Question 1

Before entering a franchise contract,a potential investor should ask,"What can a franchise do for me that I cannot do for myself?"

Accepted Answer

This is a critical question for potential franchisees to consider before entering into a franchise agreement. It is important for them to understand the unique benefits and advantages of owning a franchise versus starting a business on their own.

Question 2

A franchise is an arrangement in which semi-independent business owners pay fees and royalties to a parent company in return for the right to sell its products or services and often to use its business format and system.

Accepted Answer

This is a correct definition of a franchise.

Question 3

When the franchiser has the right to establish a semi-independent organization in a particular territory to recruit,sell,and support other franchises,it is known as a ________ franchise.

Accepted Answer

A master franchise agreement allows the franchisor to grant rights to a third-party (the master franchisee) to develop and manage its franchise system in a particular territory or region. The master franchisee typically has the right to establish its own sub-franchises, recruit new franchisees, provide support and training, and collect fees and royalties from sub-franchisees. This type of franchise is also known as a regional franchise or a sub-franchise.

Question 4

The failure rate for franchises is below that for other types of new businesses.

Accepted Answer

Studies have shown that the failure rate for franchises is generally lower than that for other types of new businesses. This is likely due to the fact that franchises come with a pre-established business model, brand recognition, and support from the franchisor.

Question 5

Pure franchising involves the right to use all the elements of a fully integrated business operation.

Accepted Answer

Pure franchising, also known as business-format franchising, grants the franchisee the right to use all the elements of a fully integrated business operation (brand, products/services, operating systems, etc.) in exchange for fees to the franchisor.

Question 6

A method of franchising that gives the right to create a semi-independent organization in a particular territory is a:

Accepted Answer

A master franchise, also known as a sub-franchise or area development franchise, grants a franchisee the right to franchise within a specific geographic area. The franchisor provides training, support, and ongoing assistance to the master franchisee, who in turn recruits and supports individual franchisees within the specified territory. This structure allows for more localized decision-making and can be particularly effective in international franchising. Piggyback franchising refers to joining forces with an existing business, product distribution franchises involve the sale and delivery of goods, and conversion franchises involve transitioning an existing business to a franchise model.

Question 7

________ is an emerging international market for U.S.franchisers that is expected to realize the highest future growth rate.

Accepted Answer

China is currently the largest franchising market in Asia and is expected to continue to grow due to its large population and increasing middle class with disposable income.

Question 8

Quality is so important in franchising that most franchisers retain the right to terminate the franchise contract and to repurchase the outlet if a franchisee fails to maintain quality standards.

Accepted Answer

Quality standards are crucial for maintaining the brand image and reputation of a franchiser. Therefore, most franchisers retain the right to terminate the franchise contract and repurchase the outlet if a franchisee fails to maintain quality standards.

Question 9

Chris Jaffe,the owner of a small independent doughnut shop,is worried that a large doughnut franchise will open an outlet near her location and take away business.Taking a proactive approach,Jaffe contacts the franchise,and after a few months of negotiations,becomes a franchisee.Jaffe is an example of which trend in franchising?

Accepted Answer

Jaffe is an example of conversion franchising, where an independent business becomes a franchisee of an established franchise system. This is different from piggyback franchising, where a franchisee adds a new product or service to an existing business, and from subfranchising, where an existing franchisee sells the right to another party to operate the franchise within a specific territory. Master franchising involves a franchisee owning the right to develop and subfranchise within a specific region.

Question 10

Trade name franchising is a system of franchising in which a franchisee purchases the right to use the franchisor's trade name without distributing particular products under that name.

Accepted Answer

Trade name franchising allows the franchisee to use the franchisor's brand name for their own business, but they are not required to sell products under that brand name. This type of franchising is also known as "service mark franchising."

Question 11

A major advantage of a franchise contract is the national advertising campaign that most franchisers provide free of charge for their franchisees.

Accepted Answer

The answer of A major advantage of a franchise contract...

Question 12

One of the major trends in franchising is the ________ of American franchise systems.

Accepted Answer

One of the major trends in franchising is the internationalization of American franchise systems, as franchises expand beyond their home country and into international markets.

Question 13

A study by the International Franchises Association reports that minorities own more than ________ percent of all franchises and women own ________ percent of franchises.

Accepted Answer

According to the International Franchises Association, minorities own 19 percent of all franchises and women own 25 percent of franchises. Therefore, the best choice is D, as it accurately reflects these percentages.

Question 14

In a ________ ,a franchisee opens more than one unit in a broad territory within a specific time period.

Accepted Answer

Multiple-unit franchising involves a franchisee opening more than one unit within a broad territory. Master franchising involves the franchisor granting the rights to a third-party to develop and sell franchises within a specific territory. Conversion franchising involves converting an existing business into a franchise. Piggyback franchising involves adding a franchise to an existing business as a complementary offering.

Question 15

Pure franchising involves a system of franchising in which a franchisor sells a franchisee a complete business format and system.

Accepted Answer

In pure franchising, the franchisor provides the franchisee with a complete business format and system to follow. This is different from other types of franchising where the franchisor may only provide certain products or services to the franchisee.

Question 16

McDonald's recently set up several small franchises in nontraditional locations such as a hospital,a college campus,an airport,a subway station,and a sports aren a.These locations are based on the principle of:

Accepted Answer

Intercept marketing involves placing products or services in locations where consumers are likely to be, such as hospitals, airports, and sports arenas, to capture their attention and drive sales.

Question 17

Establishing a Baskin-Robbins franchise inside a Blimpee's franchise is an example of ________ franchising.

Accepted Answer

Piggyback franchising involves the establishment of a franchise within a franchise. In this case, Baskin-Robbins is being established within an existing Blimpee's franchise.

Question 18

Most franchisers provide extensive financial help such as loans and low-rate financing for their franchises.

Accepted Answer

The answer of Most franchisers provide extensive financial help such...

Question 19

Examples of some benefits franchise systems offer include management training,brand appeal,standardization of goods and services,national advertising,proven business formats,centralized buying power,and site selection assistance.

Accepted Answer

Franchise systems typically offer all of these benefits to their franchisees.

Question 20

When a franchisee buys a franchise,he or she is purchasing the expertise and the business of the franchiser.

Accepted Answer

When a franchisee buys a franchise, he or she is essentially purchasing the right to use the franchiser's established brand, operations, products, services, and support. In other words, the franchisee is buying into the expertise and business model of the franchiser.

Quiz 6: Franchising and the Entrepreneur