employee, profits and customer satisfaction. This chain consists of following links-

• Internal service quality: Breadtop’s internal quality has maintained by the path of higher employee selection and training process, neat and clean workplace, quality work environment, higher salary and strong support for those who are dealing with the customer’s and franchisee.
• Satisfied and Productive Service Employees: Employees of Breadtop are more satisfied, dependable and hard working because they draw higher remuneration then other company.
• Greater service value: Breadtop afford more effective and well-organized customer value creation and service delivery as a result Breadtop’s service value is greater than many of its competitors.
• Customer Satisfaction and Unique Customers: Breadtop’s always struggle to convince all of their customers; therefore each an every customer significant and loyal to them. They believe that if they can satisfy them they in future they will purchase their foods and refer other customers.
• Healthy Service Profits and Growth: As a part of marketing strategy Breadtop, endow with performing superior service.

Market Segmentation

• Target market: Like all other competitor, Breadtop’s target market for its food items are mainly upper and middle class people and students. However, it attempts to serve all customer groups.
• Market position: With pride and honour they hold a rising position in market. They were successful to reach their goal and hold their target market because they using their resources and strategy appropriately.
• Product line: Thompson, A. et al (2007) argued that as the first element of marketing mix, it illustrates a complete description of the company’s products. The tremendous product line of company has been enriched with products such as buns, bread rolls, croissant, and various types of cakes, fruit juice, tea and coffee etc.
• Price: the price may vary according to the product criterion, so the prices of the Breadtop’s products are different but all of the products of breadtop’s are superior in quality.
• Distribution: Breadtop has a strong distribution channel to provide its food items. They have competent employees who are efficient and helpful. They also well mannered so as a distributor they provide highest satisfaction of the customer.
• Service: This Company tried hard and soul to pay superior service. Their aim is to forfeit cordial distribution channels through which consumer can acquire their required product.
• Advertising: As a part of promotional activities, Broadtop impose better advertising to enhance their sale. The theme of the advertise depends on the basis of place, culture and season.
• Market research: From market research it could be argued that customer’s of breadtop are very loyal, as a result they refer other customer to purchase Breadtop’s goods.
• Research and development: this section of the company facilities to formulating products as far customers needs and wishes. In each year they spend a handsome amount of their revenue in this aspect

Branding and Brand Positioning Strategy

It is a most significant matter for Breadtop franchising strategy. Kotler, P., Armstrong, G. (2006) argued that the brand is a complex symbol with the purpose of conveying numerous levels of meaning. The excellent brand names put forward something about the product’s benefits and recommend product qualities. Breadtop’s branding is easy to articulate. It is well known and easy to remember and distinguishing not transmitting negative meanings and connotations in oversees countries as well as languages. Here, Breadtop is the brand name that covers all of these attributes.

• Brand Positioning: from Breadtop (2007) it was found that Breadtop in a brand-position demonstrates the existing condition of accessible brands. In this case, Breadtop grasps a standard level.
• Brand name selection: The brand name “Breadtop” constructs it easier for the seller to process orders as well as track down troubles. Branding helps the vendors to segment the markets and provides the prospect to create a center of loyal attention and profitable set of customers. The Brand trustworthiness furnishes the sellers some defense from competition. For this reason, Breadtop set up their operation as branding.
• Brand sponsorship: From Breadtop (2007) it can be said that the Breadtop Franchising has numerous opportunities regarding to brand sponsorship and the product may be launched by means of a brand sponsorship.
• Brand development: To develop a further comprehensive brand building plan for Breadtop to generate optimistic customer at all point for illustration, it would needed to organize seminars, events, meet the press, online blocks & e-mail, telephone as well as person-to-person contact.

Selecting target market and development of customized marketing mix strategies:

• Product: The Product line of Breadtop has included an extensive range of buns, bread rolls, croissant, cakes, pastries, coffee juice and that consists of nutritious food value, food standard, and taste. A continuous process of innovation has to be integrated.
• Price: Holt, H. H., (2002) states that different goods contain different price along with their ingredients in it. Nevertheless, every item of their product maintains a standard quality and their product is for middle and upper middle level people. Breadtop always follow cost based pricing strategy to determine pricing of their goods.
• Place: Breadtop performs their business in all major cities of Australia like- Sydney, Melbourne. Perth etc. Within next five years, they wish they entered all over the Australia, some parts of Europe as well as the key portion is in Asia Pacific.
• Promotion: To enlarge the franchising business in food industry Breadtop has furnished itself for global context. Breadtop has to dive for advertising through worldwide adaptation for the reason that media availability varies from country to country. Breadtop positioned its target at least 20% gain then its exiting.

• Population: Australia is the largest country of Pacific Rim region with population of 21,440,112 in September 2008, which were 21,283,100 in March. Kotler, P., (2006) expressed that it is important to have an estimation on market condition and population to analysis marketing strategy. In Australia, the increase rate of population is 1.6% in current year. It is important to say that only 41% of total population growth increase for natural reason but rest 59% increase for immigrants. In 2008, this rate is higher in Western part and lowest in Tasmania, which is 2.6% and 0.9% respectively. Migrant’s parts are mainly students who are the main customer of Breadtop. As a result, Breadtop intended to extend their market in Australia.
• Person: Breadtop at its marketing has to involve effectual and resourceful peoples those who are most motivating, compliant, hard working and well experienced..
• Process: To make available the franchising at food industry that are safe, nutritious, containing a standard food value they apply suitable technology and provide work for intense brain within their research and development department.
• Physical ability: Breadtop for long lasting their effort to drive out foods according to the consumers need, want and demand. It has gathered all the physical resources to achieve the objects.

Measuring the Success of Breadtop strategy

Marketing Metrix Framework for the Breadtop strategy has been pursued according to present economies that necessitate to positioning significant business functions. The measure of success of Breadtop strategy has been examined in terms of functionality, cognitive and coactive responds. The trusted responses to the Breadtop strategy should encourage the marketing function for new entry for which this marking plan has designed.

This paper proposes a Breadtop strategy in which stirring responds and cognitive processes has been integrated to organize a general trust that would resolve the outstanding decision. These cognitive processes and responds include in indirect and direct effects on marketing function of the new entry.

The Breadtop strategy has been examined with market survey data, customer feedback gathered by the authentic decision maker. More specifically The Breadtop strategy could be examined with structural equations modeling where the cognitive processes Breadtop strategy generates a comfortable justification of franchising marketing. The effects of cognitive processes and affective responds have prospective significance for the Breadtop managers who are engaged in implication of strategies.

To measured cognitive process for Breadtop, it would be taken in to account that –

• Consideration of Breadtop objective criteria
• Assessment of management’s dependability
• Rational process to measure reliability of management
• Professional approach to determine

To measured cognitive process for Breadtop, it would be taken in to account that –

• Sense of intuition on Breadtop management
• Breadtop management’s Nature of honesty
• Gut feeling on Breadtop management
• Cognitive and affective responses has scored with a seven-point Likert scale

The measurement of Breadtop strategies materialize to be a more and more important that franchising marketing of Breadtop conducting for economic gain. The marketing strategy form of organization has extensively applied right through the fast-food industry aimed to the individual investors..

Conclusion

Marketing Plan for Breadtop has considered with objective criteria and at same time assessing reliability of management leaded with an orderly fashion demonstrated the trust of management. This complete franchising marketing plan of Breadtop paid attention on the company’s current position in global context, its foremost competitors, quite a lot of strengths and weaknesses next to the opportunities and threats.

Regarding its franchising marketing with product line of fast-food , it has been acknowledged that Breadtop’s foremost goals and objectives are to maximize profit through fast-food franchising by humanizing the sales, promotion, and advertisement as well as brand development by means of overall marketing mix essentials.

The suggested specific strategies those applied to achieve the goals, it can be prescribed that the company would be ever successful in franchising marketing at a desired level with customer satisfaction. With effectiveness of marketing strategies, Breadtop franchising marketing would cover rest 20% of the country within next one year.

Bibliography

Breadtop (2007), Franchise. Web.

Breadtop (2007), Company Overview. Web.

Griffin, R. W. (2006), Management, 8th Edition, Houghton Mifflin Company, Boston New York, ISBN: 0-618-35459x.

Hansen, M. H., and Morrow, J. L. (2003), Trust and the Decision to Outsource: Affective Responses and Cognitive Processes, International Food and Agribusiness Management Review, Vol. 6 Issue 3. Web.

Holt, H. H., (2002), Entrepreneurship New Venture Creation, 6th Edition, Prentice- Hall of India Private Limited, New Delhi, ISBN: 81-203-1281-3.

Kotler, P., Armstrong, G. (2006), Principles of Marketing, 11th Edition, Prentice-Hall of India Private Limited, New Delhi, ISBN: 81-203-2825-6.

Market Metrix (2008), The Market Metrix Hospitality Index. Web.

Stoner, J. A. F., Freeman, R. E., and Gilbert, D. R. (2006), Management, 6th Edition, Prentice-Hall of India Private Limited, ISBN: 81-203-0981-2.

Thompson, A. et al (2007), Strategic Management, 13th edition, Tata McGraw- Hill Publishing Company limited, New Delhi, India.

Starting a business is tedious, expensive, and risky. It involves a lot of paperwork, market studies, coordination with concerned agencies, scouting for the right place, and providing a significant amount of money for lease, initial inventory, furniture, and equipment.

However, nowadays, those thinking of starting a business have the option to start from scratch or get a franchise from reputable establishments. Starting from scratch is good if the business has something innovative to offer and can sell its products at a competitive and affordable price. It also must find the right business site, near its target market, and be able to advertise well in order to make consumers aware of its products or services. This can take a long time, a lot of money, and an uncertain market response.

On the other hand, a franchise offers a good brand name and identity, a proven record of accomplishment, and a proven business strategy. Despite the fact that big businesses demand a hefty sum of money as a franchise fee, the benefits of franchising are still very attractive to many. A good franchise offers a total package that includes site selection, lease negotiation, personnel training, and store design. It also provides continuing support on marketing, quality assurance, and troubleshooting because it must protect its good name. More importantly, the franchisee benefits from a ready market because consumers already know the brand. Hence, in retail outlets, processes are standardized, quality is ensured, and customers have a sense of confidence about quality because franchises share a brand and central management.

“The main benefit of being a franchisee is that the business will already have in place the knowledge and experience of the franchiser that has enabled it to expand, which provides each franchisee with a solid business platform. Systems (such as product pricing, recruitment, and marketing) will be tried and tested as any early mistakes will probably have been improved. Therefore, this reduces the risk of failure compared to someone who is just starting a business separately”. (Kieran)

If marketing and purchasing are centralized, they result in economies of scale, which means lower costs and presumably higher profits. In franchising, retails benefit from advertising, marketing, and promotional programs handled by the main management, and they gain the use of the system, trademarks, assistance, training, and marketing. The franchisor’s business plan, operations manuals, and market analysis are also readily available.

Indeed, franchising can be advantageous for many reasons, because it means starting a business without the hassles of establishing it independently. It is easy to estimate the amount of money that is needed to fund the new franchise. Since they adapt business processes, they do not have to start with long experimentation and adjustment periods, so the risks involved are considerably reduced. Assuming that the franchise is run according to the contract, the initial investment can be recouped within a considerably short period.

Works Cited

Kieran, Diarmuid. “The Advantages of Franchising” Franchise Direct. 24-7 Press Release. 2007. Web.

Obringer, Lee Ann. “Advantages of Franchising“. How Stuff Works. Web.

Financial Plan

The most important element of a business plan is the financial plan which presents the necessary financial prospects and expectations of a business. The financial plan is the basic component of the business plan as it provides the feasibility of a project and enables the investors to make logical decisions regarding the acceptance and rejection of the project and whether the business would provide the expected cash flows and profits relative to the amount invested. The financial plan also provides insight into the expected payback period of the business to carry out a comparative analysis with other alternatives to make decisions regarding the investment of funds.

The financial plan of the Cold Stone Creamery franchise illustrates the expected amount of investment required to open the franchise and operate it effectively. The expected financial performance of the company depending on the profits, cash flows, and position of the company is highlighted in the financial plan. The main components of the financial plan can be analyzed individually through the expected sales, profit and loss, breakeven point, and payback period. The expected profit and loss of the business are presented through the prospect income statement. The financial analysis and evaluation included in the financial plan are completed by implementing various assumptions related to the expected level of sales, operating expenses, and growth in future years. These assumptions have been emphasized in a separate section of the financial plan to help in a better understanding of financial statements. The financial viability of the project is further illustrated by applying the capital budgeting technique of the payback period.

Important Assumptions

The expected financial analysis completed in this plan and various tools and techniques applied are based on various assumptions regarding the expected growth rate, the profit margin, and funding of the business. It is expected that sales of the company will increase by an expected annual growth rate of 6 percent and this is based on trends in sales of other franchises already operating in various areas. Some franchises display a high growth rate of up to 9 to 11 percent while other franchises operating in competitive areas depict lower growth rates of 5 to 7 percent. The average growth rate in sales should be around 8 to 10 percent but a growth rate of 6 percent has been implemented to incorporate the adverse effects of the recent financial crisis in almost all areas of business. The ownership of the company will be based on sole-proprietorship as external and passive ownership of franchise is not allowed by the parent company. The owner can however take out a Small Business Administration – SBA loan to finance the investment of the franchise except for the franchise fee which would have to be directly funded by the owner. The fixed assets of the business will be depreciated using the straight-line method of depreciation and an annual depreciation rate of 10 percent. The franchisee will be liable to an annual royalty fee of 6 percent on the annual gross sales of the franchise and the term of the agreement for a particular franchise is ten years (World Franchising, 2009).

Startup Plan

The startup plan is the most important part of a financial plan as it presents the amount of investment required for the proposed business and explains the specific details of the initial investment required in starting the operations of the business. The startup plan outlines the sources of funds required for the initial investment and the uses of these funds in various aspects of the business such as assets, setup costs, franchise fees, and license fees. The startup plan for opening a Cold Stone Creamery franchise has been prepared according to the company requirements and on a higher average as the proposed franchise would be operating on a large scale. The initial amount of investment required for the franchise includes a significant amount of funds in various areas such as equipment, leasehold improvements, initial franchise fees, and working capital among other expenditures. The initial startup cost of the company has been highlighted in Table 1 with a description of all the individual items associated with this cost.

Table 1. Source: (Cold Stone Creamery, 2009)

The total amount of investment required for starting this franchise on a higher scale is $438,850 which includes equipment costing $111,300 which would be installed in the franchise to produce and sell ice cream to customers and $170,000 for leasehold improvements. These are the two most significant amounts necessary to start the business and make up a large part of the initial investment required for the business. The other specific items included in the initial investment are related to overall operations of the company. The additional funds or working capital required for initial 3 months of the company is $35,000 and could vary depending on the season the franchise is opened. The ideal time to start the business would be the start of summer season as the demand of ice cream in this season would be quite high and the franchise could make up for additional working capital required from high level of sales due to higher demand in the summer season.

Sales Forecast

The sales forecast for Cold Stone Creamery franchise has been prepared with reference to the average sales of franchises currently operating throughout the country. The target of the parent company is to increase the average revenue per store to $500,000 in coming years but the current average revenue per store ranges from $350,000 to $375,000 per year. The sales forecast of the current franchise will be based on this average and the expected level of sales in the initial year would be 350,000 with a growth rate of 6 percent for subsequent years.

Table 2

Profit and Loss Forecast

The projected income statement of three years for the franchise presents the expected level of revenue in the first three years of business with the corresponding cost of sales and the operating expenses which will be incurred during business in these years. The sales of the franchise have been implemented as presented in the sales forecast and a growth rate of 6 percent has been applied for the second and third year of business. The income statement does not include any advertising and marketing expenses as the parent company is responsible for the marketing and advertisement of products. The four operating expenses incurred by the company include royalty expense, salaries expense, depreciation expense and general expenses. The general expenses include all miscellaneous expenses related to operating the business such as rent, utilities and maintenance.

Table 3

Breakeven Analysis

The breakeven analysis of a business is performed to evaluate the minimum number of units a company must sell to break even in terms of profit and loss. The breakeven point of a company can be calculated by dividing the total fixed cost of the company by the contribution margin. Contribution margin is the difference between sales price per unit and variable cost per unit of the company’s products (Brigham & Ehrhardt, 2001).

Break-even point = Total Fixed Cost / Selling Price per Unit – Variable Cost per Unit

The total fixed cost of the franchise are the operating expenses which will be incurred irrespective of the number of units sold excluding royalty expense which is tied to the amount of total revenue. The selling price per unit for the franchise is $4 and the variable cost per unit is $1.2 which has been derived from the cost of goods sold and royalty expenses. The breakeven point for the franchise can be calculated by implementing the mathematical formula.

Break-even point = 102,130 / (4 – 1.2)

Break-even point = 102,130 / 2.8

Break-even point = 36,475 units

The breakeven point of the franchise where the company would be earning no profit and no loss is 36,475 units. This is the minimum number of units the company must sell each year to avoid losses and any number of units sold above this level would be a profit to the firm.

Payback Period

The payback period of a company is the time period after which the initial cost or investment of a project or business would be recovered. It is calculated by dividing the initial investment of a project or business by the average yearly cash inflows. The cash flows for the franchise have been calculated by adding back the amount of depreciation to net income. The initial investment required for the franchise is $438,850 which is divided by the average cash inflows to arrive at a payback period of 4.1 years. This indicates that the amount invested by the owner would be recovered in the beginning of the fifth year of business.

Table 4

Analysis and Recommendation

The financial plan for Cold Stone Creamery franchise presents the relevant information which would enable the investor to evaluate the investment decision and accept or reject the business proposal. The financial plan includes various aspects of the franchise such as the startup plan, sales forecast, profit and loss expectations, break even analysis and estimation of payback period. The startup plan of the company indicates that the total amount required to setup and start the franchise is $438,850 which will be used in acquiring assets necessary for operating the business effectively and efficiently. The startup plan includes the various individual amounts required for setting up the business including the initial franchise cost. Sales forecast of the franchise displays the estimated level of sales in the initial years of the business while the estimated profit and loss section covers the amount of profit generated by the franchise based on the sales forecast. The estimated net income for the franchise is $83,622, $89,040 and $94,783 for years 1, 2 and 3 respectively. The two important sections of the financial plan are the break even analysis and payback period sections which provide a basis for making an investment decision. The break even analysis of the firm indicates that it needs to sell at least 36,475 per year to breakeven while the expected sales for year 1 are well beyond this level which means the company would start earning profits in the first year of business. The payback period section of the plan indicates that the amount invested initially to start the business would be recovered in 4.1 years or at the start of the fifth year. The final recommendation for opening this franchise is positive as the evaluation carried out in the financial plan indicates a profitable and viable business opportunity.

Reference List

Brigham, E. & Ehrhardt, M. (2001). Financial Management: Theory and Practice 11th Edition. Cincinnati: South-Western Educational Publishing.

Cold Stone Creamery. (2009). Investment Requirements. Web.

GlobalBX. (2009). How Much Does a Cold Stone Creamery Franchise Cost?

World Franchising. (2009). Cold Stone Creamery. Web.

Introduction

It is impossible to ignore the way that the world and society advance quickly in this century. That is the reason why the tactics towards shaping the economy and advertising change by getting new elements. The consequence of the world financial crisis impacts the conventional way to deal with the circle of advertising incredibly. These days, companies need to work on their advertisements to make them more appealing to the target customers (Angel and Sanchez 436). Under these conditions, Saudi Arabia, customarily being taken as reliant on the petroleum-based products, begins to make a few stages with a specific end goal to enhance and locate some other powerful sources of income for the budget. That is the reason why the movement towards a little business can be watched even there. These days, many customers have established an attachment to a particular brand. The loyalty of a customer contributes to the success of the brand (Jackson 13).

Alteration in the marketing mix is a persuasive element that affects the behavior of the consumer. At the point when purchasers visit a franchise shop, the ambiance of the store can impact them. For example, the components such as the smell, music, shading, social settings, and virtual shopping circumstances are likely to influence the consumers. If the store’s physical environment is encompassed with a great atmosphere, the buyers may have a positive bearing, and they will tend to purchase the item from the shop. The consumer’s buying process is influenced by purchase decisions and psychological factors, as shown in Figure 1.1 below.

The purchase circumstances can have an unequivocal influence on the purchaser’s responsive state. Additionally, time imperatives can change the purchasers’ examination of information. The buyers tend to settle on straightforward decisions than those in less strained circumstances because of time stress. If customers go shopping just before the shop closes, they do not have sufficient time to ponder and consider the appropriate product. Among the marketing mix elements, price generates revenue to the business, but promotion, place, and product incur costs (Kotler 42).

Franchise business in Saudi Arabia

For the past 20 years, many scholars have explored the issue of franchising business in developing markets. This has prompted the research in franchising business in countries like Mexico and the South American countries, the Asian market (Singapore, Malaysia, Hong Kong, Indonesia), and other parts of the world, such as Kuwait, India, and South Africa. There has been less exploration done about franchising business in the Middle Eastern and North African (MENA) nations, and the Gulf Cooperation Council (GCC) nations, which have encountered franchising for over 30 years (“Saudi Arabia – Marketing and Sales Strategy” par. 3). This is obviously because of the small number of franchise establishments in these nations contrasted with the western countries.

The franchising business changes extensively, starting with one nation then onto the next. Case in point, research directed in the U.S. or different nations cannot be summed up and connected to the MENA countries’ instance because of contrasts in social, monetary, legitimacy, and political perspectives. In this manner, thought should be given to these distinctions when examining the franchising encounters of Arab nations to create speculations that adapt to these parts of the Middle Eastern experience.

More observational research should be led in all parts of franchising in developing markets. The contrasts between these nations and locales ought to be inspected, contemplating the significance by governments in sorting out franchise situations in these business sectors. Although franchising is developing and growing in Saudi Arabia, the business sector stays commanded by a small number of expansive organizations with generally outside brands.

Insights demonstrate that the aggregate number of business enrollments in Saudi Arabia was 854,679, and SMEs represent the massive larger part of them. The SMEs’ franchise business contributes highly to the GDP, even though the standard effect of the non-oil segment of the economy for the last half-decade was 54% (“Saudi Arabia – Marketing and Sales Strategy” par. 3). Likewise, the recent statistics demonstrate that there are only 381 franchise brands in the country when contrasted and the aggregate number of enlisted foundations in the country.

The influence of the environmental factors on the franchise business in Saudi Arabia

The marketing mix, in line with the franchise business in Saudi Arabia, is based on some critical components. These components include the process of the marketing mix and the program. They are important for the standardization of the marketing mix. Figure 1.2 illustrates the important components of the marketing mix.

The performance of the franchising business has changed of late, and new patterns have constrained the franchisors to engage in value addition to catch new markets. Some imperative components influencing the franchising business include:

1. Rivalry: There is extreme competition among the franchising establishments because new players have emerged within the business sectors. In Saudi Arabia, the pattern has been most seen in the foundation of fast food chains and retail outlets. As the level of competition is getting extreme now and then, the franchisors need to come up with new techniques to keep in front of the contenders.
2. Value addition to the services: The exchanges of innovation, specialized expertise, and help have turned into the essential luxuries to be given by the franchisors. The franchisors have included new services like internal correspondence frameworks, programming, and so on, to increase the value and the quality of the services.
3. Client Needs: As globalization keeps on demonstrating its significance, the client’s conduct has gotten to be excessively critical. The client has various alternatives, and steadfastness can without much of a stretch be breached. This has prompted the customization of administrations and items as per the requirements of the general population. Franchisee assumes an unmistakable part in it and keeps the franchisor upgraded with client criticism. It is one of the central items influencing the franchising business currently.
4. Legal issues: Even though the legal issues’ impacts are minimal, it might still be noteworthy if the laws relating to the ownership and management or any part of the franchising business set up.

Market Mix in Saudi Arabia and consumer perception about its alteration

There are distinctive elements that impact the customers’ perception regarding the alteration of the marketing mix. Nature and the feel of the franchise assume a major part in affecting the consumers’ choices. The choices of the customers are impacted, for the most part, by the image of the franchise and what other individuals say in regards to the franchise. Furthermore, the more established consumers like to do their shopping in calm spots with a decent feeling and delicious nourishments. More youthful individuals have developed an attachment and a sense of loyalty to a particular franchise that offers them the required satisfaction (Chaudhuri and Holbrook 87). This critical issue has initially been underestimated inside of the field of franchising, together with the lack of franchising examination in the Middle East.

The franchise completely fulfills many clients if the costs are reasonable, and the service quality is great. The clients will have a justifiable motivation to return to the shop and even prescribe the shop to a companion. The impact of others likewise influences the customer’s process of decision-making. A client can choose to pick a specific shop or franchise outlet because his/her companions typically visit. The clients typically have a propensity for trading thoughts with their companions in regards to new outlets that have come up keeping in mind the end goal to get their recommendation. At the point when an outlet is respected exceedingly by companions, the client is well on the way to lean toward it. Publicizing likewise impacts the perception of the clients.

Literature review

Consumer perception is the study of how, when, why, and where people do or do not source for goods or services. It attempts to assess the clients’ influence from external factors such as high salaries and income and the growth of urban lifestyle, among others. It is a common practice for customers to purchase goods and services for several reasons. These reasons may include reinforcing self-concepts, maintaining a given lifestyle, becoming part of a particular group, or gaining acceptance in a group they already belong, and or expressing cultural identity. Many researchers have used a representative sample to examine consumers’ perceptions regarding the alteration in the marketing mix (Cooper and Schindler 105).

Even though the purchase circumstance pushes the shoppers to purchase the item, the mental variables apply when the customers pick a brand of the item. Psychological motives are classified into many categories. Two criteria determine the four major categories, for instance, whether the mode of actions is cognitive or effective, and whether the motive is centered on the preservation or growth. The four major categories are further subdivided into two groups: whether the deeds of the consumer have been initiated or are a response; and whether the conduct of the consumer occurs internally or externally.

The study of customer conduct is relevant to the modern business world as it speaks volumes on the customers’ decision-making (Malhotra, Marketing research 134). The cognitive motives include cognitive preservation motives and cognitive growth motives. The cognitive preservation motives include the need for uniformity, which occurs internally and actively.

A consumer is somebody who has purchased an item or service of an organization, vendor, or supplier. Be that as it may, from the perspective of consumer loyalty, the client’s clarification should include the individual who uses administrations from the organization specifically or by implication. That is more inclined to assume anyone who may purchase any item or service to be a client. The organization needs an activity to convey their items to clients; this sort of activity is generally called a service.

Customer service has numerous sorts; they are taking into account the kind of item and associations. In diverse spaces, the service can be characterized in various examples. The consumer behavior can be illustrated by a model that consists of personal characteristics, environmental characteristics, stimuli, decisions, and the vendors’ controlled systems. The model is illustrated in Figure 2.1 below.

Many researchers have used different methodologies to explore the marketing mix concept and how the elements relate to each other (Burns and Bush 106). The primary advantage of this way to deal with interchanges is that it furnishes the publicist with complete control of what message and feeling to bestow into the promotion. Any brand can powerfully advance its advantages to purchasers and endeavor at drawing in them with a message of useful and enthusiastic qualities, to expand brand/item thought and deals.

As a consequence of good purchaser and contender knowledge, brands can make promoting, which displays them in the best conceivable light, to engage potential clients. Media stations, techniques, and innovative yield are all measured and are chosen by the brand/organization, making the outcome useful much of the time. This has a big impact on consumers’ loyalty to a brand (Angel and Sanchez 436).

Keeping in mind the end goal to survey the suitability of distinctive sorts of promotion to the franchise business in Saudi Arabia, a more intensive examination of the conduct of the intended interest group needs to be taken. The franchise business sector’s new targets are 30-50-year-old, upper-middle-class people with substantial work timetables, and minimal leisure time. People conveying these attributes would invest most of their energy outside of the home, and could accordingly be seen as prime time TV watchers. Radio promotion may be seen as less appealing a possibility for various reasons. The customer’s loyalty is tied to a product because of the advertising experience (Jackson 14).

Firstly, the new targets are Riyadh-based people, which imply that a substantial number of this gathering would, in all probability, be general workers, and would not be utilizing an individual engine vehicle regularly. This, thus, implies that they fall outside of the typical radio promotion target group. Besides, radio publicizing, despite being a less expensive mass reputation alternative, is viewed as outdated and obsolete, which is the reason it would not resound with the sector’s more advanced, computerized picture. Print publicizing may be especially fit for the online retailer’s new campaign as it considers the focusing of workers.

Likewise, it can convey messages capably through the great nature of imaginative work. Print publicizing is an extremely regular segment of the incorporated promoting specialized tool. It has a high crowd achieve and can be a good avenue for delivering essential communication and enhancing the loyalty of the customers. This has a lasting effect on consumer perception and loyalty (Angel and Sanchez, 437).

Hypotheses

Having illustrated the primary propensities impossible to miss the economy of Saudi Arabia these days, it is conceivable to diagram the fundamental targets and objectives of the given study. Subsequently, the assessment of the buyer observation about an adjustment in advertising blend and examination of the established business and its eccentricities in Saudi Arabia could be taken as the fundamental objectives of the given paper. Additionally, four classifications that contain the market mix ought to likewise be broken down. They are product, price, promotion, and place. Furthermore, the following hypothesis will be used

1. H1. The changes in the attitude towards franchises could be observed due to the world market’s main tendencies.
2. H2. Market Mixs alteration influences the change in consumer perception.

Among the variables related to the tendencies of the world market and marketing mix of product, price, place, and promotion include functional diversity, deep level diversity, mutual trust, knowledge sharing, communication quality, and cultural diversion. All these elements are related to the alteration of the marketing mix.

Methodology

The methodology is the process of instructing the ways to do the research. Therefore, it is convenient for conducting research and analyzing the research questions (Zikmund 57). This part includes the research design, the sample, and the methods used in gathering information. It also contains the data analysis methods, validity and reliability of data, and the study’s limitation. Considering the principle point of the given paper, it is conceivable to say that the review of which the fundamental point is to gather the information associated with the state of mind towards the movement of needs towards the little business and franchising ought to be led.

Number of samples

The study used a sample of 208 respondents who all took part in the study. Their responses were recorded through a questionnaire. Questionnaires are pre-formulated questions which capture the overall objectives of the study (Sekaran 102)

Research environment

The environment in which the data was collected was in Saudi Arabia. This was in line with the main objective of the study on the consumers’ perception of the alteration of the marketing mix.

Limitations

The cost of conducting the survey was expensive. Also, there were instances when the respondents provided false and incorrect responses. The process of data collection was time-consuming and tedious. Also, a couple of respondents were reluctant to offer some information that was private and hazardous in the hands of their opponents. This meant a phenomenal test in the examination as the researcher expected to take more opportunity to find respondents who might enthusiastically give out adequate information.

Results

Table 4.1 shows the summary of the demographical attribute of the respondents who took part in the study.

Reliability Analysis

Reliability analysis is often used to evaluate whether the multiple instrument items are measuring the same variable or concept. In SPSS, the Cronbach’s Alpha value is normally used to measure the various variables. The minimum requirement for the value of Cronbach’s Alpha is 0.7 to ensure that the items are internally consistent and reliable. In the exploratory study, the Cronbach’s Alpha value of 0.6 can also be accepted. In this study, the various measurement items are adopted from previous studies. Thus, the minimum value is set at 0.7. The corrected-item total correlation (CITC) is also included to evaluate the reliability of the individual item. If the CICT is below 0.5, then the item cannot reliably measure the corresponding variable and should be excluded from further analysis.

Table 4.2 Reliability Analysis for Variables.

According to the results, the Cronbach’s alpha value of the Functional diversity, deep level diversity, mutual trust, knowledge sharing, communication quality, cultural adaption, and consumer perception are 0.836, 0.817, 0.761, 0.739, 0.898, 0.833, and 0.837, which are all above the minimum requirement of 0.7. Also, the CICT for individual items is all above the minimum requirement of 0.5, and the Cronbach’s Alpha, if deleted for individual items, are all below the Cronbach’s Alpha value. These results demonstrate that these items are internally consistent and reliable, and can be used for further analysis.

Regression analysis

Regression analysis is a statistical process for estimating the relationships among variables. More specifically, regression analysis is normally used to understand how the change of independent variables can affect the change of dependent variables. The correlation analysis above indicated that there are relationships between cultural adaption, communication quality, Functional diversity, mutual trust, knowledge sharing, deep level diversity, and virtual team effectiveness. To find out how these variables influence customer perception and which one has the biggest impact, the multiple linear regression is used.

Table 4.3 Model Summary.

The Adjusted R Square is 0.538, which means that the independent variables of cultural adaption, communication quality, Functional diversity, mutual trust, knowledge sharing, and deep-level diversity can explain 53.6% of the variance of the virtual team effectiveness.

Table 4.4 ANOVA.

By summarizing the ANOVA table, it can be said that the independent variables of cultural adaption, communication quality, Functional diversity, mutual trust, knowledge sharing, and deep-level diversity can predict the dependent variable of consumer perception at a significance of 0.01, by considering F=411.961.

Table 4.5 Coefficients.

The regression results are summarized in Table 4.4 above. According to the results, there is no collinearity problem among the independent variables. The VIF values for all independent variables are less than ten, and the tolerance value for all variables is above 0.1. It is found that cultural adaption, communication quality, functional diversity, mutual trust, knowledge sharing, and deep-level diversity can significantly impact consumer perceptions, with sig values all less than 0.05. Specifically, cultural adaption has the biggest impact on virtual team effectiveness. It has a standardized coefficient value of 0.437, followed by a communication quality, with a standardized coefficient value of 0.424 and mutual trust, with a value of 0.334. The deep-level diversity has the smallest impact on virtual team effectiveness, with a standardized coefficient value of 0.212.

Discussion

Consumers make their decisions based on the available time. Business chiefs are endeavoring to set up and keep up an environment that is greater for the fulfillment of consumers, who are endeavoring together in groups towards the achievement of foreordained objectives. A few studies have been completed to scout the examples of the conduct of the consumers. The consumers’ profiles are different as to their likelihood to shop at merchandising channels, their decision of shopping centers, and their wellsprings of data concerning the accessible shopping exercises.

The culture of a society can influence the consumer to try new goods and services. The marketing mix elements like product, place, promotion, and price impact the consumer conception because individuals expect to identify with a particular group. The family can assume the solid part of affecting buyer conduct because they may share their contemplations and proposals that rouse their relatives to purchase the specific item. Their positive convictions towards a product’s brand provoke the consumer to purchase a product.

Conclusion

Alteration in the marketing mix is an important element that influences the sensitivity of the consumers. Immediately a customer decides to visit a franchise shop; the environment of the store can have an impression on them. For instance, elements such as the smell, music, shading, social settings, and virtual shopping circumstances are likely to impact the consumers. If the store’s physical environment is encompassed with a great atmosphere, the buyers may have a positive bearing, and they will tend to purchase the item from the franchise store.

The primary ideas of the thought of the marketing mix could likewise be connected to the circumstance in Saudi Arabia. The adjustment of some customary examples exceptional to the economy of a state implies likewise the change of the classifications, which involve the given advertising device.

In this way, it is evident that under current conditions, such classes as product, price, promotion, and place get new significance affected by an incredible number of outside variables. That is the reason; it is also basic to consider that the consumer perception could be influenced by the arrangement of variables that advance a specific improvement of the circumstance impossible to miss to Saudi Arabia.

Works cited

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Introduction

Ever since Michael Bay released the Transformers franchise in 2007, he has heavily been criticized for producing plotless films that are widely loathed. Some critics went ahead and christened the first film as fun but very dumb (Fleming, par 1) with the robots showing no remorse for human life. The second film is described as having a paper thin plot, little racist robots and metal testicles (Fleming, par 1) which became the worst most successful franchise of all-time (Fleming, par 1). After such criticism, many people expected Transformers: Dark of the Moon to be no better if not worse than the previous two.

When the third film was released during the summer of 2011, I took my opportunity to watch and find out whether critics baying for Michael’s blood were justified. I was determined to find out whether his movie had a “thin plot” or if they were “dumb” as the critics had stated before to become a Success Story or a Technological disaster. As a movie fan, I was more than impressed by the film. Transformers: Dark of the Moon exceeded all expectations answering critics who believed it would be a failure as the other two films. For me, it was like a sweet revenge by Michael to his critics who ate a piece of humble pie.

Evaluation

The first two films of the franchise Transformers have been criticized for their poor plot development which made it hard to follow. One of strong points of this film is the storyline. Unlike its predecessors, Transformers: Dark of the Moon develops a plot where the viewer gets a sense of physical or emotional consequence to the events that transpire (Vejvoda, par 3). The storyline reveals the reason for the 1969 space race between U.S. and the Soviet Union, and the hideous plan by the Decepticons to take over the world. With genuine stakes between the Autobots and Decepticons, they fight harder and longer resulting in the decimation of the city of Chicago. The storyline is straightforward and consistently moves forward (Gibron, par 1) peaking in the final half hour where there is a full scale war between the Autobots and the Decepticons in Chicago. The plot of the film is excellent with the actual Decepticon plans of the past having been almost totally ignored (Fleming, par 6) causing mismatched timelines between this movie and the first two Transformers. The integration of spectacular scenes, suspense, action and relative coherent combining with the ferocious robots makes the movie to be more memorable and brutal than the first two Transformers series.

The film director goes ahead and gives the robots a more distinct personality and emotion than before, an improvement from the previous films in the franchise. When one of the Autobots died, the mood of the film toned down a little revealing the emotions attached in death. The Decepticons appear scarier than before as seen when they invade homes, butchering humans. In this film, Optimus Prime is portrayed as the ruthless robot depicted in the animated series, had to fight bigger battles than before (Vejvoda, par 8). His ruthlessness is seen when he kills a remorseful Sentinel as well as Megatron thus ending the war. The mini-Autobots, Wheelie and Brains, add more personality to the film by entertain the viewers with loads of jokes (Fleming, par 13). The tense battle between humans and the Decepticons to take over the city of Chicago highlights the emotion of the film better even though a lot of humans died in the process (Fleming, par 18). Shockwave, a Decepticon wrapping itself around a building like a boa constrictor (Travers, par 4) crushing everyone in it leave the viewer pleading for mercy. This shows emotional connection the director used to connect with the viewers.

The use of 3-D appeals to add depth has been magnificent especially in the final battle thus making it more entertaining than before. Unlike other 3-D films, Transformers: Dark of the Moon had its 3-D executed skillfully with longer scenes and pictures moving in slow motion giving it the much needed edge. Apart from the 3-D features, the film has “an incredibly virtuosic amount of intricate production and effects design and execution, not to mention stunt work” (Kenny, par 5). One of the most memorable 3-D appeals highlighted on one scene in particular where the solders are gliding through Chicago as the battle rage around them (Fleming, par 18). This shadows the fact that though the film is longer than its predecessors, it will keep the viewer at the edge of the seat.

Another strong point is the choice of actors that Mr. Bay settled for. The actors played their roles well with the lead actor “Sam still struggle to prove his worth despite having saved the earth twice before” (Vejvoda, par 5). Charlotte Mearing the Director of National Intelligence brought an ascendancy of seriousness to the film. The film having Bruce Brazso, Sam’s employer and Jerry Wang who works with Sam makes the movie to be funny with their witty performance in the first scenes of the film.

One of the setbacks of the movie is the difficulty to tell the robots apart especially in the final battle. There are a large number of robots fighting in Chicago and with the battle so intense; one becomes confused easily since there are no distinct features to identify the Autobots from the Decepticons. The confusion easily forgotten with the help of the 3-D features which highlights the extent and depth of the war. The use of slow motion in the action scenes makes the movie much easier to follow the robots fighting, thus becoming an excellent choice by the director to cover up the confusion caused by fighting robots. This makes the viewer thirst for more action well after the movie has ended. This gives the viewer the most unforgettable experience ever.

Perhaps the most confusing scene is when a “mini-Autobot watching “Star Trek” on TV, not noticing that Spock has the same voice as Sentinel Prime…” (Jenkins, par 8). Many critics have described this scene as “having a little fun with itself” (Jenkins, par 9) as well as the soul-killing “Star Trek” Joke (Kenny, par 7). This causes holes in the plot and leaving the viewer wondering and asking dumb questions. It is one of the small bits that the director failed in an otherwise exciting film. This bluff is overshadowed by the full scale war in the final hour of the film.

Compared to the other two films of the Transformers franchise, the third installment, Dark of the Moon is the longest. A viewer can easily lose concentration as a result of exhaustion even before the film ends. Most of the time, one hardly notices the length of the film due to the simple plot development and engaging robotic war viewed in 3-D leaves one demanding more of the action long after the film has ended.

Conclusion

Of the three movies in the Transformers franchise, Dark of the Moon is the best. The best scene is depicted by the shots of the robots fighting resulting in a captivating and an entertaining battle that will leave most of the critics dumbfounded. Its predecessor, “Revenge of the Fallen seemed to be made for a younger-or at least more adolescent audience…” (Fleming, par 21) but Dark of the Moon seemed to have matured and improved on the mistakes by its predecessor. The film is praiseworthy so much that it might even make one consider going back to watch the previous two in order to see if they are better (Fleming, par 19).

In my view in which I concur with A. Scott of New York Times, who believes that, “Transformers: Dark of the Moon is among Mr. Bay’s best movies and by far the best 3-D sequel ever made about gigantic toys from outer space” (Scott, par 1). Movie lovers’ looking for pure entertainment and undying satisfaction, then Transformers: Dark of the Moon is a success story integrated with technological brilliance worth every dime paid for to watch it. It is surely not a classic movie, but it is another implausible piece of pure popcorn entertainment (Gibron, par 7).

Works Cited

Fleming, Ryan. “Transformers: Dark of the Moon Review.” yahoo.com. Yahoo News., 2011. Web.

Gibron, Bill. “Transformers: Drk of the Moon.” filmcritic.com. AMC Networks., 2011. Web.

Jenkins, Mark. “Transformers: Dark of the Moon – The Transformers-do-D.C. movie.” washingtonpost.com. The Washington Post., 2011. Web.

Kenny, Glenn. “Transformers 3’ Blows Up Real Good.” msn.com. MSN Entertainment., n.d. Web.

Scott, Anthony. “One Small Step for Man, One Giant Leap for Autobots.” nytimes.com. New York Times., 2011. Web.

Travers, Peter. “Transformers: Dark of the Moon.” rollingstone.com. Rolling Stone Reviews., 2011. Web.

Vejvoda, Jim. “Transformers: Dark of the Moon Review.” ign.com. IGN., 2011. Web.