Deck 5: Franchising

Question 1

Most of the franchises in the United States operate in the retail food sector.

Answer 1

False

Question 2

The primary drawback of franchising to the franchisee is that you must give up some control, some decision-making power, and some freedom.

Answer 2

True

Question 3

One advantage of franchising to the franchisee is that it is relatively easy to terminate a franchise agreement if things are not going well.

Answer 3

False

Question 4

Nearly 50 percent of all U.S. businesses are franchised.

Question 5

Franchisors often have several sources of income built into franchise agreements, including franchise fees, operating revenue percentages, and product/supplies revenues.

Question 6

Making products available to consumers through exclusive dealers in a specific geographic region is the purpose of product-distribution franchising.

Question 7

One way in which franchisors have dealt with the complexity of serving differing customer tastes covering large geographic areas is through company owned franchises.

Question 8

The biggest advantage of franchising for a franchisee is the marketing expertise that is provided.

Question 9

Local franchisees share in the advertising costs spent by the franchisors when advertising nationally and/or regionally.

Question 10

Franchisors seldom provide financial resources for startup and working capital for inventory.

Question 11

If a franchisee feels that a product, promotion, or policy may not be appropriate for his/her area, the franchisee can decide to not participate.

Question 12

Some franchisors prefer that their franchisees not have experience in the particular field of the franchise.

Question 13

A right of first denial states that a franchisee must decline continuing a franchise agreement before the franchisor can offer the franchise to someone else.

Question 14

A disadvantage of the direct ownership system used by early manufacturers in the 1830s like McCormick and Singer was the lack of direct control and control over quality levels.

Question 15

Product-distribution franchising is commonly used in fast-food restaurants and lodging establishments, such as hotel and motel chains.

Question 16

McCormick and Singer were two of the first franchises in America during the 1800s.

Question 17

Franchised businesses directly produce almost 6 million jobs.

Question 18

In comparison to business-format franchising, product-distribution franchising is more of a turnkey approach to franchising.

Question 19

Franchising dominates the fast-food, automobile, and lodging segments of the U.S. economy.

Question 20

From the perspective of the franchisor, one of the biggest advantages of offering franchises is the expansion of the business happening much faster than if the franchisor were in business alone.

Question 21

The process of gathering and verifying the accuracy of information included in the franchise agreement and all other information provided by the franchisor is called

A) Deductive reasoning
B) Preemptory investigation
C) Due diligence
D) Market research

Question 22

U.S. companies facing increased domestic competition are turning to foreign markets such as Canada and Mexico for expansion opportunities.

Question 23

When individuals have a general idea of the franchise that they are interested in, they should contact the company and ask for a copy of its disclosure statement.

Question 24

Through the franchise agreement, the ________ gains the benefit of the parent company's expertise, experience, management systems, marketing, and financial help.

A) Franchisor
B) Franchisee
C) Leaser
D) Lessee

Question 25

Trade associations such as the International Franchise Association can be a good source for industry-wide data as well as company-specific data.

Question 26

Franchise agreements are currently written in simple enough language that a lawyer need not be contacted before signing a franchise agreement.

Question 27

The small business person who purchases the franchise in order to sell the product or service is known as the

A) Franchisor
B) Franchisee
C) Company of origin
D) Opening company

Question 28

The issue of exclusive territory is the subject of much controversy in the franchising world.

Question 29

A contractual license to operate an individually owned business as a part of a larger chain is known as a/an

A) Franchise
B) Small business contract
C) Chain contract
D) Import contract

Question 30

With the passage of the North American Free Trade Agreement (NAFTA), franchise opportunities in South America have become a dominant force in the retailing sector.

Question 31

If an advertising fee is charged to a franchisee, the franchisor is required by law to spend a percentage of the collected fees in the franchisee's market.

Question 32

T F The American Franchise Association is a trade association that provides information and services about franchising.

Question 33

A good question to ask concerning a potential franchise purchase is whether or not the franchise gives exclusive territory for the length of the agreement.

Question 34

When expanding abroad, franchisors must be sensitive to the demographic, cultural, and legal climates of the host country.

Question 35

Over the past 25 years, the wording within disclosure statements has gradually become more "legalese" and complex.

Question 36

Because franchisors have lawyers look over the franchise agreement, it is not necessary for a franchisee to pay a lawyer to do the same thing.

Question 37

Franchises have experienced growth since the 1950s, although they have existed since the

A) Late 1700s
B) Early 1800s
C) Late 1800s
D) Early 1900s

Question 38

The parent company that develops a product or business process and sells the rights is known as the

A) Franchisor
B) Franchisee
C) Company of origin
D) Opening company

Question 39

Royalty fees that are paid to the franchisor are usually calculated as a percentage of gross profits.

Question 40

A potential franchisee may receive only partial use of trademarks, trade names, logos, and other symbols as detailed in the disclosure statement.

Question 41

In 2010, which famous franchise business took the top spot on the Entrepreneur Franchise 500 list?

A) Starbucks
B) McDonalds
C) Subway
D) Burger King

Question 42

Product-distribution franchising involves licensing the use of its

A) Trade name
B) Business format
C) Turnkey
D) Dealership

Question 43

Today, franchising is represented in almost every industry, with more than ________ U.S. businesses being franchises.

A) 225,000
B) 909,000
C) 2.5 million
D) 25 million

Question 44

Providing a source of managerial and technical assistance is an advantage to the franchisee that might not be available to an independent business owner. This is called

A) An opportunity to learn
B) Market expertise
C) Professional guidance
D) Controlled expansion

Question 45

Making products available to consumers in a specific geographic region is the purpose of ________ franchising.

A) Product-distribution
B) Business format
C) Turnkey
D) Dealership

Question 46

Saving money on inventory needs, equipment, and supplies is an advantage for the franchisee that is called

A) Recognized standards
B) Marketing expertise
C) Efficiency
D) Professional guidance

Question 47

Technical assistance available to franchisees could include all but which of the following?

A) Store layout and design
B) Location analysis
C) Purchasing assistance
D) Advertising campaigns

Question 48

According to the 2010 Franchise Business Economic Outlook, in total, franchised businesses support over _________ jobs.

A) 2 million
B) 6 million
C) 18 million
D) 32 million

Question 49

Samuel has decided to buy a small pretzel shop, where he will be expected to pay fees and royalties for exclusive rights to local distribution of pretzels made at the shop. Samuel can best be described as a/an

A) Franchisor
B) Franchisee
C) CEO
D) Social entrepreneur

Question 50

While traveling across country over the summer, Gwen and Audrey stayed in well-known, franchised accommodations rather than opting for independent, unknown motels. This example demonstrates which advantage to franchisees?

A) Efficiency
B) Financial assistance
C) Professional guidance
D) Proven product

Question 51

________ and ________ were two of the first businesspeople to use exclusive agents, which laid the ground for today's franchising.

A) Ford, Hoover
B) John Deere, Macy's
C) McDonald's, Hilton
D) McCormick, Singer

Question 52

According to the pie-chart figure in the text, what industry type accounted for the highest percentage of franchises?

A) Business services
B) Lodging
C) Personal services
D) Real estate

Question 53

Business-format franchising is commonly used in which of the following?

A) Gasoline stations
B) Soft-drink bottlers
C) Car dealerships
D) Fast-food restaurants and lodging establishments

Question 54

Franchised businesses directly produce almost __________ jobs.

A) 1 million
B) 32 million
C) 5 million
D) 18 million

Question 55

A type of franchise in which the franchisee agrees to purchase the products of the franchisor or use the franchisor's name is called

A) Product-distribution franchise
B) Business-format franchise
C) Dealership franchise
D) Logo franchise

Question 56

The greatest benefit to the franchisee is which of the following?

A) Product readiness
B) Marketing expertise
C) Professional guidance
D) Efficiency

Question 57

Product franchises and business-format franchises are used by all but which of the following groups?

A) Producers
B) Wholesalers
C) Retailers
D) Manufacturers

Question 58

An advantage of franchising for the franchisee would be all but which of the following?

A) Product readiness
B) Marketing experience
C) Efficiency
D) Cost of the franchise

Question 59

Tom has opened a Ford dealership, where he purchases vehicles from the Ford Company and has full use of the Ford trade name, brand names, and logos to promote the dealership. Tom has engaged in what type of franchising?

A) Product-distribution
B) Service-distribution
C) Manufacturing-format franchising
D) Business-plan franchising

Question 60

A type of franchise in which the franchisee adopts the franchisor's entire method of operation is known as

A) Product franchising
B) Trade-name franchising
C) Business-format franchising
D) Dealership franchising

Question 61

Which of the following companies has the highest franchise fee?

A) McDonalds
B) Subway
C) Jiffy Lube
D) Gold's Gym

Question 62

From the perspective of the franchisor, the biggest advantage of offering franchises is the

A) Expansion with limited equity investments
B) Multiple sources of revenue
C) Level of control of expansion
D) Bulk purchasing

Question 63

The biggest disadvantage to the franchisor is which of the following?

A) Profit sharing
B) Disputes with franchisees
C) Loss of control
D) Communication breakdowns

Question 64

Franchisors can achieve economies of scale as a result of which of these?

A) Multiple sources of revenue
B) Controlled expansion
C) Motivated franchisees
D) Bulk purchasing

Question 65

Which of the following can significantly reduce costs for a franchisee and thus increase profit margins?

A) Controlled expansion
B) Franchise fees
C) Bulk purchasing
D) Advertising costs

Question 66

A statement in the franchise agreement that states that the franchisee must decline to continue the agreement before the franchisor can offer the franchise to someone else is called a

A) Right of discontinuance
B) Privilege of rescission
C) Right of first refusal
D) Right of denial

Question 67

_______ franchisors will charge a fee and/or a specified percentage of sales revenue.

A) A few
B) Some
C) Most
D) All

Question 68

A problem with the cost of purchasing a franchise is that the franchisee is usually required to raise most of the capital

A) Before beginning operations
B) Within one month of beginning operations
C) Within six months of beginning operations
D) Within one year of beginning operations

Question 69

The International Franchise Association publishes ______________ annually, which gives requirements, expectations, and assistance capabilities for each franchise.

A) The Franchise Handbook
B) Current Franchises in Business
C) Potential Franchise Opportunities
D) The Franchisee Guide to Selecting a Franchise

Question 70

Because customers view franchises as an entire unit, which of the following can have a negative effect on a franchisee's business?

A) Overdependence or unsatisfied expectations
B) Risk of fraud or misunderstanding
C) Problems of termination or transfer
D) Poor performance of other franchisees

Question 71

An advantage to the franchisor is all but which of the following?

A) Multiple sources of revenue
B) Expansion with smaller capital investment
C) Bulk purchasing
D) Profit sharing

Question 72

Other franchises under the same franchisor can detrimentally affect a franchise by

A) Tolerating substandard performance
B) Opening a new franchise in another market
C) Setting higher standards
D) Not making a profit

Question 73

Which of the following is the least likely cause of dispute between franchisees and franchisors?

A) Payment of fees
B) Types of products or services offered
C) Expansion
D) Hours of operation

Question 74

A McDonald's hamburger that tastes the same at any location in the world is an example of which of the following benefits to the franchisee?

A) Recognized standards
B) Marketing expertise
C) Efficiency
D) Professional guidance

Question 75

Which of the following is a way in which franchisors have adapted products to meet the changing needs of customers?

A) Multiproduct shelving
B) Corporate displays
C) Establishing company-owned stores
D) Family branding

Question 76

From the perspective of the _________, the biggest advantage is the expansion of distribution sources with limited equity investments.

A) Customer
B) Employee
C) Franchisor
D) Franchisee

Question 77

A source of revenue that could be built into the franchise agreement might include all but which of the following?

A) Franchise fee
B) Percentage of gross operating revenues
C) Revenue from selling necessary products and supplies to the franchisee
D) Interest income

Question 78

In comparison with expansion of a corporate chain, expanding via franchise can be accomplished with a/an ________ management structure.

A) Simpler
B) Equally complex
C) Slightly more complex
D) Highly complex

Question 79

Franchising may be the only viable way for which of the following to expand?

A) Sole proprietorships
B) Businesses with limited capital
C) Businesses wishing to enter international markets
D) Partnerships

Question 80

The major trade association of franchising is the

A) International Franchise Association
B) American Franchise Association
C) American Association of Franchises and Dealers
D) Global Franchise Association