Advisory Oct, 28 2009

Goods versus services

Decided that you wish to take up a franchise but are confused which format suits you better. Well, we will make the choice easier for you by highlighting the prospects of both product franchising and business format franchising.

By Neha Malhotra
Sub Editor, Franchise India Holdings Limited, Web Division
Goods versus services

The process of choosing a franchise option starts with the analysis of whether you wish to partner with a product franchising brand or a business format franchising brand. But first let’s clutch what these two models are about… In a product franchise, a franchisor grants the franchisee rights to sell his goods under his trademark by paying a fee or/and purchasing minimum inventory from him. However, in business format franchising, the franchisor passes on a prescribed and proven business format to the franchisee for carrying out business where training plays a major role.

The essentials of both these formats differ on various grounds which are quintessential for when considering taking a franchise.

Investment

The investment quotient in both the formats varies to a great extent. Except for a few businesses like F&B, the investment for a business format franchise is considerably lower when compared to a product franchise. The initial investment for a business format franchise may begin from thousands and go up to lakhs or crores but in a product franchise the business would not begin with thousands. A minimum investment of lakhs is required and can also go up to a few crores.

Location

Location plays a very important role in a product franchise. An apt location will only lead a company into greater footfall and sales conversion as compared to an inappropriate location. Though in a business format franchise with respect to some businesses, location is important but it also gives you the advantage of having various home based businesses also which is not an option in a product franchise.

Manufactured product versus creating service

In a business format franchise it is all about creating the service which is the trademark for a brand. It take due amount of training and ongoing support from the franchisor which helps the franchisee to develop the right skills to run the business. Training manuals will help the franchisee perform in the desired approach. Whereas in a product franchise, you have a ready made product available to you at the store and all you need to do is market and sell the product. Here the quality standards in terms of product are not a matter of concern as it is made available to the franchisee. So the level of effort demanded from the franchisee is comparatively lesser.

Mode of operation restricted

The mode of operation in a business format franchise is more restricted and defined with very little room for change. You have to follow the desired methods and mechanisms as devised and laid down by the franchisor. On the other hand, there is grater room for flexibility in a product franchise. Customers differ and vary from each other, so handling each of them differs. So here the franchisee has the liberty to put forth these techniques which he devises on his own based on his knowledge of his customers. So in a way the level of freedom is greater in a product franchise.

So to figure out what will work in your stride, match yourself with the criteria mentioned above and start your franchise journey.

Related: Route to become an ideal franchisor

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