The concept of franchising has become so popular, and far-fetched that it has broken down into numerous types. Franchising is the concept of sharing brand names, training, and sometimes even licensing to smaller franchisees.
Franchising broke down into major and minor franchising types. We will be covering all of them in this article. Without further ado, let us begin:
Major franchising types you need to know
The franchising that has most of the market share is inside the major franchising types. These franchising types are not more than a few, but the combined power is higher than the other franchises combined.
Here are the major franchise types:
The job franchise is a low investment franchise that is usually set up by small-time companies. These companies may be of any nature independent of the work schedule. A typical example of a company that sets up job franchises is companies that work from home. Job franchising makes up for a massive part of franchises in most parts of the world, as multi-billion or even multi-million companies do not exist on such a scale.
In job franchising, the franchisees have to buy their equipment – which is standard for all other types of franchising too, but not a necessity – but the equipment needed is not very diverse. Only minimal equipment is needed, and depending on the scenario, it may also involve buying a few stocks.
A few examples of job franchising include:
- Travel agency companies
- Lawn care services
- Local real estate services
- Shipping services
- Event planners
Historically speaking, the oldest form of modern franchising has been product franchising. As the name suggests, instead of buying entire shops, the franchiser sells the right for a specific item to be sold by franchisees for an up-front cost and a few conditions. It is how sewing machines were able to be sold at such a high rate, even though they were costly at the time.
The automobile industry is the most prominent example of product franchising in the world, as most of the automobile companies in the world – even right now – use product franchising.
Coca-Cola and most other soda industries also use product franchising to sell their manufacturing process, to improve and increase how many products they can make in a specific period.
A famous example of product franchising that is common in the spare parts market is the repair market. Big technology companies make products and then sell the rights to make spare parts to third-party organizations. These organizations then sell individual parts to customers at a small premium.
Product franchising and distribution franchising often fall in the same category because they follow the same pattern. Some people even combine the two and are unable to discern between them.
The only difference between distribution franchising and product franchising is that product franchising only deals with the buying and selling of products, and the manufacturing process. Still, distribution franchising deals with how the product distributes among various locations.
Distribution franchising can also call as franchisee distribution because of the same reasons. Distribution franchising did between big states or even countries.
Business format franchise
One of the most popular formats of franchising right now is the business format franchising. It is mainly because business format franchising deals with the sharing of a business’ trademarks and other relevant information.
Business format franchising has become the face of franchising across many significant organizations. Because this type of franchising allows a franchiser to sell the right to use their brand name across different franchisees, they require that a specific system follows. Business format franchising is a unique way of improving the entire structure of the franchisees and improves the procedures on almost every aspect of the business.
Business format franchise accounts for more than a third of all franchised outlets in the United States alone. Through business-format franchising, franchisers can also offer to provide marketing, advertising, and other strategic training efficiently. In other words, it is more like a mentor and mentee system, but the mentee always must follow the mentor’s instructions.
Extremely large-scale products are commonplace in investment franchise, which invests in one prominent location at once, and then sells it at a big profit, or operate it directly through its members.
A perfect example of investment franchising is hotels. Hotels are usually significant buildings that franchisers invest one-time.
After investing and renting or buying the location, they usually send in their teams to maintain and run the place in their place.
Otherwise, these corporations sell the hotel investment at a higher price when the market price increases.
Investment franchising is only done by companies with the budget to buy hotels and buildings worth millions of dollars, if not more. The investment franchise is a straightforward way to improve capital gain without risking much.
The last primary type of franchising is conversion franchising. It involves converting smaller franchisees into full-fledged franchisers that can host more franchisees. The most crucial concept behind conversion franchising is the fact that if a specific franchisee company becomes a franchiser, the royalty fee will increase – which will result in better income per pre-defined time.
The conversion franchise has the most potential for a regular capital income.
One typical example of conversion franchising is real estate brokers. They sell the rights to adopt trademarks and advertising programs to their franchisees – which in unit time can sell the same rights to smaller franchisees.
Minor franchising types you should know about
Here are some of the minor franchising types, that are either a part of significant franchising or independent:
Pure business franchising
Pure business franchising is a type of business-format franchising where the franchiser sells the rights to the full business format to their franchisees. In other words, the franchisees completely replicate the entire business architecture. It is widespread between fast-food restaurants as most fast-food restaurants of the same brand have the same layout, infrastructure, taste, and so on.
Pure business franchising is also a popular destination for fast-food restaurants because of quality control in food. It is the reason McDonald’s tastes the same no matter what branch you visit, in whatever country.
Product business franchising
It is kind of an amalgam between the business format franchising and product franchising. Bigger franchisers sell the right to sell their branded products or services to customers in place of the franchiser.
Product business franchising has lesser quality control but offers more freedom to the franchisee over their courses of action. A prevalent example of product business franchising is the Chevrolet automobile company.
Wholesale retailer franchising
Another popular type of franchising where minimal risk and maximum procurement is acquired is wholesale franchising. The concept is buying franchisees or franchisee products at wholesale price, and then selling them at retailer price with a capital profit in income.
Wholesale retailer franchising is getting more popular by the day mainly because wholesale retailer franchising has little to lose in the market, and the frequency of contractually wholesale companies is increasing by the day. A perfect example of such companies is hardware and automotive product stores.
Fractional franchising is a concept rarely used nowadays. It refers to a franchiser only controlling a part of the franchisee’s business. It leads to confusion in many cases and can result in unknown issues.
An example of fractional franchising is a coffee shop or a soft drink shop, where more prominent companies can sell their branded products. The products will be marked and named as the intended initial brand names, but the local shops can choose how they want to deliver the product.
Social franchising is the application of commercial franchising methods to achieve socially beneficial ends. In other words, social franchising allows bigger franchisers to take control of smaller products, companies, and people to ensure that the more significant social application works as intended with no issues. Social franchising is not only limited to social media or digital applications, though.
Social franchising is used to improve access to all products needed in different social paradigms like education, health, energy, and so on.
Social franchising is ever-so-popular in third-world countries where the products are not available freely. Underserved populations benefit the most from social franchising. Social franchising is usually non-profit unless there is a pre-notified motif behind the franchising.
Any type of franchising that combines any of the above-given franchising structures is known as a hybrid franchise. A perfect example of hybrid franchising is product business franchising that we mentioned earlier.
Hybrid franchising often neglected when doing a census on franchising because there is no single area to quote the various franchises.
These are all types of franchising that are available to be found right now. You might find other types of franchising, but they should be a part of hybrid franchising. It is because hybrid franchising is ambiguous. We hope that you were able to understand the concept of franchising types.